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Demystifying Healthcare Costs – Part 1 of 3: Why Your Doctor Can’t Predict How Much Your Bill Will Be

For most people, budgeting and planning out expenses ahead of time is core to their financial success. We research the best prices for a new washer and dryer and take our cars in for an estimate before we agree to any tune-ups. Yet when it comes to our healthcare, how are we supposed to know what certain procedures will cost?

The lack of price transparency is one of the many frustrating elements of our healthcare system. Because patients won’t know how much a visit will cost, they often get stuck with surprise medical bills. Unfortunately, healthcare costs have become Americans’ top financial concern with more and more Americans filing for medical bankruptcy each year. In this first part of our three-part series on Healthcare Transparency, we’ll uncover why medical service costs vary so much provider to provider. Part 2 will cover what tactics you can employ to try and lower surprise medical bills and part 3 will cover what tools you can use to help estimate costs before your visit.

 

The Current Pricing Landscape

It makes sense that consumer products would have different prices – one car manufacturer might charge double what another does, but there is a noticeable difference in the quality and features of the item. When visiting your doctor for routine blood work or going to the hospital for x-rays, wouldn’t the same logic apply? 

While you may be receiving the same set of services from different healthcare providers, there is one major factor to consider: each healthcare provider has the power to set their own pricing. Some reports show that six different prices can be generated in one day at the same hospital for your room alone. When you factor in the cost of services, things can get complicated quickly.

It’s not uncommon for patients to receive a procedure at one hospital and get a bill for one amount and then receive the same type of service at a different organization, or even the same one, and have to pay a completely different amount. Stories like these may not be publicized often, but they’re a fairly common occurrence that can really throw a wrench in one’s personal finances. 

 

Revealing The Numbers

The call for more price transparency in healthcare has been on the public’s radar for years, and back in 2013, the federal government answered. They released a database that outlined general costs for 100 of the most common hospital procedures, and the results were shocking. Treatment prices for the same illness varied radically between healthcare organizations in the same city, and it became even more clear that pricing was almost completely arbitrary.

The dynamic and seemingly arbitrary changes in pricing is the real reason why your physician can’t answer when you ask how much a specific visit will run you. They may not know themselves, or even if they do have an entire master list memorized, every aspect of your visit probably incurs a separate charge using a specific billing code and it’s just too complex to discuss with you during your appointment window. Insurance companies will also play a part in determining pricing which further complicates things.

 

Was It Always This Way?

Some may remember a simpler time when a visit to the doctor or hospital was a flat fee and there were no hidden costs that appeared on the bill after your appointment. As recently as the 1970’s, health insurance was fairly transparent and was mostly utilized by those who were able to afford such a luxury. At that time, the complex system of deductibles, copays, and coinsurance had not yet come into the lives of most Americans.

As national health expenditures continued to become an increasingly larger part of the nation’s GDP, the Reagan administration saw that something had to change. Along with the implementation of COBRA, health insurance become more privatized, thus giving these companies greater control over what they charge and when. As costs continued to rise, the 1990’s saw an important change.

HMOs, or health maintenance organizations, were seen as the solution to controlling costs, and while these plans did help to curb the increase of spending, it also allowed private insurance companies to insert themselves into the details of patient charges even further. As anyone with an HMO knows, fees are often higher than those rendered by providers within a PPO network.

 

How Your Bill Is Calculated

When you receive care from a medical provider and use your health insurance to pay for some of the costs, the final amount you’ll owe is never quite clear until you receive a bill in the mail. The ways in which the charges for each patient visit are determined is a multi-step process, but one that’s important to understand.

Let’s say you visited your doctor to have carpal tunnel surgery. Wanting to be proactive, you may have called your insurance provider to get a ballpark of the charges you’ll incur. However, the insurance company cannot accurately predict which codes your physician will bill you for, so their answer is likely to be vague.

The meat of the complexity comes with the varying parties involved and making sure that each receives their fair share of payment. Procedure costs, charges, and reimbursements are all different depending on where you’re seen, as we’ve previously uncovered, as well as what the base charges are for each element of your surgery. Room costs, personnel, anesthesia, supplies, and even separate codes for incisions and tendon repair may all be represented on your statement.

Your insurance provider will negotiate on your behalf for a lower charge on each of your billed services, and depending on your deductible, particular plan, and even how many providers there are in your specific area, your out of pocket expenses could vary dramatically.

 

What Patients Can Do

There are a wide range of tips and tricks that you can employ to attempt to lower your healthcare expenses, and those practical examples will be illustrated across the rest of this three-part series. Ultimately, there’s no denying that it can be difficult to plan ahead for medical expenses, and even those with health insurance aren’t always in a position to pay for the bills they receive. Until we have more transparency within our healthcare system as a whole, the best thing consumers can do is to put in some time and energy into researching as much as they can about their upcoming medical visits. If you receive a bill that’s higher than you expected or something doesn’t quite seem right, make sure you read part two of this series for negotiation strategies.