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Truth in Billing (Gwen Moritz Editor’s Note)

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We have truth in lending and truth in sentencing. Maybe it’s time for truth in billing.

Yes, I know: Your business already has that. You have your prices posted prominently, or you give your customer a quote for work to be done and then send a bill for the amount that you agreed upon.

I’m not talking about you. I’m talking about truth in medical billing, and when I put it that way, you know exactly what I mean. Unless you have a set co-pay — which I suspect is part of the problem — you don’t know how much you are spending when you go to the doctor or dentist or the outpatient surgery center or the hospital. If you get a bill, you may even ignore it until the insurance company works its magic. Only after you get that “explanation of benefits” do you start to have an idea of how much you’ll actually be called upon to pay.

The mysterious fiction that is medical billing is an old story, but it’s been in the news again this month because National Park Medical Center in Hot Springs ended up on a list of the 50 hospitals in the country that charge the highest prices. And not just on that list but pretty high up on it — No. 15 in the country.

A couple of academics — Gerard Anderson of the Johns Hopkins Bloomberg School of Public Health in Baltimore and Ge Bai of Washington & Lee University of Lexington, Virginia — put this list together by crunching Medicare numbers. The 50 hospitals on the list charged patients an average of 10 times more than the prices that the bureaucrats at Medicare deemed allowable in 2012, so to be in the top third of the top 50 isn’t flattering to our friends at National Park Medical Center.

Senior Editor Mark Friedman talked to Jerry Mabry, president of the Arkansas market for Capella Healthcare of Franklin, Tennessee, which operates NPMC. Predictably, he took exception to the ranking.

But Mabry’s explanation, which Friedman reported last week in his monthly Health column, is only slightly better than the idea that a medium-sized hospital in a competitive market in a state with a relatively low cost of living would be one of the most expensive in the country. He said the researchers shouldn’t look at how much the hospital bills; instead, they should look at how much it collects.

“If you take payment levels and compare those to cost levels, then we’re right in the norm,” Mabry said. Even uninsured patients and those for whom NPMC is an out-of-network provider automatically get a 60 percent discount, Mabry said.

And Paul Cunningham, EVP of the Arkansas Hospital Association, backed him up.

“Most people agree, and have for a number of years, that charges are really meaningless,” Cunningham said. “You know right off you’re going to write off up to 50 percent or more of whatever you’re charging.”

Did you follow that logic? Pay no attention to the bill because it’s meaningless. But Cunningham suggested — and the researchers acknowledged — that was true at pretty much all hospitals. It doesn’t explain why NPMC should be top-tier when it comes to sticker price.

So Friedman also talked to Bai, one of the researchers, and Bai asked the obvious question: “Why would [hospitals] give discounts if they can just reduce the gross price in the first place?”

And then Bai answered his own question: “They expect some people to pay, clearly. Otherwise, why would they have the high price?”

Exactly. Why would hospitals (or any other business) have a price structure that is meaningless? It can’t be easier and it can’t be more efficient, so I’m left to suspect that it must be more profitable. And National Park Medical Center is one of the more profitable hospitals in the state — $13.2 million in net income on $87.3 million in revenue during the fiscal year that ended Aug. 31, 2013. (As Mabry pointed out, as a for-profit business, Capella pays taxes on those profits.)

The free market, so efficient and effective for toothpaste and automobiles, doesn’t work well in health care because the customer has no idea what he has spent until it’s too late, and even then has no idea whether the bill was reasonable or 10 times more than reasonable. Co-pays disguise the true cost of a doctor visit or a prescription drug, and fictional pricing keeps patients from being able to compare actual costs (even if they have time to).

The Atlantic reported on Bai and Anderson’s study, noting that Maryland and West Virginia actually restrict how much hospitals can charge and the Affordable Care Act makes nonprofit hospitals offer discounts to uninsured people. But there are no limits on how much a for-profit hospital in Arkansas, like National Park Medical Center, can bill — and I’m not sure there should be.

A good start would simply be bills that aren’t meaningless.

Email Gwen Moritz, editor of Arkansas Business, at GMoritz@ABPG.com.

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