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Articles on hospital charges raise eyebrows, but they miss the mark —charges mean very little

There’s been a lot of talk this week about the data CMS released. It shows hospital charges and Medicare payment.

Articles like this raise eyebrows:

In one hospital in Dallas, the average bill for treating simple pneumonia was $14,610, while another there charged over $38,000.

via Hospital Billing Varies Wildly, U.S. Data Shows -

And they are missing the big picture.

The reason prices vary so greatly is the result of how commercial insurance contracts are negotiated and paid.

Hospitals want an annual margin - about 4% on average. To get there, they have to look at what the contracts pay well on and what they don’t. Medicare is irrelevant because it pays on a fee schedule. So they focus on commercial contracts. If one hospital’s contracts pay well on pneumonia, then the price gets raised.

I’m not assigning a value judgement to how or why this is done. But it is worth pointing out.

I also think it’s misleading to suggest those without insurance foot the full bill. While there are tragic examples, that’s rarely the case. Again, not suggesting its right or wrong, just saying there’s more to the story.

What can we learn from hospital charges? Very little. They are the ghosts of an ever changing industry based on a third party payment system.

NPR plays it safer:

…the numbers only tell us part of the story. “Charges are list prices,” he says. “They’re sticker prices.”

The Washington Post addressess uninsured programs:

“The chargemaster can be confusing because it’s highly variable and generally not what a consumer would pay,” said Carol Steinberg, vice president at the American Hospital Association. “Even an uninsured person isn’t always paying the chargemaster rate.”

Paul Levy nails it on his blog, (although he and I may disagree on the role of commercial insurance):

This is a case where the release of bad data is worse than having no data at all. A hospital’s chargemaster is an archaic fiction, a way previously used to allocate the joint and common costs of the hospital to particular services. It does not serve as the basis for how much a hospital is paid by Medicare. It does not serve as the basis for how much a hospital is paid by Medicaid. It does not serve as the basis for how much a hospital is paid by private insurers.

Updated to add:

David Lazarus asks if we are ok with the end result - high bills, in the his LA Times coverage:

Medical costs are often inexplicably high and are almost always kept hidden from patients until the bill arrives. Health insurance, meanwhile, is frequently coverage in name only.

What do you think? Does the charge data tell you anything meaningful?

The one where I sketchnote some big personal news...

I don’t mean to toot my own horn, but let’s be honest, it’s hard to top sharing news through the media of 80’s sitcom themes. With that bit of self-imposed pressure in mind, I’ve been sitting on some news I’m excited to share. The problem has been: how to share it? My wonderfully supportive and creative wife Susan, suggested a sketchnote. So, without further delay, I present to you Nick’s update sketchnote

sketchnote: making a move

I know. I mean, I’m modest, but it’s pretty incredible, right? Now, now, please don’t compare me to Monet or Picasso. Yes, I see the resemblance….

Oh. What’s that? It’s not good? The drawing doesn’t make sense?



You see the hospital, right? It’s the thing on the left. It kinda looks like a hospital right? Never mind, it’s a hospital. And then in the middle, that’s me wearing my smarty pants designer-style glasses. They don’t have frames, I’m told that’s something designers like. In the bubble, that's me thinking about empathy and innovation (a CF light bulb). And over on the right, those are people. They could be patients, families, visitors, or caregivers. After all, we’re all likely to be at least one of those things during our lives.

Now, see the arrows?

That’s right! In January 2013, I’m over-the-moon to report, I’ve accepted a role with Frontier Health Consulting. Frontier Health is a new startup consultancy and design firm focused on improving patient experiences. I’m coming in as the lead experience designer. It is, frankly, a bit of a dream role.

Along with a small core group, we’ll be working with healthcare providers to inspire and support patient-centered design, spaces, processes, communications and experiences.

Moving into the consulting world wasn’t an easy choice. It means leaving the provider setting where I had the opportunity to affect staff and patient experiences directly. But the truth is, right now in the industry, those opportunities are too few and far between for someone who thrives on them. And, we need that focus more than ever. We’re making the turn, and, as an industry, acknowledge  the importance of patient experience; but, today it’s rarely something provider organizations dedicate entire roles and teams to.

For me, Frontier Health represents a chance to have a bigger impact, and on a bigger scale. We’ll be inspiring, coaching and supporting whole organizations. We’ll be working with patients as expert resources. And, if we are successful, we’ll be touching a lot more lives, more quickly. I can get behind that!

What’s all this mean for Susan and I logistically? In the next few months, we’ll be slowly migrating back towards Richmond. We’re excited about that, although we’ll be sad to leave Charlottesville and our friends here. But, as we pointed out when we moved here, we’re only an hour away.

And, because I acknowledge 80s sitcoms are still the best means to convey anything, I leave you with this gem…