Hospitals And Fixed Costs

One of my more widely read posts is one about the time I was charged $676 for a bag of saline when I went to the ER (even more astonishingly, the ciprofloxacin–which knocked down the infection–cost about $5). As I noted at the time, there’s a reason for that:

But actually, this isn’t so outrageous. When I described how much things cost, I was really describing the price, and these are two separate things. Because the actual cost of the consumables (the bottle I peed in, lab supplies, changing the bedsheets, the saline, and so on) is pretty small. What you’re paying for is the infrastructure. All of the informatics that provide computerized records? Expensive. The doctors, nurses, and other staff? Expensive. Maintaining surge capacity? Definitely inefficient (you don’t want a ‘just-in-time’ ER when a train accident happens and you have to handle dozens of patients at once). Supporting trainees? Gotta pay ’em. Of course, buildings need to be maintained, utilities paid, etc. And having the support staff to handle dozens of different insurance plans is also expensive.

All of these costs acrue even if no one walks in the door. I hate using business jargon, but hospitals do have a ‘burn rate.’ It’s voracious. Now, I don’t claim to understand why the charges were dumped into the IV therapy category, and not into the general ER expenses category, but if you slashed the reimbursement for the IV, they would charge more elsewhere. They must. Even a non-profit hospital (and this one is) can’t run at a loss. Cutting personnel sounds easy, but is very difficult: if you have a ten percent decrease in ER admissions, you’re not going to cut the staff (a fifty percent decrease, perhaps). Cutting salaries and wages isn’t easy, to say the least–and, given that we do nothing to combat extreme income inequality, probably not good policy….

Well, never fear, four years later, Vox is here (boldface mine):

Last January, Malcolm Bird took his 1-year-old daughter, Colette, to the local emergency room. His wife had accidentally cut the young girl’s pinky finger while clipping her fingernails, and it had begun to bleed. They were nervous, first-time parents who wanted a doctor’s opinion.

Colette turned out to be completely fine. A doctor ran her finger under the tap, stuck a Band-Aid on her pinky, and sent the family home.

A week later, something else showed up at home: a $629 hospital bill for the Band-Aid and its placement on Colette’s finger

First, he points out that the Band-Aid didn’t cost $629; it was actually just $7. The other $622 was the cost of seeing the doctor and using the emergency department itself.

Here, Murphy touches on an important concept in emergency department billing — the part that explains how bills for ER visits can be so high.

“The remainder of the charge,” he writes, “was associated with the use of the facility and staff. We staff the emergency department 24-hours a day, every day of the year, and stand ready to treat whoever walks through our door, be it a gunshot victim or a patient with a stroke.”

Murphy is explaining something called a “facility fee,” the base price of setting foot inside an emergency room. It’s something akin to the cover charge you’d pay for going out to a nightclub.

“It’s the fixed price, and that’s just what you’re going to have to pay,” says Renee Hsia, a professor at University of California San Francisco who studies emergency billing.

In the hospital view, an emergency room patient like Colette — even though she had a quite minor injury — shares the burden for that service that the Connecticut Hospital provided.

Of course, this is now becoming more of a problem as deductibles and co-payments are increasing:

A lot of times, health insurance plans insulate us from facility fees. If a plan has, for example, a $50 copayment for an ER visit, then the patient never really interacts with the facility fee. She pays the copayment and is on her way.

But that’s increasingly not the way American health care works. Deductibles have risen steadily over the past decade, meaning that patients are more likely to bear the full brunt of their health care bills. That’s what happened to Bird; it was early January, and he was still within his annual deductible during that hospital visit.

While other countries are able to provide healthcare at prices thirty percent or lower, the U.S. is unable to do this. For some reason.

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2 Responses to Hospitals And Fixed Costs

  1. Felicis – While I've done a lot of things, currently I have sold out to The Man to enjoy a comfortable living in Portland, OR.
    Felicis says:

    A couple of points to add —

    (1) Hospitals do not (generally) do cost accounting. The prices have almost nothing to do with the actual costs of the service. Indeed – most (if not all) medical groups do not use cost accounting – they cannot tell you what the support cost is for putting that band-aid on the finger or starting the IV line.

    (2) The prices are completely disconnected from the costs – while true that hospitals have a high ‘burn rate’, that rate is not so different between hospitals that we should see a price difference of 100% when comparing two hospitals in the same city.

    Yes – a part of this is the inefficiency of dealing with multiple payers (in addition to processing the billing, there is also the issue of having dedicated staff to negotiating the rates every year) – this only adds to the inefficiency.

    It does not help that pricing is completely opaque – if you go to hospital X – even with insurance – is the provider who sees you in or out of network? You don’t know – very likely the hospital doesn’t know. ERs are often under a separate contract from the hospital. Sometimes a surgical unit can be under a different contract. Not only does that make the price different (depending on whether or not they are contracted with your insurance), but their prices change annually and possibly on a different schedule from the hospital’s.

    Frankly, I want to tear the whole system down. But I would settle for (1) Single payer; and (2) a requirement that non-profit hospitals actually use any profit to cut patient costs instead of adding another fucking wing that no-one can afford to stay in.

  2. John Kane
    jrkrideau says:

    Copayment? What’s a copayment? ( I live in Canada)

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