Understanding how medical charges are set can go a long way toward understanding why healthcare costs are rising. In an op-ed in the St. Louis Post-Dispatch, Steven Lipstein, president and CEO of St. Louis-based BJC HealthCare, described how providers set prices in various "healthcare geographies" and how this practice contributes to higher healthcare costs for everyone.
The crux of Mr. Lipstein's editorial is the payor mix of varying hospitals and providers. He uses an example of "ABC Imaging Center" and "XYZ Hospital." ABC Imaging Center may be located in a geography that mostly has privately insured patients, whereas the hospital serves all patients — Medicare, Medicaid, privately insured and uninsured.
Even when both organizations sell the same product, an X-ray in Mr. Lipstein's example, reimbursement will not be the same, he writes. ABC Imaging Center will be able to negotiate a flat rate with private health insurers, whereas XYZ Hospital will have to ask for higher reimbursement from the same private health insurers in order to make up for the low payments from Medicare, Medicaid and uninsured patients.
Consequently, Mr. Lipstein argues, ABC Imaging Center can further inflate its prices with the health insurer because it will still be seen as a lower-cost alternative.
Mr. Lipstein admits his example is "oversimplified," but the point is the same: Payments for the publicly insured and uninsured are much smaller than the privately insured, and this stems from the socially unequal healthcare geographies. One healthcare geography is populated by more affluent, privately insured patients, while the other is populated by the poor and those with lower-reimbursing health insurance.
"Pretending that both kinds of healthcare geographies are the same will not solve our nation's healthcare crisis," Mr. Lipstein writes. "It will not increase access to medical care for all our citizens. And it will not lower overall healthcare costs."
The crux of Mr. Lipstein's editorial is the payor mix of varying hospitals and providers. He uses an example of "ABC Imaging Center" and "XYZ Hospital." ABC Imaging Center may be located in a geography that mostly has privately insured patients, whereas the hospital serves all patients — Medicare, Medicaid, privately insured and uninsured.
Even when both organizations sell the same product, an X-ray in Mr. Lipstein's example, reimbursement will not be the same, he writes. ABC Imaging Center will be able to negotiate a flat rate with private health insurers, whereas XYZ Hospital will have to ask for higher reimbursement from the same private health insurers in order to make up for the low payments from Medicare, Medicaid and uninsured patients.
Consequently, Mr. Lipstein argues, ABC Imaging Center can further inflate its prices with the health insurer because it will still be seen as a lower-cost alternative.
Mr. Lipstein admits his example is "oversimplified," but the point is the same: Payments for the publicly insured and uninsured are much smaller than the privately insured, and this stems from the socially unequal healthcare geographies. One healthcare geography is populated by more affluent, privately insured patients, while the other is populated by the poor and those with lower-reimbursing health insurance.
"Pretending that both kinds of healthcare geographies are the same will not solve our nation's healthcare crisis," Mr. Lipstein writes. "It will not increase access to medical care for all our citizens. And it will not lower overall healthcare costs."
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