Explain Medicare billings to me

In My Humble Opinion
1

My husband and I are both on Medicare plus supplemental insurance from a private insurance company. He had a necessary, low-risk outpatient operation a couple of months ago (recovering nicely, thank you), and we are now getting the claims summary from our insurance company. Total billed charges is almost $33K. The amounts that the various providers (surgeon, anesthetist, facility) are allowed to charge us comes to $1301. ALL the rest is “plan exclusions.”

Perhaps the worst off is the anesthetist, who submitted bills of $3900, and all we are going to pay is $92, and the rest is plan exclusions. Is that all he’s going to get? How can he make a living off of that? The surgeon is getting $407, and the facility is getting $802. How does this work for them?

2

I’ve been on Medicare for over 10 years, and I still don’t understand any of this - and it gets more complicated than what you’ve described. I just pay what I’m billed and assume everyone else is getting theirs.

3

In many situations, the billing and Medicare payment structure is a meandering mystery. I have always been suspicious over medical providers intentionally charging more than anticipated insurance payments in order to take a tax write off. It’s a suspicion without proof.

4

It’s not just Medicare. All medical billing seems to look like that. When I was an employed, working, useful member of society, I had various medical insurance plans over the years, usually employee sponsored. The bills from providers all looked like that.

When doctors and other providers agree to accept one insurance plan or another, they enter into a contract with the insurance company. The contract specifies all the procedures known to medical science, and which of them are covered and which aren’t, and how much the insurance will pay for each.

The providers then submit bills that are orders of magnitude more than the insurers will ever pay, presumably knowing what they can expect to get. The insurance contract also specifies how much the patient can be required to pay for each procedure (the co-pay), or how much the patient can be billed overall each year (the deductible).

The contract usually also specifies what percent of the bill the patient must pay – for example, the insurer pays 70% of the bill and the patient pays the remaining 30%. As far as I’ve ever been able to tell, this is substantially bogus.

Rather, it seems to work like this:
You get a hangnail, and the doctor orders an x-ray before fixing it. Then the radiologist interprets the x-ray and writes his report, then the doctor clips your hangnail. The hospital bills $12000 for the x-ray (covers the technicians salary and the cost of using the equipment), the radiologist bills $8000 for reading the x-ray (covers his time and expertise), then your Primary Care Physician (PCP) bills $125 for clipping your fingernail.

But the contract says that such an x-ray may only be charged $250, the radiologist may only charge $75, and your PCP may only charge $15 for all these particular procedures. These, then, are the amounts of which the insurance will pay 70% and you must pay 30%.

Thus, you, the patient, save money in two ways: First, the MAJOR saving is that the insurance contract only allows the providers to bill relatively small amounts for everything – commonly, MUCH less than the providers actually bill. Second, once that limit is applied, you only have to pay your 30% of the allowed amount.

When you visit a doctor, they commonly require you to sign an agreement that you are responsible for paying any amount of the bill above the amount the insurance will pay. And yet, when they bill $12000 and the insurance only pays $250, you are never required to pay the entire remaining amount. The providers’ contract with the insurance company forbids that.

So how can providers stay in business? Apparently, the frugal amounts that the insurers agree to pay is, in fact, enough for the providers to make a living and stay in business, although NOT enough for doctors to get rich and live the opulent lifestyles as the stereotype is commonly envisioned.

So why do doctors and other providers bill such arbitrary, capricious, and exorbitant amounts? Damfino. Could it be as @Dereknocue67 speculates, that they can take that as a tax writeoff?

The big losers, of course, are the uninsured patients. These are the ones who get those full outlandish bills, with no insurance company to tell the providers how much they may bill, and no insurance company to pay the 70% of whatever they bill. These are the people who may be driven into bankruptcy by medical bills. Providers can commonly be negotiated with to lower their bills, but only so much, and uninsured patients still end up having massive bills to pay, or massive debts.

5

This is the only part of your post that I disagree with, at least in my personal experience. When I was working, I could understand my medical bills even though they were not straightforward. I could figure them out, anyway.

What I’d really like in this thread is for an actual medical provider who functions under a system like this to come in and talk about it from their perspective, if it’s not giving away state secrets to do so.

6

I always assumed it was a little bit like the “max room rate” on your hotel door. The hotel can’t (I gather) legally charge higher than that rate, so they put up a number that’s 10 times what the room ever actually goes for, just in case.

I also always assumed that it had to do with uninsured patients. I don’t know what percentage of uninsured patients pay their medical bills, but it’s going to be lower than the insurance companies. So they create their own risk pool. If only 10% of the uninsured pay the bill, then instead of recovering $250 from each patient, they need to recover $2,500 from the paying patients. (I assume they do analyses on the relationship between the price and the number of people who pay).

Edit: I also assume that if you have different reimbursement rates with different insurance contracts, it’s easier for the medical provider to send everyone the same (high) bill and let them do the calculations.

7

Part of the reason physicians bill more is that Medicare pays the lesser of what is billed or their set rate. For example, for an average follow-up visit, Medicare may pay $65. If the physician sets his prices at $70 and Medicare increases reimbursement to $75 then the physician will still only get $70. Setting prices is time consuming and annoying and you don’t want to have to do it all the time. Better to just charge $120 and then you only need to change prices every few years.
I have been caught out before on flu shots. I was trying to be competitive with the local pharmacies and charging $30. Medicare increased reimbursement from $28 to $34, so for a year I basically threw away $4 that Medicare would have paid me for each shot. If you increase the price to $35, chances are that the reimbursement will be $36 or $37 the next year. Better to jump to $40.

In addition, While Medicare may pay me $65 , Blue Cross may pay $90 for the same visit. If you set your price at $75 to cover Medicare, then you either have to charge different prices to each patient depending on their insurance or throw away $15 on each Blue Cross patient. I participate with about 12-15 insurance carriers with hundreds of different plans. I need to just make sure that I set my prices high enough so that they are above the reimbursement of the best paying plan.

8

My assumption is just to make life easier for the billing department. For a given procedure, maybe BCBS will pay $100, United Heathcare will pay $125, Anthem will pay $97 and so on. And even those numbers will change based on the specific plan the patient has with the insurance company. The billing dept could figure out what that amount is for each procedure and each patient or they could just bill $500 and wait for the insurance company to say ‘uh, no, here’s $75 and you can collect $25 from the patient’. Since it’s considerably higher than what any insurance company would agree to, they don’t have to worry about leaving money on the table by billing less than the insurance company is willing to pay.

9

I can’t speak for other health professions, but as a therapist, I charge my normal rate, I get paid my contracted Medicare rate, and there’s no tax write-off for the difference.

10

Medicare pays extra (above its standard rates) to hospitals for certain complicated, expensive cases, called “outliers.” The regulatory formula for calculating outliers is absurdly complicated, but it takes into account both the hospital’s actual costs and its published (rack-rate) charges. It used to be that hospitals had room to really boost their outlier payments by raising their charges.

The formula has been changed in recent years so that it’s not as easy to manipulate, but there may be other, similar weak points in the system where high charges can be beneficial to a provider in some indirect way.

11

I work in health insurance. Without actually seeing the EOBs to determine what is going on, a couple of points here

  1. No, most providers don’t really make much money, if any on Medicare patients (and they lose their shirts on Medicaid patients). They make it up by charging more for patients on commercial insurance. Without going into details, federal law makes it difficult or downright illegal for them to refuse Medicare patients like they might refuse to take a particular commercial insurance, beside the bad publicity inherent in refusing to let Grandma in.

  2. I understand that your cost sharing is $1301, but does it say how much insurance actually paid? Provided any deductible has been met, normally insurance decides what’s a reasonable amount, then pays the majority of that while you pay the minority, with 80 / 20 being a common split amount.

  3. With anesthesiologists and assistant surgeons in particular, they have a common thing (that borders on a scam) going on where they choose to be out of network with commercial insurance, but in states with Hold Harmless laws, they can force the insurance to pay them the $3900, even if a reasonable amount for an in-network provider would be $2000, since you can’t pick and choose in-network anesthesiologists like you would a family doctor. That’s how they make their money, not on the Medicare patients.

12

I want to say, though, that for a private practice in psychology, I can choose to be a Medicare and Medicaid provider (which I do) and I may not charge different base “usual and customary” rates for different insurance carriers. My Medicare rate is my commercial rate and my cash rate. What the carriers reimburse me is determined by my contract with each, which I may not discuss with other psychologists because of antitrust laws.

13

I was going to go through all the statements and make a spreadsheet showing each code, the amount asked, the amount disallowed, and the amount charged to us (I haven’t done this, the explanations in this thread have assuaged my curiosity). However, I did look at a lot of the items and all the ones I looked at had the amounts disallowed except for what we were paying. The anesthesiologist and the nerve-testing specialist are the only ones I went through every item that way.

Now that I think more about it, and without digging out the statements again, I think those statements might have only represented what the insurance company would pay and not Medicare. I don’t know, it didn’t really seem to say. I can’t imagine that the $33K was only 20% of the total for an outpatient operation that took maybe an hour. I wonder if “disallowed” means “Medicare may pay for some part of this item, but we (the insurance company) won’t.”