Follow the Money: The Twisted Reality of the Healthcare Industry

Dr. Deane Waldman comes from a long family tradition of doctors. He remembers playing in his grandfather’s waiting room and seeing people get out their wallets to pay. “That literally didn’t happen to me until I had been in practice for nearly two years,” he explains.

A wealthy Mexican father came in with his child who needed an operation. Dr. Waldman, a pediatric cardiologist, was getting ready to discharge the child when the father got out his wallet.

“My receptionist had no idea what to do when he pulled out this roll of 50s and 100s. I said, ‘Well, take his money, give him a receipt, and put the money in a storage box or something.’”

In just two generation’s time, the concept of paying cash for a medical service had all but been forgotten. What happened?

The Unfortunate Mishandling of Healthcare Dollars

Prior to the 1930s, all health insurance worked like rebates work today. You get sick, you go to the doctor, you pay the doctor, and you end up getting a certain amount back from the insurance company.

Many people also bought insurance for lost wages, so you’d get sick, spend some time away from work, and you’d end up being reimbursed a percentage of those lost wages.

Then, insurance started offering pre-payment plans rather than post-payment plans.

Dr. Waldman explains, “Before, you put in a fixed amount and got out a fixed amount. Now, with the pre-payment plan approach, you put in a fixed amount… and get out a potentially unlimited amount. It’s an unstable fiscal system. Ask any economist. That can’t remain stable.”

That was the snowball effect that would disrupt the entire healthcare industry for decades to come.

Then, in 1965, Medicare was born by President Lyndon B. Johnson. Medicare promised to “[protect] the health and well-being of millions of American families, [save] lives, and [improve] the economic security of our nation” [Centers for Medicare & Medicaid Services (CMS)].

As of the 2018 Medicare Trustees Report, Medicare is expected to run out of money by 2026.

Again… what happened?

Dr. Waldman explains that Medicare was originally intended to work as a government-mandated HSA. “I would be a worker and would have a little account with my name on it. Every month, they put in my contributions, and it would sit there as cash.”

Somewhere between 1965 and 1970, this concept fell apart. “Some brilliant politician said ‘Oh my gosh! Look at the billions of dollars in cash doing nothing! How terrible!” says Waldman.

The money was taken out of the virtual lockboxes and was replaced with IOUs. That money was then used for other things. The problem is that IOUs can’t be invested – they can’t grow in value.

And now, we have a Medicare system that will be insolvent by 2026.

To recap, we have an insurance system that can’t possibly be stable, and we have a Medicare system that has already become massively unstable.

If you’re thinking this doesn’t really affect you, you might want to strap in your seatbelt and hang on for dear life. Because the effects of the prepayment insurance system and the failing system of Medicare are affecting us all every single time we dip our toes into the healthcare system.

The True Cost of a Medical Service

Have you ever tried to find out how much a medical service or procedure costs? If you have, you’ve probably been brushed off by billing departments, put on hold for eternity, or ignored altogether.

There’s a reason for that.

“Nobody knows the true cost of almost anything in healthcare,” says Dr. Waldman.

A number of years ago, Dr. Waldman went to the CFO of the hospital to find out how much a catheterization costs. “He couldn’t just ignore the Chief of Cardiology,” he explains.

The CFO got out his computer, looked at some spreadsheets and said, “It costs $1,700.”

Dr. Waldman thanked the man and made his way back to his office. But then he stopped and asked himself: how did he get that number?

So he turned around, went back, and asked.

The CFO replied: “I looked at how much we allocated the cath lab last year, divided it by the number of the catheterizations you did, and that’s the cost.”

“That’s not the cost!” said Dr. Waldman. “The true cost is the number of wires I used, the cost of the catheters I destroyed, the number of nursing hours, the number of tech hours, radiation safety, amortization on the equipment, the rent on the space…”

The CFO replied, “Well, we don’t do it that way.”

The way costs are determined nowadays are basically by the contracts that are signed with health plans – which are proprietary.

There will be one contract for a catheterization with Blue Cross, a different contract with Aetna, and so on and so forth. These contracts are negotiated separately, and the companies don’t want you or any other health plan to know what they’ve done in terms of contracting.

Medicare, on the other hand, doesn’t negotiate with the hospitals or the doctor. They simply state what they’re going to pay, and that’s that.

“Medicare fees are set by CMS which are updated every 1st of the year, so every year on January 1 Medicare providers need to go to the CMS website and download the new fee schedule. Participating     providers are required to accept the contracted rates, while non-participating providers are required to accept the nonpar rates,” explains Maria Montecillo, a healthcare insurance and billing advocate with 20 years of experience in Medical Billing Management.

Does anyone else find it strange that no negotiation takes place between providers and Medicare? This lack of communication results in doctors being underpaid for services – and pretty severely.

A practicing audiologist who wishes to remain anonymous explains, “In order to keep my practice running, I’ve determined I need to charge $125 per hour. So, for a 45-minute hearing evaluation, I charge $99. Medicare only reimburses me $36 for that service. If I only saw Medicare patients, I wouldn’t be able to stay in business.”

When asked why she accepts Medicare patients at all, she replied, “I want to help everyone. I want everyone to have their best hearing. So I don’t turn them away.”

The same concept goes for Medicaid. Dr. Waldman often performed a procedure called a cardiac cath.

“This is technically very difficult. It requires a lot of training,” he explains. “The procedure itself takes from as little as two hours to as much as five hours. You also have all the prep-work, discussions with the parents, the diagnosis, the tests, and so forth.”

His bill for this procedure ranges from as low as $3,000 to as high as $6,000 depending on whether or not he has to put in a device or something of that nature.

“Medicaid pays me a maximum of $560,” he says. “It doesn’t matter what my bill is.”

So, what is the true cost of healthcare? No one really knows.

But it turns out that the final cost for a service is traced back to the health insurance companies – not the hospital or the providers.

Billing Codes and the Bureaucracy

When a businessman takes a look at their business, they want to know what their profit is, right?

Well, when it comes to healthcare, the “profit” could be actual money, but the real goal is to help people be healthy.

So, when we look at how efficiently money is spent in healthcare, we want to see how much money is actually being spent on helping people be healthy.

“It’s an almost impossible task,” says Dr. Waldman. “You can blame that on the whole bureaucracy of healthcare. It’s intentionally opaque instead of transparent.”

Nonetheless, Dr. Waldman went on a mission to answer one seemingly simple question: “How dollar efficient is healthcare?”

So, he took the federal budget from about 10 years ago and split it up into parts: money that actually went towards the care of a patient, and money that didn’t. What he found is that 60% of the money spent on healthcare actually went on to produce care, while a shocking 40% didn’t.

“I’d say that’s probably closer to 50% now because of Obamacare,” he says.

So… where does all this supposed “healthcare money” go?

If you take a look at how we practice medicine, you will quickly discover that there are a baffling number of rules, regulations, compliance guidelines, and so on.

But the best example of all is billing and coding.

There are over 68,000 codes in the latest billing and coding manual. Providers are required to use these.

You saw that right – 68,000.

“There’s a billing code for ‘pecked by a chicken.’ There’s a code in there for ‘injured at the opera.’ And this is my favorite – there’s a code for ‘injured at a swimming pool in a prison.’ I’m not kidding – these are healthcare codes,” says Waldman.

Someone has to make the codes, they have to create this massive manual, and it has to be distributed. Then, someone has to fill out billing forms, actuaries have to establish reimbursement schedules for these codes… everyone has to take their time in order to abide by these codes.

The largest department in every hospital is nurses, the second is doctors, and the third is billers and coders.

Michelle Katz, Chief Health Information Officer at F1 HealthIT, explains that the Electronic Medical Record (EMR) systems hospitals use can have a huge impact on the hospital's revenue cycle which indirectly affects patient care.

The more time-complicated the system is for the provider, the more frustrated the provider gets, the more mistakes may be made, equating to more staff time wasted trying to fix the problem and less time spent with the patient. In many cases, these mistakes may even translate to a surprise bill for the patient, which may lead to poor reviews, and the “revenue-loss spiral” starts.

Traditional IT staff focuses on hardware, and they do not have expertise in clinical documentation, medical terminology, or caregiver workflows, which is needed to support EMR systems. If there is no communication between the IT staff and the clinical staff, insurance contractors, and possibly the patients, the EMR implementation, upgrades, and conversions will be a disaster.

This is where a seemingly simple IT error such as a “mismatched code” gets rejected by a patient’s insurance, resulting in a huge bill and a ton of time spent by the staff trying to investigate the issue and reassure the patient.

“Coding isn't simple, especially if you don’t have a clinical background. I have found that almost half the time, the code isn't in the system or is incorrect, and then you have to get the IT department involved, and it's this whole ordeal. Who has the time when a patient’s life is at stake? Technology is supposed to be helpful – not slow a clinician down… but when the technology works, it can be wonderful,” says Katz.

The entire landscape of how doctors care for their patients is changing. More time is spent on things like billing and coding, and less time is being spent with the patient.

Montecillo agrees: “There’s just so much overhead. We had one employee whose sole responsibility was to call insurance carriers and make requests for pre-certifications/authorizations. That’s all she did every single day. There’s so much paperwork and follow up in healthcare.”

And that is the bureaucracy of healthcare. And that’s where at least 40% of these lost healthcare dollars are going.

That’s an estimated $1.7 trillion that produced no care in 2017.

“That makes me nauseous. I look at that number and I say, ‘For $1.7 trillion I could cure every woman with breast cancer instantly. The amount of care you could give for $1.7 trillion is inconceivable, yet that’s getting sucked away by the bureaucracy,” says Waldman.

The Potential Scarcity of Future Doctors

“This is the only profession in which the more experience you have, the less you get paid,” says Katz.

Being a doctor today is nothing like it was a few generations ago. The introduction of technology and the government has completely changed everything – including the actual work that doctors are doing.

Dr. Waldman knew there was something wrong in the healthcare industry when he kept spending an enormous amount of time arguing with insurance companies. He was trying to get authorizations for his patients, which basically means he was trying to get the insurance company to pay for necessary treatments.

Dr. Waldman remembers what was running in the back of his mind during this time: “Why the hell am I even arguing about this? It has taken me all this time and training to figure out what this patient needs, and now the ‘money people’ are telling me I can’t do what I swore to do in the first place – get the best care possible for my patients.”

Before you say that doctors should just stop accepting insurance – and actually, some have – it’s harder than you might think. What’s the first thing you do when you get a new insurance plan? You look at what doctors are in your network, you might research them a little bit, and then you choose one.

If a doctor isn’t going to accept insurance plans any more, they lose a huge stream of patients, which ultimately means they can be run out of business.

Doctors in New York and California are starting to do away with insurance, and they call their method “concierge medicine,” but in areas where the population isn’t as dense, it’s not that easy.

Montecillo explains, “There’s a big burnout rate, especially for primary care physicians. The way the insurance pays them is for volume. That means you have to cram 50 patients in an 8-hour day, and you don’t spend as much time with them. Patients notice that. And since everything has to be documented now via Electronic Medical Records (EMRs), providers stare at a screen rather than looking at you.”

Perhaps you’ve noticed this, too. Montecillo says this is one of the most common complaints she used to hear, especially from the senior population.

Not only are we being shuffled in and out of the doctor’s office, but the time we do get is subpar to say the least.

“The system is definitely broken,” says Montecillo.

Today, doctors are paid far less for their work and expertise. Their insurance reimbursements are so much lower than they used to be, and they’re also spending a lot of their time on paperwork.

“They can’t even order an MRI for a patient without having to go through a review,” Montecillo explains. “They get so frustrated. They say, ‘I’m the one who has the MD degree here. How come someone else is telling me what tests I can or cannot order, what medications I can or cannot prescribe?’ They get very, very frustrated.”

The end result? Montecillo says that doctors tell her all the time that they’re not letting their own children go into medicine. Doctors today do not make the same amount of money that their colleagues made back in the glory days prior to Managed Care.

And if there aren’t new doctors being trained up, we may see a massive shortage in the near future.

Patients Are Caught In the Middle

We’ve followed the money all around the healthcare industry, and it has finally led us to the patient.

How are you affected by all of this miscommunication and inefficiency?

Question your medical bills

If you’re just paying your medical bills when they come in, you might consider taking a deeper look at them.

Huge mistakes can happen, and they can cost you hundreds or even thousands – when you should’ve been free and clear all along.

Katz explains what happened to her:

“I went in for my routine wellness physical, which was supposed to be covered by my insurance. Two years later, I purchased a house and they ran my credit. It turns out I was turned into collections. I should’ve checked my credit annually, but I was not expecting a delinquent medical bill when I never received an explanation of benefits or warning sent to me in writing for something I knew was covered by my insurance.

“I went in for my routine wellness physical, which was supposed to be covered by my insurance. Two years later, I purchased a house and they ran my credit. It turns out I was turned into collections. I should’ve checked my credit annually, but I was not expecting a delinquent medical bill when I never received an explanation of benefits or warning sent to me in writing for something I knew was covered by my insurance.

The codes were incorrect because the medical facility was integrating a new system. Under my insurance, an annual women’s wellness exam included a mammogram, which was free. After a surprise collection notice and a little investigation, I found that my mammogram was accidentally coded as a ‘diagnostic exam’ rather than a ‘women’s wellness exam’ which would have cost me $266 plus interest.”

Katz ended up calling the collection agency and the medical facility, and because she was diligent about keeping a paper trail and taking notes, she was able to get all of this reversed.

She would even keep a file going, which would outline any calls she had, who she spoke to, what they spoke about, what day that conversation took place, and notes about the Fair Debt Collections Act.

“Unfortunately, this is what a patient has to do,” she explains.

Hospitals will merge, and they might have different systems. For example, one hospital might have Epic and another might have Cerner. When they merge these systems, sometimes codes get mixed up. The next thing you know, the patient calls the hospital two years later about an incorrect bill.

“That bill can be held up in the merging process, and the staff has so much going on. It just slips through the cracks or worse, it gets outsourced. If the patient isn’t diligent enough, they just pay the bill when they didn’t have to. Out of the one person who fights it, I bet there are six other people who just pay it,” says Katz.

Here’s the reality of this problem for most of us: we’ll call the hospital, get transferred a couple times, and then we’ll be brushed off by someone. So, how can we make sure we’re getting to the right person?

Katz says that you should do a little research before you get on the phone. Using words that show you’re knowledgeable about all of this will go a long way: “If you never received you EOB, let them know. Ask for your itemized bill, and if you don’t understand your bill, ask them to explain it. If they cannot explain it, ask for someone that CAN explain it. More importantly, read that collection notice or bill and be sure you respond in writing within the allotted amount of time as per the ‘small print’ with your facts. Having your file in front of you helps a ton and always asking for the person’s name, paraphrasing what they said so they know you understood them correctly and writing all of it down keeps you organized and that person on their toes,” she advises.

When you start showing your knowledge, and you avoid being too emotional and saying things like “I just got this bill and I don’t understand it,” you might just might get to the right person – and maybe even some positive results.

Katz explains that one way to protect yourself is to put a freeze on your credit. Fortunately, the three credit reporting agencies generally have 180 days before putting an unpaid medical bill onto your credit report, which could still be a problem if you never knew you received an outstanding bill, let alone an incorrect charge. “Patients need to know their rights. Push and say that you need to talk to someone in charge of billing and put everything in writing if you want a fighting chance. That freeze can actually buy you some time,” she says.

One word you can use that might get you somewhere if all else fails? Fraudulent.

“Say you’re worried about fraudulent charges, especially if you notice what I call ‘upcoding.’ This can be detrimental to the provider and ‘uncollectable if proven’ to the collection agency – it’s all over the news. The staff suddenly goes ‘Oh my gosh, we better get her to the right person so we don’t open a can of worms,” Katz explains, “especially if this is a common complaint with that provider.”

And this does happen – it’s not that uncommon. Dr. Waldman races bicycles and sometimes crashes. He had a pretty bad crash and broke his wrist, which sent him to the hospital for a surgery. “My hospital bill included… a breast pump!” he says.

The healthcare landscape is changing – patients are more educated, and they’re becoming empowered.

Negotiate your medical bills

Beyond just making sure the medical bills you get are correct, you should consider negotiating them.

“Half the time, I’m able to get a discount for my client. Sometimes it’s 10%, 20%, or even 50%,” explains Montecillo, a health care insurance and billing advocate. Montecillo is known for her negotiation skills. One of her most well-known cases involved a $51,000 medical bill, which she was able to drop down to $1,300.

Her first call is to the billing department, and she explains the situation to whoever is on the other end of the phone. Sometimes, she escalates it to the billing manager.

“Many places will offer an upfront discount if you pay the whole bill. Medical practices are businesses – they need to make money to pay the overhead – so they’d rather take the money upfront,” she explains.

A member of our staff tested this out, and sure enough – a simple call to the billing department resulted in an immediate 25% discount if the entire bill was paid in full.

When patients don’t pay, Montecillo explains that the Billing Department uses a “collections module” that is built into their medical billing software.

The patient gets a statement each month that they don’t pay, and after the third cycle, they start sending collections letters. After three months of no effort at all from the patient, their account is flagged and turned over to an outside collection agency.

“It all depends,” says Katz. “If it’s less than a $100 bill, sometimes we just write it off, because it’s not worth it. If they’re deceased, we write it off. Sometimes, it’s an error on our part where they bill them when we weren’t supposed to.”

Always take the time to negotiate your medical bills and, of course, to confirm that they’re actually correct.

Protect your privacy

Not everything is about money when it comes to the twisted reality of the healthcare system. With the introduction of HIPAA – The Health Insurance Portability and Accountability Act of 1996 – everyone thought their privacy was being protected. But according to Katz, the reality is quite the opposite:

“A lot of healthcare software systems are trying to avoid lawsuits. Your data is more than likely being collected, and some systems aren’t HIPAA regulated or compliant. Many doctors and practices don’t understand that, let alone the law. At the end of the day, the patient isn’t protected in the way they thought they were.”

So, what can you do to make sure your information is being protected? Be skeptical and ask questions.

Some doctors require new patients to fill out all of their personal information into a system. Tell the nurse or receptionist that you’re uneasy about doing this, and don’t give out your social security number. Ask the staff: “Where is this information going? Is it HIPAA compliant?”

A lot of people skip reading the fine print, and they don’t realize that their information is being shared without their written consent.

Doctors will have you fill out HIPAA forms, and when this happened to Katz, here’s what she did. She went through the form and crossed out everything she was uncomfortable with. “I wrote on the bottom of the form that I didn’t want any of my data shared without my knowledge and written consent. And I took a picture of it. I’m not an attorney, but you need a paper trail.”

While you might feel like regulations are protecting you, it’s important that you take an active role in protecting your personal information.

Can The Healthcare Industry Be Fixed?

As you can probably tell, there’s no magic way to fix the healthcare industry.

We have a government-provided Medicaid insurance program that denies care in order to balance its budget.

We have a Medicare system that’s expected to run out of money in 8 years.

We have a healthcare system that’s losing nearly half of its revenue to the bureaucracy.

We have doctors that are spending more and more of their time dealing with the bureaucracy rather than actually healing and helping their patients.

And we have patients that are caught in the middle, dealing with confusing medical bills, a lack of transparency, and their privacy in question.

For the senior population, a popular opinion is to get rid of Medicare entirely. Dr. Waldman is a thought leader in this area. He explains:

“The Medicare Trust should pay out what people have paid in plus some nominal increase from the last 45 years. I grant you they don’t have the money – that’s their fault, not ours. Be that as it may, they should pay it out over the next 5 years, and let us put that money into our own HSA. We’ll take care of our own healthcare. Period. End of story.”

Dr. Waldman explains that if you do the math, even the poorest worker around the country will suddenly find himself with at least $86,000 in his HSA. “They can turn around and buy a high-deductible insurance plan, and they can pay for their own care.”

Katz believes that the solutions boil down to something quite simple: better communication. “It’s synergy between providers, software companies, insurance companies, C-suite executives and maybe even the patients. All entities need to come to the table and talk, act as a team, and listen to each other.”

While the solution might sound simple, there’s still a long way to go to change the reality of healthcare. Perhaps one day we’ll all look back at this and wonder how everything got so tangled up.