Richard L. Clarke, DHA, FHFMA

My daughter recently had an MRI scan to rule out a medical condition. We were both relieved that the scan was negative. The bill, however, amazed her.

The cost of the MRI with contrast was about $7,000, not including the reading by a neuro-radiologist. Thankfully, she had group health insurance that resulted in an out-of-pocket expense to her of $250. However, when she looked at the bill in more detail, she was surprised by its components. Her insurance paid $3,500, and the hospital wrote off $3,250 as a contractual adjustment
leaving a $250 patient balance.

"How could the charge be so much more than the expected payment?" she asked me.

I didn't have a simple answer.

Charging for healthcare services has evolved into a Byzantine array of cross-subsidies, hidden taxes, and conflicting incentives. This system is incredibly complex and costly to administer by both providers and payers. Furthermore, the pricing that results is almost impossible for the general public to understand, inhibiting transparency and price comparisons, and eroding public trust.

HFMA, through the PATIENT FRIENDLY BILLING® project, is finalizing a project to help hospitals develop a rational pricing system. That system starts with a set of principles, which state that a rational pricing system should: 

  • Be simple to administer and communicate to various stakeholders, including members of the general public
  • Be established using a framework that is rational and defensible in relation to an objective benchmark, such as cost or market price
  • Create accountability by empowering consumers to make price comparisons
  • Provide for full coverage of financial requirements related to providing care and other community benefits
  • Provide stability and predictability in administrative processes

The Patient Friendly Billing report, which will be released during HFMA's ANI - The Healthcare Finance Conference, June 24-27, 2007, in San Diego, will identify the barriers to achieving these principles and methods that hospital leaders can use to remove, go through, or go around those barriers. The aim is to arm hospital leaders with the tools necessary to address head-on this hard-to-explain-and hard-to-defend-system of charging.

Sometime in the near future, I hope to have a simple answer to my daughter's question.

Publication Date: Tuesday, May 01, 2007

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