The Troubling Way We Pay Hospitals in Maine and Throughout the US

A study published in the current issue of Health Affairs found that hospitals in the US spend about twice as much per capita on administration as the seven other countries studied. If spending on administrative costs were reduced to the average level of spending in the other countries, we could reduce by about $150 billion the $750 billion a year we waste in health care.

These findings reminded me of my recent trip to Nova Scotia. While there, I visited a small hospital on Cape Breton. I asked the hospital’s director what they charge for a CT scan. “We don’t charge for every test,” she replied, “but simply bill the provincial health fund for each day in the hospital. The cost of the CT scan is bundled in. The only time we charge individually for CT scans is if we treat a visiting American and think it is worth the trouble to bill their insurance company.”

“May I speak to somebody in your billing department about CT scan prices?” I asked.

“Sure, but you’ll have to come back another day,” the hospital’s director replied. “She (meaning the billing ‘department’) only works part-time.”

Compare that to the gargantuan billing departments in US hospitals.

In talking to the long-serving doctors at that Canadian hospital about their experience practicing medicine, I was struck by how much their focus is on patient care, not money. Money is almost all I hear about when I talk to American doctors and hospital directors.

In Canada there is only one insurance company: the provincial government. A bill for each patient is sent to the province and is paid (no questions asked) within several weeks.

Like most other wealthy countries, they have simplified a lot of costs out of their health care system. In contrast, US hospitals must deal with scores of insurance plans (each playing by their own rules); submit detailed bills for every test, procedure, drug or other supply; and then be prepared to justify them as hospitals try to maximize their revenues and insurance companies try to minimize their “medical losses.” Unfortunately, the Affordable Care Act is complicating things even more.

All of this fighting about money costs plenty of it and contributes to the unconscionable amount of waste documented by the Health Affairs study while actually interfering with patient care. The effects of this money-driven system on the quality of care may be even more damaging than the financial costs.

In the US, hospital managers spend huge amounts of time, effort and money chasing and maximizing profitable revenue. They do this in two ways. The most obvious is fighting directly with insurance companies over payment — when and whether to pay and if so, how much.

But less well-known and understood are the powerful ways our insurance-based system affects the types of services hospitals offer and promote, and the ways doctors practice. Caregivers are strongly encouraged by hospital managers to promote services that are profitable and discouraged from recommending those that are not, often without much regard to the actual needs of patients.

A physician employed by a large Maine hospital recently complained to me about her resentment at being pressured by hospital management to order completely unnecessary tests and procedures in order to meet the hospital’s revenue goals. Doctors throughout Maine, and the US, can relate to that.

That’s why we have hospitals with too many scanners and other fancy and expensive gadgets and too few primary care physicians. That’s why physicians are forced to see too many patients and spend too little time with each of them. That’s why more and more physicians are burning out and retiring. This will not change until we change the ways we pay hospitals and our “healthcare is a business” culture.

Canada and most other wealthy countries have shown that there are better ways to do things. Hospitals there are on a lump-sum budget or something very similar. The pursuit of revenue that is so consuming in US hospitals is mostly eliminated.

If we were to adopt a similar system here, doctors and hospital managers in the US would be able to focus on how to best provide care to their communities. Most would likely jump at the chance if they believed the corporate interests and their political enablers who are blocking real reform would allow it to happen.

That would save money and improve the quality of care at the same time. What’s not to like about that?
