So what’s the real usual, customary and reasonable price of care?

So what’s the real usual, customary and reasonable price of care?


The Ingenix mess apparently won’t go away. Sen. Jay Rockefeller is now going after the health plans for using Ingenix’ database. Ingenix and some of its customer health plans have already settled with several states, but apparently it’s not enough. Now Rockefeller is after them. And the words are tough. “Fraud”, for one.

Now, health plans don’t exactly have much credibility. And when the politicos find out that Ingenix a) sells tools to help health plans cram down the amount they pay providers, b) sells tools to providers to extract more money from health plans, and c) is owned by the biggest (and not too long ago) baddest insurer on the block, this may get a little more interesting. After all, it’s kind of an arms dealer arming both sides.

But there is one thing that troubles me. I’m quite prepared to believe that Ingenix’s view about what was UCR was different from the local medical society’s view of what was UCR, and therefore that the plans were “under-paying” the consumers and the doctors who serve them.

But let’s remember what Usual, customary and reasonable fees are.

They’re what providers have made up over the years. It’s not as if there’s a market price for provider fees. Everyone, from my buds at Cato to the single payer crowd agree that there’s no real market for health care. After all we know that there’s huge differences in prices charged to those who are in a PPO versus the uninsured by the same providers. And price discrimination is a symptom of a failed market. And even when they’re based off Medicare’s RBRVS pricing, we know that those fees are not based in reality, but rather in politics.

So the UCR prices, which Ingenix was or wasn’t paying correctly, are just made up. So tell me why Ingenix’s made up prices were different from the made-up prices of the providers?

And for that matter why aren’t we going after doctors and hospitals that used Ingenix products to increase the amount they got paid. Weren’t they committing “fraud” against health plans and cosumers too?

And then tell me why we use this nutty system of paying doctors anyway. Oh, I remember now…

Coda: While I don’t say very much very nice about health plans, I am very impressed with Kaiser Permanente’s new campaign on disparities in health care based on race. Uninsurance in particular is very different among different races, and it’s great that KP is putting a face on it.

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43 Comments on "So what’s the real usual, customary and reasonable price of care?"

Mar 31, 2009

Let’s get real about how the marketplace works. In most markets a few health plans (Blue Cross, Aetna, CIGNA, United, etc.), Medicare and Medicaid set the fees they pay to thousands of disaggregated providers. Economists call this an oligopsony. There is little price competition by providers because they don’t set the price. In most instances it makes no difference what providers charge, because the plans set the price as to what they’ll pay, and it’s always the lesser of billed vs. allowed. UCR means almost nothing. The difference between the rate charged and the rate allowed by the plans can differ by factors of 5-10 in some cases (anesthesia). Plans will often cover providers who are “non-par” with a specific healthplan if members have out-of-network coverage. One fraud here is that plans charge higher rates for this coverage, while using the Ingenix database to artificially reduce the amount they pay, while sticking the members with much higher out-of-pocket costs. UnitedHealth, especially, has a great reputation among providers for not living up to the rates in their contracts or reducing rates after contracts have been signed. Providers may be “par” in a PPO which offers a “wrap around” network to plans with inadequate provider networks, but many plans do not pay rates per PPO contracts, either. Should we be surprised by such behavior when all these plans are responding to their real customers, their shareholders?

Health Plan Veteran
Mar 31, 2009

One needs to go back to the early days of Medicare when the “price” for reducing physician opposition to this 1965 legislation was that physicians be allowed to charge usual, customary and reasonable fees.
Between this concession to physicians, the numerous incentives provided to hospitals when Medicare was started, and liberal coverage for medical technology, the last 40 years have truly been the “gilded age” for the health care industry as the incomes of all types of health care providers have skyrocketed in comparison to the rest of the US economy.
Why is this changing? Because the US economy cannot afford to continue to see the rate of health care spending increase at a much higher rate than the rest of the economy. Many of us won’t be able to afford health care if this isn’t brought under control.
This is true not just for health insurers, but for state and federal government and employers. There is a true crisis brewing as leaders in the field see a bleak future for US health care unless costs are brought into line.
Like it or not, cost containment is needed in health care. The days of “actual charge”, “usual customary and reasonable”, and “cost-plus” health care arrangements are over as the industry is forced to confront the affordability (and sustainability) issue. The adjustment process will be painful.
The challenge will be to work through the debris of these financial battles and find ways to maintain and improve the quality of health care.

Tom Leith
Mar 31, 2009

Matthew (I suppose) said:
> price discrimination is a symptom of a failed market
I dislike this term because it implies all by iteslf that some kind of government intervention 1) will improve on it, and therefore 2) ought to be undertaken. For non-economists, in a “Pareto efficient market” everybody willing to pay at least what it costs to make just one more widget (or whatever) can buy it. This makes no claim that the efficient market is “fair” — that is a separate topic. Whilst some markets approach perfect efficiency, few of them do. And at least in theory, a monopolistic market could be perfectly efficient if the monopolist could do price discrimination perfectly.
Even in an efficient market, there is a battle over what’s called “surplus utility” or “the extra happiness created when we can trade with each other instead of living as isolated individuals”. Under monopoly, the surplus utility will all flow to the producers. In a perfectly competitive market, the surplus utility flows entirely to the buyers. It has been the public policy of the USA to encourage competitive markets where possible. But businesses want to avoid competition to the extent they can — this is why the government makes it illegal for them to talk to each other about pricing.
Medicine will never be a competitive market. The question always before us is “what shall we collectively do in the face of this?”. We are in the process of replacing the old social bargain with another one. It is messy.
CT IPA Doc writes:
> In most markets a few health plans […] set
> the fees they pay to thousands of disaggregated
> providers. Economists call this an oligopsony.
Right. The balance of power has shifted over the past couple of decades away from sellers towards buyers (and their agents). The power of the government-protected medical cartel has been countered, ironically by another branch of government! This has completely destroyed the old social bargain that granted monopoly pricing power to (broadly speaking) doctors, but also demanded they practice perfect price discrimination and then some (EMTALA is a remnant of this).
> using the Ingenix database to artificially
> reduce the amount they pay
This is hilarious! Is there a “natural price”? No. Charges are almost always a fantasy price designed to maximize out of network income and possibly manipulate Medicare.
In the case of the New York lawsuit, the question is “artificially reduce the amount they pay whom?” This is about out-of-network providers after all. Here’s what I think is going on:
0) Insurer determines that under all its contracts, it pays $100 for a specialist visit in that locale. (It is more complicated than this, but let’s just go with it for now).
1) Insurer tells patients “if you go out of network, we’ll pay 80% of Usual, Customary, and Reasonable charges and you’re responsible for the rest.” What it really means is “We’ll pay 80% of what we usually pay and you’re responsible for the rest.”
2) Patient goes out of network, and gets a $300 bill from a specialist.
3) The Explanation of Benefits form says Usual, Customary, and Reasonable charges for this service are $100, we’ve paid $80, you’re responsible for $220.
4) Patient screams at doctor: “Where do you get off charging me $300 when the going rate is $100?!?!?!?!”
5) Doctor says “I don’t deal with that insurance company because they under-pay and use flawed data. They don’t know what the going rate is. They’re ripping us both off.” Manages to direct anger towards insurance company, and cuts bill to $250 to mollify patient. Politicians get involved because the patient paid $170 out of pocket because the evil insurance company underpays doctors. Doctors are expertly manipulating the political process to keep patients price-insensitive and shift pricing power back to the cartel.
The New York attorney general has found a leverage point in the unfortunately-continued use of an old term that means almost nothing. Or literally nothing.
Seems to me insurers should jettison the archaic UCR terminology and tell people “If you go out of network, we’ll give you $60 for a PCP visit or $100 for a specialist visit and you’re responsible for the rest.” They used to say “if you go out of network, you’re on your own” but nobody liked that policy. In either case though, let docs post prices in their lobbies, negotiate with patients one at a time, and do their own collections.
I hope Nate weighs in on this…

Mar 31, 2009

I would really prefer not to. This is a great example of what happens when politicians and pundits who have no idea what they are talking about get on their soap box. This is such a non issue it’s laughable. Fineing insurance companies, specially those down the ladder who didn’t control the data does nothing but drive up the cost of health insurance.
Personally I can’t stand Ingenix, those SOBs want to charge us over 6K a year for the data.
Ingenix use to, or what they claimed to, sell was the aggregated billing rates of providers. They never claimed to nor sold anyone UCR reimbursement rates. If you bought the data you would get a huge data set, enter first three of the zip code, CPT code, any modifier, and it would break down what providers bill by percentile. In 890 80% of providers bill $88.72 or less for 99213. 90% bill $95.33, 70% bill $84.90, 60% at 83.10. The purpose of UCR was if someone went non network the provider was paid a fair charge. In each insurance policy the carrier would specify at what percent they paid UCR. Compare 60-80% reimbursement, the spread is only $5. Compare that to what providers actually get paid though and they are twice as high a PPO contracted rates.
In 890 actual PPO allowed for 99213 for some of my clients is $38.97. Between my payment and member payment provider collects $38.97. If it was a non PPO doctor and we cut them back to 80th percentile then paid it at 50% the provider gets $44.36 from us plus what ever they collect from the member. Who exactly is the victim here? The provider gets paid more to considerably more depending on what they collect from the member, the member is receiving a higher benefit then if they went in network. The only person losing out is the insurance company and those paying premium to them.
When you know the facts it sure changes the appearance of things doesn’t it? Provider reimbursement has not increased in line with CPI per procedure. The rate they bill has taken off like crazy, the only logical reason for them billing an amount they know they will never collect is to drive up UCR and government reimbursement, those without insurance or stuck out of network get screwed as a product of that.
I don’t see where insurance companies have done anything wrong, now that the facts are on the table if anyone can show me where they are screwing the public please do.
Back to this being a waste of time and proof our government is incapable of regulating anything, all this lawsuit does is put the final nail in the UCR coffin, and hopefully save me 6K per year. Providers destroyed the usefulness of UCR by artificially increasing their billed charges. A number of insurance companies have stopped using UCR and gone with the considerably more logical Allowed Expense, EME, contracted rate or their flavor of paying non PPO providers at the same rate as PPO. The allowed rate in plan is the same as out of plan just paid at a lower percentage. Why should a non PPO doctor be paid more then a PPO, counterintuitive incentives there.
Personally I would prefer the old scheduled reimbursement where you don’t have any PPO, just pay $x for an office visit no matter who the provider is.
So problem is solved, UCR is dead, government fined insurance companies for doing nothing wrong, the real problem of phony provider billing is ignored, and insurance just got a little bit more expensive. Typical day in American HC reform.
Are we to assume no author wanted to admit writing this post? I can see why but found it humorous.
“sells tools to help health plans cram down the amount they pay providers,”
Only on THCB is an evil insurance company cramming down payment when they pay $44.36 instead of the lower $38.97. In your effort to cram reform down our throats has lower been redefined as greater? I really need to get a progressive to English dictionary.

Mar 31, 2009

The part of CDHP we really need but have yet to receive is pricing transparency. With the internet there is no reason this can’t be accomplished for minimial spending.
A member/patient should be able to go to their insurance company website, enter zip, CPT, and receive back the allowable expense.
They should also be able to go to their providers website enter the CPT code and see what their doctor charges.
We have laws that mechanics and every other industry has to tell you what their rates are, no one even bothers to ask what their doctor charges.
This is all mute with ICD 10 comming down the pipeline. We need to be reducing CPT codes not adding thousands of them.

Mar 31, 2009

Everyone here is arguing in economic terms … and yet someone has to prove that economic theory is really helpful here. It’s like fluid dynamics … with certain model assumptions, you can make some simple modelling/predictions (like the Hagen Poseuille law), but as soon as there is a little turbulent flow, things become so complex that they are hardly predictable.
I am not an economist. But can anyone convincingly tell me who, ni health care, the vendor is, and who the customer? Is a health insurance company a consumer (purchasing from HC providers they choose), or a vendor? The patient no doubts consumes HC … but what exactly does he consume, and who purchases? If a doctor refers “his” patient to another physician or for a test, who is buying and who is selling? And so on …
I am not sure whether most markets are “fair”, esp. when we are talking about complicated products. If you buy a new bumper, you probably overpay wildly (I don’t know what a new car would cost if you bought it in spare parts). People may pay 99 dollars for an air ticket, while a walk up passenger may pay 8 times that. If you have a physical exam and a chest x-ray at a walk in clinic, you probably pay only a fraction of what you’d pay for the same in the ER. If you get your hospital bill, what are you exactly paying for, and what are the rates/prices? If you get an extra dessert or an additional set of vital signs on your ward, should you be charged extra? If you have a little rash at the hospital, should you (your insurance) pay for the dermatology consult that your attending called in?
If you have an easy, clearly defined product that can be measured easily, and enough competing vendors/suppliers, competition works.
I am currently working as a specialty doc in a very heavily competed area … and how do we compete against each other?
1. Access time
2. Shiny facilities (creating overcapacities)
3. New products (more subspecialties, robotic surgery complementary medicine).
4. Patient satisfaction …. sounds good, right? But how about the patient who desires unreasonable disability? Unreasonable testing? Unreasonable handicapped parking stickers?
Theoretically, price competition could work in a large competing HC system vs. patient with insurance system. Have a large, comprehensive network that requires their providers to practice “lean medicine” (at least that’s waht some folks on this site call it) based on guidelines and physician judgment, and they will be at the very least 15% cheaper than any other provider system or combination of providers … but this is unpopular with restricted physician choice and unfeasible with the current tort law.

Mar 31, 2009

whoops, yes this is me writing this. Forgot to put my byline on, fixed now.

Mar 31, 2009

Hmmm, the health care system is in a mess. Lots of work need to be done to revamp it..

Mar 31, 2009

As a person too young for Medicare with a chronic disease, I carry only accident and surgical insurance. Many times at a doctor’s office a test will be suggested. I will ask the necessity everything comes straight out of my pocket. I get a revised suggestion.
Just a thought.

Mar 31, 2009

After spending my entire life in the food business trying to squeeze a nickle or a dime out of every revenue dollar discussions like this make me want to scream and pull out my hair. I have poured over more balance sheets and P&L statements than I want to remember. Words like “price, cost, market, waste, overage, depreciation, capital expense, operating expense, depreciation,” and a string of others are an everyday part of most business vocabularies.
But it seems in the medical field the same words have different meanings, particularly the words “cost” and “profit.”
In order to establish a charge for a service, what ever happened to figuring out costs, then adding to those costs a realistic profit? Does anyone ever keep track of labor costs? Disposables? Utilities? Uniforms? Depreciation? I could go on, but I give credit to the reader to understand where this is going.
It seems to me that the word “charge” or “fee” is not based on real monitory considerations, but on what the rest of the marketplace is charging and what they can get away with vis a vis the insurance companies and the government, which are the two principal revenue streams.
Someone, I’m sure, is keeping up with the number of indigent cases being charged off as well as a breath-taking number of impossible to collect charges that originate with uninsured or underinsured cases… all of which will be “written off” as noncollectable or “community contributions.” I’m not crazy enough to think that the actual costs associated with these expense will magically evaporate, but why don’t all bills have a line item for “your share of otherwise noncollectable expenses”?
My mother’s few encounters with hospitals and doctors and her last year of life in a nursing home gave me a shocking insight into the fees and charges tracked by CMS. As her designated agent I saw Medicare and Medicaid charges that blew me away. Without going into detail, she took virtually no medicines and the drug bills I saw ran to the thousands. I didn’t know how many hospice companies were in the business until the time came, and for the three weeks she lived after hospice was added, they collected over four thousand dollars. I know we all have rent to pay and I am more than pleased with my mother’s care and treatment. But for crying out loud, it can’t have COST (and I use that word in the old-fashioned sense of “time+materials+training+transportation+professional fees+incidentals”) as much as appeared on the bills I saw. I hate to sound cynical, but Medicare has a charge for hospice, and I think what happens is that the bills are calibrated to collect every dime of that amount, even if actual costs getting there were not incurred.
I doubt that my complaints as a consumer will carry much weight in this forum, but it makes me feel better to air them here. But please know that as a taxpayer and recipient of medical care I need to have a better attitude about what I’m seeing and learning. And the only way for me to have a change of attitude is to look behind the curtain and find the same responsible stewardship of time, people and resources that occupied my energies as a manager in the private sector.
I realize that medicine is more complicated than cooking and selling food. But even rocket science keeps better financial and accounting records than I’m discovering in health care.
(Which reminds me of another possibly related anecdote. As a non-medical agency hourly caregiver to seniors I’m getting an up close and personal view of where we’re all headed if we live long enough. Less that two days ago I was on duty in a nursing home when a very sweet and professional lady came for forty minutes of “speech therapy” for my client. This man was literally a rocket scientist in his working days, who at eighty has a mind and ability to articulate ideas sharper than me. He has learned the rules of the nursing home to keep his doctor satisfied, so he allowed himself to be subject to speech therapy to be in compliance. All the while I couldn’t help thinking how very unnecessary that forty minutes of professional time was spent. The reason, of course, had nothing to do with the needs of the resident but those of the professional, once again running up the approved Medicare package as far as it would go.)
I try not to rant too often as I read THCB but sometimes it just gets up to my craw and has to come out. Please accept my apologies. I’ll work on reading and restricting screeds to my own blog.

Tom Leith
Mar 31, 2009

> But can anyone convincingly tell me who,
> ni health care, the vendor is, and who
> the customer?
Well Dr. rbar, you are * a * vendor and you vend medical services. That much is certain. As for the term “healthcare” it is far too ambiguous a term to have enough meaning to answer your question.
> I am not sure whether most markets are “fair”
This is the topic Social Choice Theory — what does “fair” mean in the first place? Fairness is socially constructed.
Nate said:
> I would prefer the old scheduled reimbursement
> where you don’t have any PPO, just pay $x for
> an office visit no matter who the provider is.
Hmmmm. Didn’t you say the other day that x should be zero dollars but should be required to file a claim with an insurance carrier in order to keep track of deductibles and gather data of various kinds? If you have no PPO-ish thing, how will we get docs to file the paperwork for the great majority of encounters? I’m not trying to be facetious here. The patient gets nothing, the doc gets only what he can get out of the patient. I guess we could contractually require the PATIENT to file something, but I have an idea how that’d work. Would this be government regulation or what?

Mar 31, 2009

Getting doctors to, bill is not the right term as they are not seeking compensation, record their transaction would probably best be accomplished by educating the consumer.
My understanding of provider side EDI, I’ll admit upfront to being very bitter and angry about this, is for roughly $100 a month or so they can bill all their claims via EDI. With that assumption there is no cost to your doctor to “record” your claim for you. Based on this patients are told you have a deductible of $x. Make sure your doctor records your claim so you get credit.
That would be my preferred method, not 100% perfect but a nice balance of functional and non intrusive.
Knowing the IRS, CMS, and Government in general I would expect a mandate that doctors bill all services rendered.(secertly I hope the ^*^&*^ providers are required to bill by law and have to pay $1.00 a claim to do so…what goes around comes around buddies!)
If it would get the commie/socialist to vote for it I would be ok with compulsary billing through a government clearing house with responding payments also cleared via a Fed like entity. Clearing ACHs and checks does work amazingly efficiently and accuratley. We should look at building on that.
Happy Tom to forced me to admit to wanting a tad bit of regulation, I need to go shower now.
rbar gave me a headache trying to answer his question
Provider is the vendor of care
Patient is consumer of care
Insurance is vendor of insurance
provider is consumer of insurance as agent in fact of patient unless patient does not assign thus remaining consumer
unless….insurance is consumer of care being that they purchase it on behalf of patient…..
Or do insurance vend care through their contracted provider?

Mar 31, 2009

How about…
►Health care Professionals furnish care
►Sooner or later everyone becomes a patient
►Insurers and administrators do the best they can to ration care and manage costs as best they can
The two biggest revenue streams are taxes and premiums.
Co-pays, deductibles and other out of pocket expenditures provide a few crumbs.
Unpaid expenses must be absorbed by all of the above.

Mar 31, 2009

A socially and financially responsible practice will set its charges high enough to capture the maximum amount of reimbursement from its highest paying third party payer, and then discount its charges for the uninsured and out of network patients. More practices do that than most realize. It’s unfortunate that the bad apples give everyone a bad reputation.

Tom Leith
Mar 31, 2009

Nate writes:
> Clearing ACHs and checks does work amazingly
> efficiently and accuratley. We should look at
> building on that.
Pharma claims are adjudicated in real-time now, billions of `em a year. Granted those claims are pretty simple, but still. There’s no technical reason this can’t be done for office visits.
> Happy Tom to forced me to admit to wanting
> a tad bit of regulation, I need to go shower now.
Welcome to the dark side of the force. We have to shower all the time over here. And we hold our noses a lot. 😎 See how skinny its gotten? It used to look like this 8^)