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Believe it or not, hospitals and doctors are in the business of selling hernia repair surgeries. They do them all the time and the patient can usually leave the hospital the same day of the surgery. Pretty amazing. As for pricing their product? That’s almost more complicated than the surgery itself.
The NPR Bill Of The Month series hit this one right on the head. I know I have poked fun at this series in the past, but that was mostly because Max OOP insists on a level of thoroughness that could border on the line of a psychological disorder. Take Midwife Crisis and $5,000 Nitrous as an example. You might need some serious nitrous just to get through it. In the end, just know I support this Bill Of The Month series and what it is trying to accomplish. Their most recent article is a great example and people will learn from it.
In this latest case (Bill Of The Month: Estimate For Cost Of Hernia Surgery Misses The Mark), we have what the Max Out of Pocket crew would consider the model healthcare consumer. This patient was planning to consume a non-emergent healthcare service to repair a hernia. The surgery was set to take place in a hospital. The coding world refers to this specific hernia repair as code 49650 (Laparoscopy, surgical; repair initial inguinal hernia).
From the beginning, the consumer did everything right. I mean with a name like Wolfgang I wouldn’t expect anything less. He waited to have the hernia repair until a year he had a baby knowing he had already met his deductible for the year. He did what I would do and asked what his max out-of-pocket would be for the service. He got a quote and verified that everyone providing services during the surgery would be in-network. He even paid a little of this out-of-pocket upfront before even having the hernia repaired. But all of this still wasn’t enough. The hospital botched the estimate by underestimating his out-of-pocket costs which resulted in a surprise medical bill. This ultimately cost the hospital a $1,600 write-off once reporters started poking around.
I happen to know the hospital still probably made money on the case. They probably even cleared much more cash on it than they would from Medicare for the same service.
Now, the Max Out of Pocket blog will dig even deeper here to make sure we are maximizing our benefit from this unfortunate situation.
On with the hernia repair!
Max Had A Hernia Repaired As A Child
Before we can get to this specific hernia repair, I wanted to mention Max OOP can personally relate to this article. I happened to have a hernia as a child and had it surgically repaired. I am actually fairly certain it was, like this case, an inguinal (groin) hernia repair. Unfortunately, only my mom would know the answer to that, and she is no longer with us. I am going to show the doctor my scar at my free preventive physical exam in October and see if he can verify it. I have no idea how much it would have cost back then or what my mom’s out-of-pocket cost was for the service. It was probably done in the late ’80s or early ’90s. She probably didn’t bother getting an estimate back then, and if she had, they definitely couldn’t provide it. If only she knew I would grow up to launch the Max Out of Pocket blog.
The Hernia Repair Estimate
So how much should a hernia repair cost when done in a hospital and what are we looking at for our max out-of-pocket? Let me set the stage here a bit.
We have a hospital where the hernia repair will take place, an anesthesiologist to put the patient to sleep, and a surgeon to do the actual repair. All three will have a separate fee and bill.
I am going to do everyone a favor here and completely ignore the anesthesiologist. That service line deserves a post all to itself, and this NPR article doesn’t touch on it much. So for today, we are just going to talk about the hospital (a space to have the hernia repair) and the surgeon (the expert responsible for doing the actual hernia repair). But please, make sure your anesthesiologist is in your insurance network for any surgery.
As for everything else, I am going to refer to the ‘retail price’ (full price) for a hernia repair, the ‘T.J. Maxx price‘ (special insurance discounts) for a hernia repair, and the rock bottom ‘Walmart price‘ that represents what Medicare would pay for this service. All three prices represent the same exact service.
Max is very proud. The model healthcare consumer, in this case, was very proactive and got a cost estimate for the procedure ahead of time. This was huge in making a complaint that ultimately supported a $1,600 write-off for his remaining out-of-pocket at the end of this story. The only suggestion I would have for anyone else is to get a paper or electronic copy of the estimate before the service. That way we have it if we need it. It looks like this patient got the original quote over the phone and then tried to get the billing office to provide it after the fact, but they were unable to produce it for whatever reason.
In my experience, these quotes are a three-step process. The hospital starts by basing its total charge estimate on historical charge averages for other hernia repair cases done in their facility. Let’s peg that retail price average at $20,000. They then apply that charge estimate to the insurance contract to get the special price the insurance company negotiated (in this case Cigna) for said hernia repair. We can put that at $10,000 for example. After that, they try to estimate how much the patient will owe out of that “allowed amount”. This is based on the benefits package unique to the individual patient. In this case, his out-of-pocket would be a 20% coinsurance of the Cigna price for hernia repairs. So we can set that at $2,000 in this simple example. This is a relatively new process and the industry certainly hasn’t perfected it yet.
The only commentary I have on this is I believe the insurance company should also have some obligation here. After all, they are the ones negotiating on the patient’s behalf to set this special hernia repair price, setting the patient’s benefits, and have the ultimate decision on how much the patient owes. They then leave the hospital and clinics to collect the very balance that they decided should come out of the patient’s pocket. Why doesn’t the insurance company have to collect this balance?
In this case, the retail charge estimate for the hospital was $10,333 and $1,675 for the surgeon.
Estimated Retail Charges For Hernia Repair = $12,008
Retail Charges For Hernia Repair
The actual retail charges for this case are below. It is almost not worth even looking at it since almost no one pays this rate. Even the uninsured are entitled to a discount on this price as mandated by the IRS.
It is almost questionable if the original hospital retail charge estimate only included the operating room time and failed to include the pharmacy items, medical supplies, recovery room, and anesthesia supplies. The line item for the operating room time on his invoice came out to $10,279 and the total estimate wasn’t that far off from that by coming in at $10,333. I can’t be sure with what we have, but if they are going to give this information out they really need to include the procedure and any other ancillary services that come with it. I would love to know what this hospital charges per minute in the OR, since $10,000 seems a little steep for this procedure.
It could also be that they quoted a unilateral hernia repair and since this was bilateral (both sides) the price came in higher. They came up short, regardless, and the actual charges for everything came in at almost $19,000.
Actual Retail Charges For Hernia Repair = $18,827
Discounted Insurance Sale Price
Hospital charges are basically like the retail price you see at T.J. Maxx – no one ever pays that price. They pay a sale price. This particular patient gets the ‘T.J. Maxx’ discounted rate that was negotiated by his insurance company, Cigna. In this case, I must assume they are paying about 65% of the actual hospital retail charges and not a “per case” or “per hernia repair” rate.
His ‘T.J. Maxx’ sale price for the hernia repair is $10,552 for the hospital and $968 for the surgeon.
Cigna Special Sale Price For Hernia Repair = $11,520
The patient is then on the hook for 20% of this sale price, or $2,304, based on his agreement with his insurance.
Cigna and other insurance companies don’t want their contracted prices for hernia repairs out there like this for the world to see. There are actually some proposed rules that might make this mandatory come 2020. Things will really get interesting if we can start shopping for hernia repairs and comparing these insurance prices, just like we can for most other products and services when browsing the aisles at T.J. Maxx. I have seen these hernia repairs done in my own market paid for by private insurance for much less than $11,000.
How Much Would Medicare Pay For A Hernia Repair?
With all this talk about Medicare For All, let’s take a quick look at what Medicare would pay for this same exact service for someone in the 65+ age group. Medicare is basically the Walmart of healthcare pricing.
Medicare pays most non-rural hospitals an all-inclusive fixed ‘case rate’ amount for a hernia repair. In other words, they don’t care about the hospital retail price, they set the price. They have collected cost data for years and estimated what it should cost to provide a hernia repair. This amount is then adjusted depending on where in the country someone is having the surgery. It costs more to provide this service in a place like Connecticut than it does in North Carolina. Why? Well to start, nurses and employees make more money in a fancy place like Connecticut than they do in North Carolina. So, Medicare adjusts this payment to try and account for that fanciness. The unadjusted national hospital rate for this hernia repair is $4,595.85 in 2019. This will likely be adjusted up slightly as we move into 2020.
You can find these prices at this link at Medicare; just download Addendum B. I included a screenshot for your viewing pleasure. You need to make sure you understand how to read it though. That J1 means this is an all-inclusive rate. They aren’t always all-inclusive.
Unadjusted Medicare 2019 Payment for hernia repair = $4,596
The national Medicare payment rate for the surgeon to do a hernia repair would come to $447. Again, this is adjusted based on locality and we can see some pretty decent swings. If I request this service’s price from the Medicare website with Connecticut selected, it comes in slightly higher at $484. You can play with this fancy fee schedule lookup tool here, but I made a nice screenshot of the result for your viewing pleasure.
Unadjusted Medicare Surgeon Payment for hernia repair = $447
Total Out The Door Medicare Price
So since we need the hospital to provide a place to have the service in and a surgeon to do the actual hernia repair, we need to add these two figures together to get our total Medicare payment for a hernia repair.
Total Medicare Price For Hernia Repair = $447 + $4,596 = $5,084
As I mentioned, this is a national estimate and the Medicare payment would probably come in a little higher than this in a market like Connecticut. It would also likely be adjusted up about 150% for a bilateral scenario such as this one. So let’s call the Medicare price $7,500 just to be safe. About 20% of this would come out of a Medicare patient’s pocket, or about $1,500.
Total Medicare Price For Bilateral Hernia Repair = $5,084 X 1.5 = $7,627
Medicare vs. Private Insurance
As you can see, we have a serious gap between what Medicare pays for this hernia repair surgery compared to what this Bill Of The Month’s patient’s insurance would pay/allow for the same service. A gap of about $4,000. This is obviously a sample size of one, but we see gaps like this across a wide spectrum of services when comparing private insurance payments to Medicare payments and the gap is usually even more dramatic. This gap is a problem. A big problem. A problem that would need to be dealt with before moving to a Medicare For All model. Otherwise, hospitals and doctors will have serious financial problems.
$11,520 (Cigna Price) – $7,627 (Medicare Bilateral Price) = $3,893 (Problem Gap)
Here is a nice look at everything we learned today.
Hospitals are going to continue to struggle to bridge the estimate from the total charges to the contracted insurance rate, then to the patient’s actual benefit calculation (their out-of-pocket). Ultimately, when you have a third-party insurance company calculating how much the patient owes, things can get very complicated.
If I was CEO/CFO of a hospital in 2019, I would consider a contract where the insurance company is responsible for collecting their own balances that come out of the patient’s pocket. They get to turn off insurance payments when premiums aren’t paid but hospitals don’t get to turn off healthcare services when out-of-pocket responsibilities aren’t paid. Collecting these balances bog down healthcare providers from doing what they are good at, like same-day hernia repairs. We all know Max is a bit biased here.
I am not sure writing this off to $0.00 was appropriate. I think writing it down to the original estimate would be more reasonable since we don’t want to train the public to bully their way to a solution. But I am sure considering this was getting looked at by a reporter, the hospital probably decided to take the conservative and less controversial way out. I think we need to lean into these process break downs, acknowledge what actually broke in the process, and make a reasonable attempt to fix the issue. Customers like to see businesses take ownership of their mistakes. That said, I was really happy to see this resolved before the Bill Of The Month article was released.
I also think we should follow up and make sure the hospital corrected its process. If the reporter were to call the hospital today and request a new estimate for a hernia repair, would the result change? We could see how the estimate comes out and applaud the hospital for correcting the underlying issue versus just making a bill go away. We need to fix the system, not put patches on it.
The patient seemed to know he met his deductible, but I can’t tell from the article if the patient knew what his max out-of-pocket was. We should definitely take note of it before any surgery because, in the case of a complication, it wouldn’t take long to hit that max out-of-pocket and the hospital can’t always predict complications into their estimate.
As for a simple hernia repair, it seems to me the hospital should be able to get somewhere in the ballpark on an estimate for a patient’s costs.
Hernia Repair Factory?
Go ahead and laugh, I will just get Elon Musk to help me with this project.
It appears the hospital’s agreement with the insurance company, in this case, is a percent of the total charges. These types of agreements make the charge estimate that much more important because if you get that wrong, everything else that follows is wrong. We talked about ‘case rates’ briefly when talking about baby deliveries a few months ago. If insurance companies negotiate a “per case” rate like Medicare does, that can really help simplify this process and make these procedures more “shoppable”.
I joked a few months back that perhaps we could create a baby delivery factory to help deal with the cost of having babies. Max proposes the same solution for hernia repairs. If you think about it, if we could get 5-6 regional hospitals across the country extremely efficient at repairing hernias to the point where we can dramatically reduce the cost to Walmart pricing, we could almost justify flying people there to get the service. Who knows, maybe we could even compete with the Medicare pricing above. I am obviously living in dreamland here, but I really do think the concept applies. These kinds of ideas will ultimately shake up the market.
Max Out of Pocket for hernia repair? Somewhere between $1,500 and $18,000 : ) It’s no wonder I am creating a medical office building empire to help me pay for these unpredictable costs.