By George W. Chapman
If you have received an explanation of benefits from your insurer after a hospital procedure or inpatient episode, you can’t help but notice the often huge disparity between hospital charges and insurance payment.
You think how can the hospital survive when they accept a payment that is so far below their prices?
Hospital charges have increased 300% over the past 20 or so years and not because their expenses have increased that much. (Whew.) Inflated charges are primarily a hedge for negotiations with commercial insurers.
Hospitals come in high knowing insurers will come in low. (Medicare and Medicaid set hospital and physician rates. There are no negotiations.)
Over the years, commercial insurers have dropped their payments to mimic what Medicare pays. Historically, the large regional commercial insurers had the advantage at the negotiating table because of their market clout. Individual hospitals often had little choice but to accept their payments. In order to increase their clout, hospitals joined together to form large hospital-based healthcare systems.
Of our 4,500 hospitals, 2,000 have been part of a merger or acquisition. Ninety percent of all beds are owned and operated by a hospital healthcare system today. Hospital systems even things out at the negotiation table, but there is still a huge gap between hospital charges and insurance payment. That’s because both parties know hospital charges are not a real cost base number. Insurance premiums are high enough. Imagine what they would be if insurers agreed to pay charges.
So, all this begs the question, why do hospitals continue to post exorbitant prices?
The CEOs of four large hospital healthcare systems were called in to testify before the Senate Ways and Means Committee on why their charges remain inexplicably high. It is baffling to consumers when shopping for care and certainly untenable for self-pay consumers without insurance. The CEOs offered some fairly lame ideas to lower their costs, but their exorbitant charges are not cost-based. All hospitals are constantly seeking to lower costs especially in light of fixed payments from Medicare. Lowering costs will not lower charges. It seemed to me the Ways and Means Committee had little idea of what they were doing and probably left the meeting more confused than when the meeting started. The problem remains, however. Consumers who shop around for healthcare based on prices are on a fool’s errand. You are better off asking your insurer what they will pay for a procedure and then calculate your copay.
Prior Authorization (PA)
Finally, after decades of unnecessary costs, hassle, frustration, anxiety and delayed care, prior authorization will be reduced (not abolished) for electronic PA effective Jan. 1 2027. Most, soon to be all, major insurers have signed on to this effort. PA has already dropped 11% among commercial carriers. Bad publicity and in many cases untold deaths were probably behind this voluntary commitment to get out of the way in the delivery of care. The new PA initiative will be used for medical services commonly subject to electronic PA like orthopedic surgery and imaging.
Surgeon General Drama
President Trump has overruled RFK Jr.’s choice for the country’s Surgeon General. Nicole Saphier, a radiologist and Fox News contributor, replaces Casey Means. This has created a rift within the Department of Health. While Trump calls Saphier “a tremendous communicator who will fulfill MAHA’s mission,” Kennedy’s allies claim “Saphier will be a catastrophic mistake on messaging and communications with MAHA at a time when the coalition is very fragile.” Trump believes Means would not be confirmed by the Senate. This kerfuffle seems to be the latest between the administration and MAHA. Adding to the drama, opponents of Saphier have discovered she deleted several texts very unflattering to the president. Stay tuned.
Artificial Intelligence is certainly a boon for medicine, especially when it comes to research, curing diseases, drug development and diagnosing. The public is increasingly turning to, relying on, AI for information. According to Open AI data from the first months of this year, more than 40 million people worldwide use ChatGPT daily for information about their health, insurance and billing advice. Users asked between 1.6 million and 1.9 million questions per week. A KFF survey found a third of all adults use ChatGPT for information and advice, but two thirds remain skeptical. Industry experts warn us AI is still in developmental stages and isn’t perfect. Moreover, professionals worry about AI ethics. Can user personal information be used nefariously? Research has discovered that race and socioeconomic data can create biases in algorithms when it comes to advice, diagnoses, treatment and even wait times for appointments. AI designers must be cognizant about what data is being collected and why. Workforce diversity and transparency will limit bias in the creation of algorithms. The Coalition for Healthcare AI released guidelines for the implementation of AI tools that focus on equity, fairness and ethics. Meanwhile, the administration issued an executive order shifting AI focus away from “equity” and “algorithmic “fairness” toward “minimally burdensome requirements” to encourage innovation and an AI company is being sued for impersonating physicians. Here we go.
Affordable Care ACT
Since its inception in 2010, it provided commercial insurance for individuals and subsidies for financially qualified individuals. Dozens of commercial carriers offered products on the exchanges. Virtually all physicians and hospitals participated. By 2025, around 23 million people were covered via the ACA. The uninsured rate dropped from around 18% to around 8%. But the recent failure of our Senate to renew premium subsidies for the indigent will surely reverse the overall success of the ACA. Understandably — and expected — millions of individuals are dropping out of the program as they cannot afford the full premium. (Who can?) It will have a deleterious impact on their health and well-being, not to mention the financial impact on already cash-strapped hospitals that will eventually care for the newly uninsured. Commercial carriers have begun to pull out of the exchanges. The exit of members diminishes the size of the risk pool and increases the odds of fiscal failure. (The more the merrier when it comes to a financially viable insurance plan.) Cigna is out next January. Fourteen percent of subsidized members did not pay their premiums in January. That is certainly to snowball throughout the year.
Amazon’s GLP-1
Seems like everyone is getting into weight loss. But Amazon is putting a different spin on it by more formally integrating primary care, pharmacy and virtual care. They will address obesity as a chronic problem versus traditional as—needed standalone treatment where patients receive prescriptions or short-term interventions without coordinated management. Medication access, oral or injection, will be coordinated via Amazon pharmacy. Insurance coverage can lower costs to $25 monthly. Cash options start at $149 for pills to $299 for injections. Prescriptions can be renewed 24/7 via telehealth. Video visits are $49.
George W. Chapman is a retired healthcare business consultant who worked exclusively with physicians, hospitals and healthcare organizations. He used to operate GW Chapman Consulting based in Syracuse.