By Bruce E. Ruben MD
Have you noticed that in the fictional future, such as in the Star Trek universe, nobody uses money to pay for medical care? When you get sick, a starship medical officer scans you with a handheld diagnostic device, and then injects you with the perfect cure. No copays or deductibles. No making copies of your driver's license and insurance card. No reimbursements from insurance companies. And no explanation is ever given for how such a free society exists in the future.
Today, aspects of that future universe are already here. We have communicators in the form of cell phones and handheld assessment tools are available. We have talking computers like the one that runs the starship. Are we so far away from the warp drives and transporter units of the future?
So, since many facets of the future universe are becoming realities today, I thought I might shed some light on how insurance carriers operate and how they impact your wound care practice. As you'll see, it pays to have a clear understanding of the present system of reimbursement in order to understand any new system in the future.
Understanding How Health Insurance Works
How insurance carriers insure loss is the same whether it's your home, your car or your health. It starts with a contract. That contract is the foundation of the United States' loss system. You contract as a consumer or an employer with an insurance carrier to indemnify you, to cover you or your employees, in the event of a loss. In insurance terms, they will "make you whole again."
In order to indemnify you or make you whole again, you're going to need products and services. For example, after a car accident, you're going to need car parts and the services of a good mechanic. For health care, you may need medicines and the services of a good physician.
When you ask a carrier to indemnify you, to pay money to make you whole again, how much money should the insurance company pay? That's always the big question. The contract doesn't say the insurance company is going to pay the least amount of money in order to make you whole again. The contract says the insurance company is going to pay a reasonable amount to make you whole again.
What that means is the insurance carrier doesn't necessarily shop around to find the best price like you might shop around as a consumer looking for a product or service. So where the consumer has the opportunity to find a place where the charges are considered reasonable, the insurance carrier is trying to identify the going rate in the specific community for the service or product. What's the going rate? It's sort of an average of what everyone is charging in a given area. It's the market rate, which is generally a function of supply and demand.
The going rate could be the price after a product is marked up from its actual cost. Or, it could be the price at what the market will bear – what consumers are willing to pay.
So, in our car accident scenario, let's say the going hourly rate for repair of an automobile in a specific community might be anywhere between $60 and $180 an hour. What's reasonable, what the auto insurance company and the auto repair shop can agree on, is probably something around the 85th percentile, or around $130 an hour. That figure would have come from distinguishing all the hourly rates charged in that specific community or geographical location.
By comparison to pricing out services, there's also the consideration of pricing out the car parts needed for the repair. Those costs are generally priced as a markup above cost. Again, the carrier pulls all the charges in a given community to determine what they will pay for that car part. For example, if the identical front quarter panel for the damaged car can be purchased for $2,000 from the carmaker, the repair shop may charge $2,500. If that $2,500 falls in the 85th percentile for the insurance carrier, the cost will be covered. Of course they'd like to pay less but the contract doesn't stipulate that the least expensive part will be used. It only stipulates that the consumer will be made whole.
The contract is what's legal and binding here. In a different geographic location, the numbers might change but the same economic principle applies.
How to Access Medical Claims Data
Now let's look at health care and medical services. And for example, let's consider the installation of an ear tube in a patient who lives in a specific geographic location. The cost might be anywhere from $120 to $1,000. Further, let's say that the charges at the reasonable 85th percentile are $250. How does the insurance carrier know that the 85th percentile is $250? They know because they get their data from the largest collector of medical claims information: a company named FAIR Health.
According to their website, FAIR Health is "a national, independent, not-for-profit corporation whose mission is to bring transparency to healthcare costs and health insurance information." Their whole reason for being is to "collect and disseminate unbiased data to the entire healthcare sector from consumers to insurers to providers and administrators."
"FAIR Health accomplishes this by dedicating all of its resources and expertise to making the nation's largest collection of private medical and dental claims data available to all users in the formats that are most helpful to them."
If you know and understand FAIR Health, you are no longer being compensated in the dark. You know where the insurance carrier gets the data to determine reimbursement and that data is available to you as well. Having access to all that data allows you to see what is actually reasonable and customary for a specific geographic location so you can be reimbursed fairly and accordingly.
But what happens when a new product is introduced and there is little or no claims data available – as is often the case in a blossoming industry like wound care? How much can the manufacturer charge and what is considered reasonable? The answer may be that they can charge whatever they want and by the fact that it's the only device of its kind available, it's reasonable.
For example, imagine a bio company creates a new mesh product that has great potential for healing. This bio company is the only source for that mesh in the entire world and it could charge a million dollars for the product. It may only cost eight cents but the insurance carrier is under a contractual obligation to pay in order to make the patient whole again. Is it reasonable? It is because 1.) It's the only mesh of its kind that exists and 2.) Whatever the price, it's the only data the carrier has on which to determine reimbursement.
What the Health Care Market Will Bear
Good or bad, right or wrong, this is how the system works in the USA. All of these financial considerations come down to one guiding principal in our economic society: the cost is at least partially determined by what the market will bear. If a car costs you $2,000 to build and everyone is buying it for $100,000, you're not going to use some formula like marking up the price four times to $8,000. Most businesses are going to base their pricing on what the market will bear – in this case, $100,000.
Unless you've entered into a legal agreement to offer the car at a reduced cost in order to, say, sell more cars.
Following that reasoning, if you're a wound care expert installing an Apligraf and you're in a network, you'll get reimbursed a predetermined amount stated in the contract. But if you're not in the patient's network, you could be reimbursed three times that amount if those are your charges. And yes, some of that difference might have to be paid by the consumer.
In the big picture, it may be easier and perhaps more affordable for a consumer to stay in-network for their internal medicine doctor and most of the major specialties. But wound care is a very niche sub-specialty that is finally coming into its own after being spread out among podiatrists, surgeons, infectious disease doctors and even nurse practitioners. With all the advances being made in our field and with new technologies coming onto the market everyday, it behooves us to think very carefully about the increasing costs of operating a wound care practice and what we may be giving up when we sign up to be a preferred provider in a network.
In the futuristic universe, presumably, we'll all be free of these considerations. But until that day when we can simply scan healthy tissue and have it replicated over a wound just in time to make the last shuttle to Titan Town on one of Saturn's moons, we need to utilize all the tools at our disposal to keep our wound care practices strong and viable.
About the Author
Dr. Bruce Ruben is the Founder and Medical Director of Encompass HealthCare, an outpatient facility featuring advanced wound care, IV antibiotic therapies, hyperbaric oxygen treatment, nutritional assessment, and other treatment modalities. Dr. Ruben is board certified in Internal Medicine, Infectious Disease, and in Undersea and Hyperbaric Medicine. He is a member of the Medical and Scientific Advisory Committee and National Spinal Cord Injury Association (NSCIA) board.
The views and opinions expressed in this blog are solely those of the author, and do not represent the views of WoundSource, Kestrel Health Information, Inc., its affiliates, or subsidiary companies.