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May 24, 2019

Big Flashlight

Lumens are the standard measure for light brightness and a typical flashlight can range from just a few lumens for one of those mini, key-chain gadgets to around 1,000 for a really good light.  Get into the kind emergency responders use and you’re talking up to 3,000 lumens. 

Then there is the Torch, which claims to be the world’s most powerful flashlight, weighing in at 4,100 lumens.  The company’s website shows a video of someone setting paper on fire with the beam.  Another shows a lady scrambling eggs with the thing.  A multi-functional camping tool.

It also sounds like the recent RAND report on hospital pricing.  It is shining a really bright light into some dark places.  Things may get scrambled or even set on fire.

RAND got their hands on a big ‘ol pile of commercial claims paid to hospitals between 2015 and 2017.  These were not Medicare claims or charges, but the amounts actually paid to hospitals by commercial payers for both impatient and outpatient services.  Most of the data came from self-funded employers who pay their own claims; some came from the All Payer Claims Databases mandated by Colorado and Indiana; a few payers participated by sharing their numbers. 

In all, the study had claims for 330,000 inpatient stays and 14.2 million line items for outpatient services.  These represented $13.0 billion in allowed amounts – $6.3 billion inpatient and $6.6 billion for outpatient – across 1,598 hospitals in 25 states. The RAND folks then also repriced every one of these claims as if it had been paid by Medicare, creating a very robust comparative data set.

Stop and understand that this kind of information – actual negotiated and paid prices by commercial payers – has been shrouded in more secrecy than the Coca-Cola formula.  RAND is shining its mega-lumen data into a dark corner.

The study found that hospitals in the study were paid, on average, 241% of Medicare rates in 2017, up from 236% in 2015.

[Pause for you to confirm your commercial rates as a multiple of Medicare.  Yep, no where close to 2.4x, are they?]

Another recent study put the average rate in 2012 at about 175% of Medicare.  Now we’re at 241%?  Man, those reform strategies to control cost are spectacular, aren’t they?  Failures, that is.

To rub salt in the wound, while the impatient rates were right at 2 times Medicare, hospital outpatient rates were almost 3 times Medicare (293%).  And where is volume moving? To the outpatient setting.

There is more to unpack here, so we’ll come back to it next week.  In the meantime, I’ll just let you soak over the Memorial Day weekend in the fact that while your payers have told you that you are being unrealistic, demanding and petulant asking for that highly unreasonable 125% or 130% of Medicare, the hospitals are being told, ‘300% and not a penny more…until next year…we’ll give you more then.’

Yeah, this stinks.  Enjoy your holiday.

Tim Coan
Tim Coan

CEO and founder

Tim Coan, ALN’s CEO, writes an insightful and witty blog weekly about a variety of topics relevant to independent physician practices.