Airlines charge you add-on fees if your suitcases are too big or heavy. But can you imagine a hospital “upcharging” for being obese? Or for being diabetic? Or for having AIDS?
It seems absurd and offensive. And no hospitals, that I know of, are even considering it.
Yet just as the airlines know how much heavy bags cost them in extra fuel, new research has started to show hospitals, in specific detail, how much more they spend to treat patients with complicating health conditions.
That research comes as Indiana University Health, Franciscan St. Francis Health, the Indiana Orthopaedic Hospital and others are trying to offer patients an upfront price on things like joint replacement surgery. Yet they are struggling to do so—and do so profitably—for precisely these reasons.
Because of you. Because your health status has such a big impact on how much it costs for a hospital to treat you.
Researchers at the University of Iowa looked at the records of more than 100,000 knee-replacement patients in 2009, and for the first time calculated exactly how much more hospitals said they spent when patients had other medical conditions.
In medical jargon, these other conditions are called comorbidities. They include things like diabetes, obesity, chronic heart failure, lung-circulatory problems and even recent weight loss.
Below is a list of some of the most expensive or most common comorbidities for knee-replacement patients, from an article the Iowa researchers had published this month in the academic journal Clinical Orthopaedics and Related Research.
(To be clear, all the numbers from the Iowa researchers are estimates of what hospitals spend to treat patients, not what patients pay for their care. The biggest reason these extra medical conditions add costs for the hospital is that patients have to stay in the hospital longer after surgery before they are ready to go home. These estimates are just for the time a patient is in the hospital, not their follow-up care.)
Pulmonary-circulatory disorders (which can cause blood clots in arteries): $3,218
Chronic heart failure: $1,656
Coagulation disorders (which can be caused by liver disease): $1,598
Electrolyte disturbances (which can be caused by kidney problems, diabetes, malnutrition, hormone disorders, heart disease and cancer treatments): $1,313
Only 13 percent of the knee replacement patients examined in the study had no comorbidities. That would have surprised me. But back in March, when I spent a morning listening to the joint replacement surgery team at IU Health Saxony Hospital discuss its patients, nearly every one of them was obese (or nearly so). Many had diabetes. One was an alcoholic.
For knee-replacement patients with none of these problems, the average cost of their time in the hospital was $13,768, according to the estimates published by the Iowa researchers.
For the one out of three patients had at least three extra medical conditions, their care cost 3 percent more, at an average of $14,185.
And for patients with seven extra medical conditions, costs were 29 percent higher, at $17,765. (However, the Iowa study saw a range of costs for the most complicated patients that neared $40,000 on the high end.)
Figuring out how to charge a competitive price for the lower-cost patients while not losing their shirt on the patients with six or seven comorbidities is a big challenge facing hospitals right now, Dr. Michael Meneghini, director of the joint replacement program at IU Health Saxony, told me earlier this year.
“All this is the health systems starting to act like health insurers,” Meneghini said.
At that time, Meneghini was contemplating a package deal that might only include patients with fewer than six comorbidities.
But the trouble is, insurance plans, employers and patients don’t want asterisks like that. They just want the certainty that when they have to pay for a knee replacement surgery, that they know in advance what it will cost them.
If hospitals could simply take their average costs on knee replacements—$14,491 in the Iowa study—and mark it up 20 percent, they could charge a price—$17,389—that would be profitable for all but the sickest patients.
But the trouble is that Medicare, the federal program for seniors, pays just $13,400 for knee replacement surgeries. There’s reason to be skeptical about how the hospitals calculate the resources they use in treating patients, but let’s assume for now that these data are accurate. That would mean hospitals are losing about $1,000 per Medicare patient that gets a knee replacement.
If Medicare makes up half of a hospital’s knee-replacement patients, then when that hospital quotes a knee replacement price to you or to your insurer, it needs to be about $15,500 just to cover the costs of care. To make a 10-percent profit, the price would need to be at least $17,000.
And if that guaranteed price attracted too many of the sickest patients—it could wipe out the hospital’s profits in a hurry.
So you can see why hospitals, given the choice, have for so long opted for getting paid piecemeal for everything they do and leaving it to insurers to handle the risk of really sick patients producing an outsized bill.
Those days are coming to an end, due to changes coming from Obamacare, pushback form employers and other trends. Now, hospitals have to become actuaries if they are going to quote prices upfront and still make money.
Their only other option would be to start adding on fees for each of your other medical conditions. And nobody wants to do that.