Who Exactly is the Hospital’s Customer?
Most people have a general understanding that the healthcare industry in the United States is a business. Forbes reports that for-profit hospitals in this country can make as much as 25 cents out of every dollar of patient revenue. And studies have shown that non-profit hospitals aren’t much different, with comparable revenue and a host of tax breaks. How do these hospitals make a profit?
If hospitals are a business, you would assume their customers are their patients. But hospitals rarely deal directly with patients in financial matters, and it’s not surprising that insurance companies and doctors themselves have more power. Examining how these entities keep hospitals running and generating revenue can be complicated because hospitals make money and lose money in a number of ways.
1. The Cost of Patient Care
There’s a common misconception that hospitals are getting rich off the insurance policies of everyone they admit, but in reality, hospitals are suffering from the effects of out-of-control health insurance costs, too. There are nearly 80 million uninsured Americans, and those Americans need cancer treatment, emergency surgery, treatment for heart attacks and strokes, and other care that they can’t put off as much as the dwindling number of Americans with strong insurance coverage.
The U.S. Department of Health and Human Services reports that 95 percent of the money billed to uninsured patients per year goes unpaid, resulting in nearly $75 billion loss for the hospitals. This is not even counting the 25 million Americans who have less insurance coverage than they need. Clearly, the hospitals are not relying on patients for their paychecks.
2. How Insurance Companies Dictate Prices
If you were to say the insurance companies are the real customers of the hospital, it would make more sense. Yet, the hospitals aren’t necessarily raking in a profit under their strict and sometimes impossible standards. Health insurance companies don’t like to pay out money, which comes as no surprise. When an insured patient gets sick, the hospital is paid in one of two ways. Patients with Medicare or Medicaid, or a few commercial groups, are billed through the DRG system, where they are classified according to a type of diagnosis.
But hospitals charge a flat fee for most commercially insured patients, based on how long they stay, how sick they are, and what kind of treatment they need. For most serious cases, the insurance company requires daily contact, and they can outright refuse payment if they disagree with a patient’s diagnosis on any day. Insurance companies are customers because the hospital serves them, but the amount of money they spend catering to their standards just drives up care costs altogether.
3. Are Physicians the Key to Profit?
The recession has had many effects on healthcare, but one that isn’t mentioned enough is the virtual evisceration of private practice physicians. CNN Money says that by 2014, 75 percent of the nation’s doctors will be employed by hospitals, due to the mounting costs of running a private medical office making it impossible for solo doctors to stay in business. This provides an opportunity for doctors and hospitals to reach a more symbiotic relationship.
Even before private practice took such a blow, doctors were responsible for referring the most well-insured and reliable patients. Now, medical staff is essential to determining the quality of care hospitals can offer and whether they can get the most results for their money. Recruiting talented physicians during an unprecedented physician shortage is the hospital’s top priority. They may not pay the hospital money, but their skills are their commodity, and without them, medical facilities won’t stay in business.
With an aging population suffering from heart disease, diabetes, and other serious medical issues, hospitals know there is more demand than supply when it comes to quality physician care. The upside? Hospitals may become more focused on physicians than the insurance companies. And in that scenario, the patient always wins.