Price of a claim

When was the last time you were allowed to see who and how a hospital creates the cost of a service? The system has been opaque and confusing for the last 30 years, on purpose. The chargemaster in a hospital creates a confusing, hidden price model based normally on a few factors – commercial plans offered through employers, Medicare & Medicaid, Self-pay, and the Uninsured. So in this methodology, somehow, they come up with a “cost of goods’ that they use to negotiate prices and reimbursements for the aforementioned parties. The problem is, we end up with a cost of a staple in a hospital becoming $450 when you could purchase 1,000 of them for $30 from a supplier.

With Navinsure, we do not believe in this broken system, nor the carrier products that allow it – so think traditional PPO plans, or the HMO/EPO products historically purchased in the last 30 years through the largest insurance carriers. When we consume goods from a provider or hospital or pharmacy for that matter, the cost of the service, medicine, or surgery, commences with the provider of the services. So, in this case, let’s use a hospital:

Shoulder surgery – full-thickness rotator cuff repair

  • Cost of the facility bundled – outpatient surgery center operated by a physician group vs a large hospital – let’s say CMC in Charlotte, NC
  • Surgeon’s cost
  • Anesthesiologists Cost
  • General Supplies
  • Pre-op/post-op

In a nutshell, those would be the larger ticket items and depending on who your insurance carrier is, say Blue Cross, or United, you get a % discount of the cost they charge – we can average, and say at the very best, 50% off. Here’s the catch, the cost, many times, is 100 – 2000% of what the largest payor in the U.S. healthcare system, Medicare, allows. So if you use layman’s economics, you’d understand the cost of your insurance is radically higher than “Medicare” because the cost of a claim sores to the highest of heights. So below I’ll use the above illustration with real costs examined using an outpatient center in Charlotte, NC by the best Orthopedic Model in the state, if not one of the best in the U.S. compare to the same event in one of the 2 largest hospitals in Charlotte, CMC:

  • Cost of facility bundled – outpatient $2300, hospital-based center $18,500
  • Surgeon’s cost – outpatient $2500, hospital-based $3500
  • Anesthesiologist Cost – outpatient $2500, hospital-based $5000
  • General Supplies – outpatient bundled in facility charge, hospital-based $2000
  • Pre-op/Post-Op – outpatient bundled in facility charge, hospital-based bundled in facility costs

So let’s recap this comparison, and hopefully, dispell some of the myth on how the “cost” of claim ends up being the huge number you see on your Explanation of Benefits from your carrier, and why insurance premium is so high: being able to navigate for the service away from the “large, best hospital” according to the hospital did save this real consumer $21,700. Same service, same great Surgeon, same awesome supplies, beautiful and facility, renowned Anesthesiologist, but no overpriced hospital environment.

In a Medicare allow environment, the cost of this claim is even lower, but not necessarily the price that most employer-based plans would end up paying, as facilities already claim poverty on the low reimbursements of Medicare. Again, a myth. Over 65% of claims in the U.S. system run through Medicare, and ironically enough, over 60% of hospitals in the U.S. are profitable on Medicare alone. Hence, our reference-based pricing system negotiates up from Medicare and normally settles, on average, around 150%-160% of Medicare, or a huge increase to hospitals from their largest payor.