Hospitals, Insurance, And The Squeeze

On this episode of Going Under: Anesthesia Answered, Dr. Brian Schmutzler and Vahid Sadrzadeh unpack why hospitals rely on operating rooms for most of their revenue and how private insurer denials, prior authorizations, and payment delays are pushing essential services to the edge. 

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Transcript

SPEAKER_00 0:16

This is going under Anesthesia Answer with Dr. Brian Schmutzler. I'm Vahid Sadar Sadi. We're brought to you by the Butterfly Network.

Pivot To Insurance And Hospital Pressures

SPEAKER_01 0:23

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SPEAKER_00 1:36

People are a huge fan of that TV show. Maybe maybe next week we can talk about the pit. That'd be good. Um today we're talking about insurance and pressures on hospitals. And do you go into a hospital and it's busy and you think to yourself, man, these guys must be making a killing over here.

SPEAKER_01 1:54

Yeah.

SPEAKER_00 1:55

It's not exactly that way anymore. Um, and maybe we can talk about how hospitals do make their money these days. Right. Um, and what legislators are doing about it to keep hospitals up and running. Um so let's let's go back to the beginning here and talk about um, you know, how do hospitals get their money? How do they make their money?

Where Hospitals Actually Make Money

SPEAKER_01 2:22

Right, right, right, right. So so just for a little background, I spend a lot of time in the rural small hospital critical access world where um there is some federal funding for that, but these hospitals are small, they run on very small margins, and they have to be very fiscally responsible, right? So there's a few things that are happening. All right, so so let's uh you know, how to act how to how do hospitals get paid? So 80% of the revenue of any hospital is uh is coming out of the operating room. Okay, so that's where most of the money's made. No matter no matter what the insurance of the patient is, most of the money's made out of the hospital out of the operating room.

SPEAKER_00 2:57

Is there like an Is it based sorry, this is just questions from me. Is this based on what does that physician charge per hour, or is this like a hospital fee?

Payers 101: Medicare, Medicaid, Commercial

SPEAKER_01 3:07

They have like the facility fee. Facility fee, right? Yeah, so so that's more what we're talking about. The the procedural fees, like I get paid the same to do anesthesia, whether I'm in an office, whether I'm in a hospital, whether I'm in a surgery center, um, doesn't matter, right? So it's not the professional fees. Those go the the only the only time those matter is if the physician is employed by the hospital system. Then the hospital system takes those professional fees and then uses that to pay the physician. Got it. But I'm talking about is the facility fees. The way that hospitals run is they get facility fees. So those fees mostly come out of the operating room. Now, not just the actual cases, surgeries going in in the operating room, it's also all the ancillary stuff. So they get paid more to have somebody on the floor staying overnight. They get more for having x-rays and MRIs and CTs and lab draws and physical therapy and all that sort of stuff. So the the money isn't fully generated just from the surgery in the operating room, but all the stuff that comes with it. But that's about 80% of the revenue of any hospital. So the hospital doesn't make a ton of money if you let's say you have a pneumonia and you go into the hospital. They're not making a lot of money off you coming to the hospital for pneumonia. Lab draws. I mean, some, but they're really making a lot of money if you come in for a broken arm, you know, that you have to have surgery on. X-ray, a total knee replacement, like like Dr. Adam CN does, right? So that's where most of the money comes from hospitals. So it gets paid by Medicare, which is typically the highest percentage of payments that hospitals get. Sure. Medicare sets the baseline. So, you know, every state administers Medicare a little bit differently, but it's in a pretty tight range of what hospitals get reimbursed for that, for Medicare, whatever, right? So Medicare, whether you go in for pneumonia or you go in for a total knee. Medicaid usually pays even less. Now it's interesting in the state of Indiana, um, at least prior to losing some of the Medicaid funding because of federal things, Indiana pretty much told Medicaid, because we had the money to do it, that they would pay the same as Medicare. So that was a huge boost to a lot of these hospitals. So a lot of small rural and critical access hospitals take a lot of Medicaid, just because the more rural you are, the less likely you are to have a high-paying job and all that sort of stuff. So Medicaid in general pays less. Indiana's a little bit better. Then you've got commercial insurance rates. Typically, the way that things work with commercial insurance is they take Medicare, let's say, and I'm just making things up, let's say Medicare is$100, just because it's easy math. What the insurance companies will say is we'll pay you 125% of Medicare or 150% of Medicare. And so if you're paying, getting paid 100 bucks by Medicare, you're getting 125 or 150 from a private insurer, like Anthem, Blue Cross, Blue Shield, Aetna, United, all those companies. Okay. So that's the baseline of where the money actually comes from. The problem is, and now Medicare and Medicaid are less likely to deny just because they don't have a financial, really a big financial incentive to deny care. The private insurance companies deny a lot, right? So they're they have people that they're not going to be able to do. That's Blue Cross. That's Blue Cross, that's Aetna, United, Cygna, all those companies. They get paid, they pay a multiple amount of people to go in and try to make sure that they deny cases, right? They look for things, any little thing on there that they can deny the case. Well, because they there are companies that have shareholders, so their whole job is to make money, not to not to make sure that they're paying for the case.

SPEAKER_00 6:40

But don't they know that I mean eventually that's gonna shut hospitals down and like people are not gonna be able to afford care? Yeah, but do you think the shareholders care about that?

SPEAKER_01 6:47

No, they don't care about that, right? Why would they? All they care about is what they get in their pocket in the next dividend. So that's insane to that.

SPEAKER_00 6:56

I mean, whatever.

Denials, Delays, And Prior Auth Tactics

SPEAKER_01 6:57

So here's the other thing though. Insurance companies, particularly the private insurance companies, again, less so Medicare and Medicaid, sure, are forcing more prior authorizations, meaning that if I say, Oh, Vahid, your your knee is terrible, you need to come in and have a total knee done. A lot of the private insurers will go, well, nope, we're denying that. You have to do six weeks of physical therapy. Oh, you did six weeks of physical therapy, but you didn't try an injection of steroids. So you're gonna have to do that and wait another three weeks. And then, you know, we're still denying it because, yeah, you know, you can't prove to us that you lost enough weight to actually be a uh a candidate for the uh the total knee. And then, well, you know, now you lost the weight, but you know, we need to get another x-ray because your x-ray is too far out of date now. Yeah, so it's a it's a game that the insurance companies play. And then if they by some chance Does this happen with dental places too? Yeah, they do. Although the dentists are brilliant because what the dentist did is they said, We're not taking anything ahead of time, right? We're gonna charge you ahead of time a thousand dollars for your crown. Your insurance company might pay you back some, but I'm not as a dentist, they're not taking any risk, right? So they've got your thousand dollars in hand, and then your your insurance company will pay you back whatever they think is fair. Right? So you pay a thousand dollars for a crown, they'll pay you four hundred bucks to say they think a crown's worth four hundred bucks, but the dentist has already got your thousand dollars, right? It doesn't matter. So that's a dangerous game for people. Correct, correct. Here's the here's the other thing, though. So let's say they authorize you, they're they're going to pay, right? So they're not denying it. Then they just hold back the payment because these insurance companies say, What are you gonna do? Right. So there's an insurance company here in northern Indiana that several of the people that I work with uh they were behind in paying them by eight months. They just said, Yeah, we're not paying you right now. What are you gonna do about it? Eight months? Eight months, yes. So, but there's nothing you can do about it. There's nothing written in law that you can fight the insurance companies about this. Does there need to be? Oh, a hundred percent. Yeah. I mean, so and so this is something, and we don't, you know, generally talk a ton of politics on here, but we'll talk a little politics. You know, the in Indiana in particular, the legislature has gone after hospitals a lot. You know, there's a thing called the Rand report that came out six, seven years ago. Six, seven years ago.

SPEAKER_00 9:23

That as my 12-year-old said, Brian, that's so last year.

SPEAKER_01 9:28

That's so last year. So so the um the Rand report came out and said that the the big five in Indiana, and I won't name them because I don't want to blah uh to uh to slander anyone, but the big five are the most expensive in the country, blah, blah, blah. And the way that the Rand report was flawed in many ways. The way they did it was not perfect, but cost of care, at least in perception, is high in Indiana. So the legislature has been just slamming hospitals. And I'll tell you, what that's meant is that hospitals have either stopped doing certain services, particularly obstetric services. There's tons of hospitals that we service in rural and small communities where they say we're not doing OB anymore. You've got to drive to Fort Wayne, you've got to drive to South Bend.

SPEAKER_00 10:11

Well, I was gonna ask you that question, too, because that seems where a lot of hospitals make their money together.

SPEAKER_01 10:16

No, not OB. No, obstetrics is a is a money. Really? Yeah, yeah. Because it's mostly the procedure of a vaginal delivery is not paid well.

SPEAKER_00 10:28

It's not a it's not a use the cost of the case.

Consequences: Service Cuts And OB Closures

SPEAKER_01 10:32

So they but so they bundle it. That's what the all these insurance companies do, including Medicare and Medicaid, is they bundle like, okay, you're gonna come have a baby, sure, and here's your bundled price. And so it's not a moneymaker, it's a service to the community. Obstetrics is is almost always I can't I can't think of a single hospital that I've ever worked at or ever had any association with that's making money on obstetrics. Got it. Yep. So they're cutting that service first, then they're cutting call services. So we have a bunch of hospitals again around Fort Wayne and around South Bend, where they said, we're not doing call anymore. It's too expensive to pay people to come in, we're not getting reimbursed enough. We become a day surgery hospital. So they have patients upstairs that are dealing with medical or whatever, but we're we don't do emergency cases at night. If you have an emergency and you come into our ER, we're sending you to Fort Wayne or we're sending you to South Bend.

SPEAKER_00 11:21

So if you're starting, if I'm starting a hospital today with Dr. Brian Schmutzer, okay, first of all, is it a good idea? No, no, definitely not. Uh surgery center, better idea? Maybe. But if that's getting cut too now. If you start a hospital here, what is the one thing that I cannot not have in the a surgery center?

Night Call Ends And ER Diversions

SPEAKER_01 11:40

You have to have surgery. You have to have surgery, right? You have to have operating rooms and you have to have efficiently functioning operating rooms. And if you don't have that, then you're typically going to lose money. So so then the next step is after you've eliminated the services that don't make money, which is like obstetrics, and then you've eliminated call, like so you don't do anything at night, then you just shut down as a hospital, right? So it gets to the point where you just don't aren't able to do it anymore. And so I guess what I'm saying is our legislature has taken a swing at the hospitals and has really put a lot of pressure on them about cost. I think what they've missed is that most of this pressure is actually coming from the insurance companies because the hospitals have to make money. They have to make money on top of what they would have gotten paid from the insurance companies because they never know when they're going to get denials and prior authorizations and you know, delays in payments and stuff. And so they have to charge more. And Indiana, and I would argue that one of the big reasons why Indiana hospitals are so expensive is that the largest payer, non-government payer in the state of Indiana is Anthem, which was a combination of two medium-sized insurance companies that joined forces and became a gigantic insurance company. And their rates are atrocious, their denials are atrocious, the amount of uh delay in payment is atrocious. And so you've got that's probably 60% of the private insurance in the state of Indiana who's not paying the way that they should. So, of course, the hospitals are saying, well, uh we've got to be able to survive here. So, what are we gonna do? We're gonna charge more money so that people with insurance or people who are self-pay are covering all those losses from the people that they're not getting paid from by particularly Anthem.

Why OR Efficiency Is Non‑Negotiable

SPEAKER_00 13:27

So you're looking at, I mean, like some of the um, you know, old clinic looking facilities, right? And I mean not specific ones, I'm just saying like that general modality is can't have that anymore, essentially.

SPEAKER_01 13:45

It's hard. It's hard anymore. Yeah. And so then then there's all these like mergers and acquisitions and well, you cut staff, right? I mean, like Yeah, but but then you're merging hospital systems, right? So there used to be so so if you talk, there's one of the bigger systems in the state that's going and buying up hospitals. Now, I you know, I'm all for I'm all for these hospitals surviving, but you're also eliminating competition. I'm not saying it's the wrong thing to do, right? It's close the hospital or get purchased by a bigger hospital system, but you're by eliminating competition, you're then actually driving prices up, right? So absolutely right. So so it it's gonna be a tough balance, but I get why hospitals have to do it because you're there are certain communities that if a bigger hospital system didn't buy out the hospital, they wouldn't have a hospital anymore. They would just shut down.

SPEAKER_00 14:34

So um I mean, but it's rare to find independently owned homes, yeah, hospitals, and clinics anymore. I mean, it just doesn't happen. Yep.

Consolidation, Competition, And Prices

SPEAKER_01 14:44

Um and then what do you want? Do you want them purchased by a big system in the state or do you want them purchased by private equity? Because there's a whole set of hospitals in our state that are owned by private equity? By private equity. Well, they're a for-profit system, so there's some there's some outside money in there. I don't know that they're fully private equity backed, but there are hospitals in our state that are for-profit. So bad for every I mean, I'll be honest. The for-profit hospital systems are bad for everybody.

SPEAKER_00 15:12

So this is a two-part question. Yeah. A, if this is happening, what are you seeing? What can you do as a patient? What are you seeing what can you do as a physician? Um, not much. This on either side.

SPEAKER_01 15:26

No, I mean, this is gonna become a legislative matter. Uh you know, I I can't fight the insurance companies as a physician, and you can't fight the insurance companies as as a patient. There I don't know what to do about any of this. You know, I the I mean, unless we just band together and do, like we've talked about before, direct to consumer care. So you work for whatever, let's say a high RV company. Yeah, right. You work for an RV company, and the RV company contracts directly with a physician group, you know, make it up. New co-physician group. Sure. That RV company contracts directly with that physician group, and directly with the surgeon group, and directly with a hospital, and says, okay, I'll pay you X amount, give us your fee schedule, we'll negotiate that directly, and I'll pay you X amount. And then there's no insurance company involved, right? So then who you're dealing with is the director of HR for your RV company instead of some distant CEO of an insurance company. So that's maybe the only way to do it. Um, you know, a lot of primary care physicians are going to DPC, which is direct primary care, where they say, I don't take insurance at all. Right. No Medicare, no Medicaid, no insurance, and that's they pay me cash.

SPEAKER_00 16:36

That's the concierge medicine. Yep, yeah. Um so in general, as we kind of review and put a cap on the conversation, what can be done in the state of Indiana, what can be done nationally, you know. This puts a lot of people in a tough spot.

What Can Patients And Doctors Do?

SPEAKER_01 16:56

Yeah, yeah. I I mean, I I think I think if you d generate enough uh support to push back from a legislative perspective on the insurance companies, and I have some ideas, but I won't share them here, uh, of how we can do that. I mean, there's been a couple of states that have pushed back on the insurance companies and said you guys are monopoly, and I mean, honestly, they're practicing medicine without a license, right? I know they have a little clause in all their contracts that says you can still have this done, we just won't pay for it. But when you're talking about somebody who has to have a hundred thousand dollars of care done and they make fifty thousand dollars a year, they'll never be able to afford that. So they really are forcing people to not get the care they need, and that's practicing medicine without a license. Period. Period. So yeah. So so you know, and I don't want to be all doom and gloom. There are some good ones out there. There in particular, and and I have no tie to this company whatsoever, but just doing research in the state of Indiana, PHP, which is physician health plan or something like that, they're kind of a local company. You know, they're not not for profit, they they're in it to make money, but they don't they don't seem to have the same level of just pure hatred for their uh for for their subscribers that that the national and and even the you know big ones that aren't technically national but are um have so like if you're if you're looking for a health plan, if there's something a little bit more local, like here in Indiana, PHP, maybe that's the way to go. Maybe we get away from all these, you know, Blue Cross, Blue Shield, Anthem, United, Cygna, Aetna, and we go towards some of these companies who are actually in the community. But otherwise, you know, it's it's gonna have to be something where we just eliminate them completely.

SPEAKER_00 18:44

The debate wages on with the insurance companies. It does. But I I do that seems endless, honestly.

Direct Contracting And DPC Paths

SPEAKER_01 18:49

I do want to make the point that I don't think that continuing to go after hospitals, whether or not you think there's some bad actors there, is the right thing to do. Because if you keep going after the hospitals, all you're gonna do is shut them down and then people don't get care, right? So we have to have hospitals. Good or bad, we have to have hospitals. We have to have physicians, we don't have to have insurance companies. We can figure out a way to survive without insurance companies who provide really no value to the system and take a lot of money out of it. So I would caution anybody from getting too mad about a hospital or a physician about the cost of care. The cost of care is coming a lot from those insurance companies.

SPEAKER_00 19:32

Well said. I'm gonna end it right there because I'm not gonna say anything that trumps that. Uh oh. Uh, this is going under anesthesia answered with Dr. Brian Schmutzer. I'm Vahid Sadra Zade. Uh, and we'll see you in the next one. Sounds good.