What is ‘avoidable overpayment’?
For the purposes of this section, we consider ‘avoidable overpayment’ to be either waste or paying more than reasonable and customary rates:
Paying for a service or product that has no value to you; that you did not request; or that was predictably harmful or for other reasons you did not want to receive.
With our national healthcare spend greater than $3 trillion, imagine what we could do if we saved between $1 – 1.5 trillion?
Paying too much (relative to alternatives) for a service or product that does have value to you.
This includes paying Charge Master rates that may be 2-10 times as much as reasonable and customary rates for excluded benefits or out of network providers; or paying otherwise artificially inflated rates for commodity products and services (such as diagnostic tests). We haven’t been able to find any good study quantifying how much this is costing families each year; but in general terms, the PPACA (commonly known as Obamacare) has caused insurance companies to drastically narrow their networks and expand their lists of excluded benefits, so this problem has gotten MUCH worse in the past several years. And historic problems with price transparency have precluded individuals from knowing that a diagnostic test at a local hospital or academic medical center, for example, may be 2-5 times as expensive as the same test at an outside diagnostic service provider.
So ask yourself. Can you and your family afford to pay for waste? Or to pay more than market rates for commodity products or services? For most families, avoidable overpayment on even one diagnostic image, let alone a hospital visit, means a significant hit to vacation, education, or retirement savings.
And in too many sad, sad cases, it can even lead to bankruptcy.
What are the most common situations resulting in avoidable overpayment, and what can I do to avoid them?
As an overall consumer …
First and foremost, stay healthy!
Far and away, the most important thing you can do to avoid overpayment is to avoid the conditions that result from unhealthy lifestyle choices. Apply our Equation for Life, stay healthy, enjoy an optimal quality of life, and bank your savings. A young person with their first high deductible ($5,000) health insurance plan and health savings account at the age of 25, who contributes monthly (pre-tax) an amount equal to 1/12 th their annual deductible, and who used less than $1000 in healthcare related services per year, would have an HSA balance of $508,421 when they retire at age 65.
Make an informed choice of insurance plans.
Be deliberate about forecasting your consumption of sick care services and products, and choosing a plan that is best for you in terms of limiting total out of pocket expenses (premiums, deductible, co-pay and co-insurance) and managing the risk of an unforeseen injury or illness. When possible, avoid overly narrow networks that may force you to out of network providers later. See more below under ‘How do I avoid over paying for health insurance?‘
Choose a primary care provider that you can trust.
One who will invest the time to collaborate with you and understand you as a unique individual, including your personal beliefs and values. You’ll need their advice along the way, and their experiences and knowledge of your local environment is often the key to finding you the high-value treatment options. See more about choosing your PCP in the Chapter ‘Drafting the best physicians …’. See more about how your PCP can help you avoid unnecessary expenses under ‘Choosing tests, meds and procedures’.
Understand your disability insurance options.
Short-term disability insurance is a common and popular employer benefit, but long-term disability is not. While often relatively modest in cost, most people don’t carry long-term disability insurance. Absent long term disability coverage you’ll be caught in a double-negative; spiking sick care expenses on top of loss of income. This is why long-term disabilities are one of the most common causes of healthcare related bankruptcy.
When consuming outpatient services and procedures …
Consciously and selectively use preventive care and screening services.
The right preventive care can result in early detection and treatment, will help you feel better faster, and can save significant sums of money. Over use of diagnostic or screening services (essentially diagnostic testing in the absence of symptoms), however, can result in over-diagnosis, unnecessary anxiety, over-treatment, avoidable side effects, and over payment. The best way to do this is to choose your primary care physician carefully, then collaborate with them.
Consciously and selectively use diagnostic tests and procedures.
We all need them from time to time and they can be very helpful in the diagnostic process (ie in the presence of symptoms). But always be certain of the anticipated value and seek low cost options when available. For example, diagnostic services from local hospitals are often several times more expensive than equivalent services from independent specialty diagnostic service providers, even when both are in network. See more below under Avoiding unnecessary or harmful tests, meds, and procedures.
Work with your PCP to avoid diagnostic services from out of network providers.
Most outpatient clinics use multiple labs and imaging companies. Be sure that your procedures go to in network diagnostic providers.
When consuming inpatient services and procedures …
Understand how to avoid unanticipated out of network providers and excluded benefits.
Instead of just asking whether your intended procedure is an included benefit, ask whether the last 20 (or 50, or 100) patients who were treated for your procedure at your chosen hospital were also billed for other services that were excluded benefits. Instead of asking whether the hospital is in network, ask whether all the providers who have privileges at the hospital are in network. See more under Avoiding unexpected out of network providers and excluded benefits.
Understand how financially vulnerable you are under most ‘Informed Consent’ agreements.
Once you sign, you could, depending on the specific language for that provider, be giving up most legal recourse in terms of your financial obligation for anything the hospital bills for but your insurance plan doesn’t cover. Regardless of whether you agreed to, wanted, or benefitted from the services or products billed for. For more details, see What is ‘Informed Consent’?
Understand how to read your EOB and recognize errors and over billing.
If you have done your homework in advance to avoid unexpected excluded benefits or out of network providers, but still receive a bill that is in excess of the sum of your deductible and co-pay under the terms of your insurance plan, something is wrong. It either includes an unexpected out of network provider, or an unexpected excluded benefit, or an error, or over billing. Learn how to recognize and fight these when possible. See more under How do I read my EOB?
When dealing with chronic conditions …
Work with your PCP to coordinate your care.
The opportunity for wasted visits or redundant diagnostic tests (and the associated expenses) is huge when care isn’t coordinated. This will be difficult for your PCP (remember – they generally don’t get paid to coordinate the care of other doctors), but with their help you can avoid significant expenses. Insist that all of your physicians work on one, integrated care plan for you in an effort to treat you as a whole person, rather than the sum of your conditions.
Work with your PCP to understand whether your chronic conditions can be cured.
Over 80% of the most common conditions can be cured by making lifestyle changes. That means a lifetime’s worth of medications and other related expenses can be avoided – that’s huge! And if you’re taking more than 4 medications, keep in mind that the opportunity for adverse side effects from unexpected cross reactivity goes up sharply. Ask your PCP the right questions and work with them on steadily replacing medications with dietary and other lifestyle changes.
Work with your doctors to understand your most cost effective options.
Generic vs name brand medications? Bulk or on-line purchases vs the corner drug store? Orthopedic devices from Amazon instead of a medical device specialist? Be sure you’re asking the right questions.
When approaching the end of life …
Decide in advance what’s best for you.
These decisions are most often based on a person’s choice between living the final days, weeks, or months focused on being around loved ones and as comfortable as possible; or pursuing every available option to extend life. Financial considerations are usually secondary, but the financial impact of these decisions is often very significant. Understand what procedures are unlikely to either extend life or improve the quality of your remaining life so you have the option to avoid them if you choose. Discuss your desires with your PCP and your Proxy, and document them in your Living Will, POLST, and healthcare power of attorney.
Why is overpayment so common?
To help understand why unnecessary overpayments are such a prevalent part of our current medical model, we first need to understand some cultural aspects of our current system that have evolved over time.
Patients assume that more care is better.
In every other aspect of our society, more is perceived as better. More food, more exercise, more toys, more money, more friends; more, more, more. This isn’t necessarily always so in sick care, but has lead to patients expecting or even demanding as many procedures, tests, or other services as they can possibly get.
In a more favorable environment, patients would collaborate with their physicians and persistently ask: should I consume a product or service, or not? What are my alternatives, and given my personal circumstances, which alternative can be predicted to be of highest value to me?
Doctors and provider institutions assume that more is better.
Doctors are trained to diagnose and treat, and to use every diagnostic tool at their disposal. Doctors and provider institutions are predisposed to ‘do everything we can’. And to ‘go the extra distance’, or to do more diagnostic testing ‘just to be sure’. This leads to a bias towards overconsumption and over-diagnosis. These patterns are further compounded by our existing fee for service payment model, which financially incentivizes doctors and provider institutions to do as much as possible to maximize their reimbursements.
In a more favorable environment, doctors would collaborate with their patients to focus on personalized, high-value care. Both doctors and the institutions they work for would be paid based on value delivered, and not on volume.
Patients have historically been shielded from consumption decisions.
In our historic, paternalistic relationship with our physicians, our doctors decided what we needed and we didn’t ask questions.
In a more favorable environment, doctors would collaborate with their patients to focus on personalized, high-value care. What’s best for that particular person under those particular circumstances at that particular time? What are the alternatives? What is the likelihood of each alternative to result in benefit? How much does each alternative cost? The doctor should advise, and the patient should decide.
Patients have historically been shielded from the costs of the care they receive.
Just a few short years ago, the typical insurance plan had low deductibles and co-pays were less of a factor, so the patient had little financial skin in the game. With the exploding costs of healthcare, high deductible plans increasingly mean patients are paying far more out of pocket.
Is there a more favorable environment likely in the future? Probably not. All indications are for an accelerating shift of financial responsibility to the patients.
Doctors have historically been shielded from the costs of the care they provide.
There has been a prevailing mentality within the medical community that doctors should not know the cost of the treatment options available and should focus exclusively on providing the best care, regardless of cost. In a world where patients were shielded from costs, this created a perception of patient and physician vs insurance company.
In a more favorable environment, doctors would appreciate that patients are increasingly financially responsible for their treatment decisions, and should collaborate and focus on value based on that patient’s personal circumstances.
Patients assume that more expensive care equals higher quality care.
For every other product or service that we consume, there is a direct correlation of cost to quality – this is the natural result of normal supply and demand within a market. In sick care, however, there has been a notable absence of normal market pressures and the result has been no correlation between cost and quality. In fact, when we look at many current Centers of Excellence within our existing model, we often find that the highest quality care is at or close to the lowest cost.
In a more favorable environment, patients (and doctors) would have better access to both anticipated costs and outcomes (quality) when evaluating options for treatment.
Patients assume that the behaviors of their doctors and provider institutions are always driven by what’s in the patient’s best interests.
We go to doctors and hospitals during our time of greatest need and greatest vulnerability. We want to believe that their behaviors are focused exclusively on what’s best for us. By and large, they want to believe that as well. But in a system driven by fee for service based reimbursements, institutions will be predictably biased towards their own self interest by providing more services (and collecting more revenue) even when the effect on the patient is low value, no value, or even harm. These pressures are further compounded by the enormous influence of the pharma and medical device industries, whose profits allow for extraordinary budgets to aggressively ‘educate’ providers on the use of their latest products or technologies, regardless of cost and/or in spite of questionable value.
In a more favorable environment, patients would understand their role of looking out for their own best interests and would ask appropriate questions to ensure that they receive only valuable services and products that they desire.
Doctors and provider institutions have historically been pitted against insurance companies in a zero sum game.
Insurance plan fee schedules are constantly being renegotiated. Providers want to be paid more and insurance companies want to pay less. Generally speaking, in a given market either the insurance company or the provider will have the upper hand. Predictably, one party uses their leverage to force terms favorable to them at the cost of the other party. This results in persistent tension, with providers trying to maximize what they bill for and insurance companies denying claims, passing costs on to patients, or increasing premiums. With the recent increase in high deductible plans, patients are receiving bills from providers that were originally intended to be adjudicated by insurance companies. These bills can be extremely confusing, and can include descriptions for services rendered that are difficult to match with the patient’s experience, as well as artificially inflated prices that do not reflect either reasonable and customary rates or what the provider actually expects to collect.
In a more favorable environment, patients would understand enough about how the existing medical billing process works to protect themselves from billing errors, to only pay for what they received, and to only pay reasonable and customary rates.
Historically, if a hospital was in network, then all care received there was billed as in network.
This meant one of two things; either all the providers within the hospital were employees of the hospital, or, if some providers had contracted relationships with the hospital, they had also agreed to be in network providers for the same insurance plans as the hospital. More recently, two sets of market forces have converged to significantly change this; first, hospitals have increasingly turned to contracted providers for major departments, and these contract provider’s relationships with insurance plans are independent of the hospital’s. Examples include hospitalists, ER staff, pathologists, anesthesiologists, and surgeons. Second, in an effort to keep premiums low, insurance companies are defining increasingly narrow networks of providers for a given plan. The result to the patient can be a visit to a hospital that’s in network for an included benefit, resulting in treatment by and one or more providers who are out of network – without the patient knowing in advance.
In a more favorable environment, a patient would be aware of this possibility and confirm the in network status of all providers prior to committing to services at their selected hospital.
Remember: We coach, support, educate, and empower. We illuminate options you may not have known you had. But we don't decide what's right for you in your unique circumstances; only you can do that. And we don't provide medical, financial, or legal advice; nor do we replace the valuable counsel of those who do.