I have been on a mission to figure out why some health systems, particularly in the oncology space but not limited to the oncology space, could manage to mark up the price of infused specialty pharmacy drugs up to 6x. Some employers and patients are paying six times the cost of a specialty pharmacy drug in markup for some already incredibly expensive specialty pharmacy drug at some oncology centers. Read more about this in a study by Roy Xiao, MD, and colleagues.
Let’s not forget now or ever that financial toxicity is clinical toxicity. This 6x is exactly how financial toxicity is operationalized. Many patients are charged a coinsurance percentage based on their cost of care, after all; and like 20% of 6x is a huge number, it is a huge bankrupting bill for some patients—maybe many patients. That, plus their premiums go up because, of course, their employers are picking up the remaining 80% of that 600% markup.
Families are already, on average, paying I think it’s $22,000 in premium; and the trend line on that premium growth continues to go up steeply in the 2022-23 projections that I have seen.
Bottom line: This 6x is not a victimless modus operandi is my point.
But what I wanted to know is how they do it, these health systems. Charging 6x the cost of a super expensive specialty pharmacy drug in markup would seem to require some skill, right? And any time I see a Pandora’s box, I have a terrible habit of trying to get in there.
Autumn Yongchu and Erik Davis to the rescue. Today’s show digs into how some health systems and hospitals stack the odds that no one will notice their 6x markups and just pay the bills. Here’s the short version of the playbook, but you’ll need to listen to the show for a more robust explanation.
First off, keep in mind that while Medicare Part B tells hospitals to charge ASP (average sales price) + 6% (ish) when they buy and bill Medicare patients, there is no such guidance for commercial patients. Commercial insurers negotiate a fee off chargemaster rates, and as we all know, those chargemaster prices are, in general, based on absolutely nothing and are, in general, sky-high. So that’s the first thing.
The second thing gets into coding. Let me give you the general idea here, but we talk about this in some depth in the conversation to come.
As you likely know, hospitals get paid by sending bills with codes on them—procedure codes, for example. We the hospital did this procedure, and our charge for this procedure is $4000—so, here you go. Code followed by dollar amount is shown on somebody’s bill or explanation of benefits document.
These procedure codes are standardized across the industry for the most part. It’s not like every health system and/or payer is making up their own. This standardized set of procedure codes is called the Healthcare Common Procedure Coding System, affectionally known as HCPCS. So, if someone starts talking about a HCPCS code, all it means is that the code comes out of that standard set of codes.
Now, J-codes are one kind of code in this common procedure coding system. They are procedure codes that start with a “J.” These J-codes are for procedures involving (usually) specialty pharmacy drugs. A J-code identifies the specialty pharmacy drug that was used in the procedure.
So, you’d think it’d be pretty easy to audit a hospital bill, right? You look at the J-code on the bill; you find the ASP, the average sales price, or whatever of the drug; and then you get out your trusty calculator and you do the math on what the markup is.
And okay, maybe this works sometimes … but the problem is that so very, very often, the hospital doesn’t put the actual drug’s J-code on the bill. There’s this miscellaneous J-code that doesn’t specify the drug used, which is a quite common tactic, it seems. (I learned that in this episode.) Hospital just sticks “Miscellaneous chemotherapy” on a bill with a price after it, and nobody knows what drug was used.
Or the hospital will send a bill that just includes revenue codes. I think about revenue codes as the name of the section of the bill. It’s like on a menu: There’s that section, that headline, that says “Seafood” with a whole list of seafood dishes underneath it. In this example, the Seafood header is like the revenue code; and the J-codes are the actual dishes. Some bills come from the hospital, and all they have on them are the revenue code. There was some seafood. We’re not gonna tell you what dish or how much seafood, but yeah, seafood. The only thing we know about seafood is that there was some and it was very pricy.
The main point here is that how health systems get away, in large part, with charging a whole lot for specialty pharmacy drugs is that their bills roll up charges into these very opaque codes that include lots and lots of stuff that is not broken out.
When I interviewed Marshall Allen (EP328) and we talked about his book Never Pay the First Bill, he said step one in getting an accurate and fair bill is to ask for the line item charges—and now that is totally making sense to me and also why this is so vital.
Just be aware, if you ask for these breakouts, you will likely get a huge box of hard copies. Check out this photo of a literally three-foot pile of printouts that one patient-turned-artist exhibited at an art show recently that I saw. If you don’t have the stamina to sort through all of those pages and pages and pages, you could be subject to 6x or more in markups or billing errors which are all too common and all too expensive. Hospital charges are a huge chunk of any employer’s healthcare spend, after all—over half of it in some cases. These are not small potatoes that we’re talking about. These are bills that bankrupt patients and make premiums go so high that patients cannot afford to get care.
In this healthcare podcast, as mentioned earlier, we have two guests—Erik Davis and Autumn Yongchu—both from USI Managed Care Consulting and both having spent decades deep in the inner workings of the healthcare industry. And the topic of today’s show required that depth of knowledge, for sure.
You can learn more by connecting with Erik and Autumn on LinkedIn or by emailing them at erik.davis@usi.com and autumn.yongchu@usi.com.
Erik Davis, AAI, CIC, CRM, is senior vice president and principal consultant, managed care and analytics, at USI Insurance Services. He has over 30 years of experience in the insurance and risk management industry. Erik works to create an environment that supports the healthcare risk management goals of an organization while maintaining focus on compliance and financial accountability. He is instrumental in vendor negotiations, data benchmarking, population health strategies, claims analysis, recommendations in plan design, and communication strategies.
In this capacity, Erik has been involved with development of rates, payment structures, and recommendations of changes in processes, policies, and procedures. He has a broad understanding of contract analysis, evaluating risk, auditing for correct payment, and structuring of excess loss and pharmacy programs.
Erik’s experience extends from overall employee benefits consulting to workers’ compensation, as well as managed care organizations in Medicaid, Medicare, and commercial contractual risk arrangements.
Erik earned his bachelor’s degree in economics from Oregon State University. He holds Accredited Advisor in Insurance (AAI), Certified Insurance Counselor (CIC), and Certified Risk Manager (CRM) designations.
Autumn Yongchu is a healthcare operational risk consultant at USI Insurance Services. Autumn works with multiple database platforms to examine data for trends and abnormalities. Using investigative querying, medical coding analysis, and report development, she provides resources that help identify cost control opportunities and assists organizations in strategic business decisions regarding the management of healthcare risks.
Autumn analyzes and interprets healthcare utilization data, allowing the development of initiatives regarding claim and risk management. This includes identifying fiscal and clinical strategies and providing necessary information to develop, design, and implement management initiatives. Autumn also analyzes trends, assists with insurance underwriting, and adjudicates stop-loss claims.
Autumn has an in-depth knowledge of Medicaid and Medicare billing guidelines and payment methodologies.
Prior to joining USI, Autumn was a claims auditor and trainer for a managed care organization which serviced over 100,000 commercial, Medicaid, and Medicare lives. Her responsibilities included contract analysis, claims adjudication, ensuring accurate payment, and identifying and recouping errors.
07:33 How do hospitals maximize inpatient bills?
08:05 How can hospitals upcode on specialty pharmacy products?
09:44 “It’s really not uncommon to be overbilled and overcharged.”—Autumn
11:11 Why do marked up bill charges actually affect the price commercial payers pay?
12:49 “If your payer’s not double-checking … how do you know that fraud’s happening?”—Autumn
12:52 “If the payer doesn’t have the detail to validate what that drug actually is, then are they really checking?”—Autumn
13:33 Why is it so hard to verify what you’re actually paying for on a hospital bill?
16:28 How do hospitals maximize profit with outpatients?
17:12 “Really it comes down to contracts and how [the] contracts are written.”—Autumn
21:54 “There are … silos within healthcare, and none of them actually talk to each other.”—Autumn
24:56 “There are these rules out there, but there are also big loopholes out there.”—Autumn
26:13 How can hospitals maximize payments for Medicare patients on drugs that have been out for a while?
29:30 “We just have a tendency to assume … that Medicare has a rate for everything, and Medicare doesn’t.”—Autumn
30:32: EP369 with Keith Hartman, RPh.