Ms. Grace Chen knows to avoid the perfume section in the department store. At 53-years-old, she has lived with asthma her entire life. Scented perfumes and other “triggers” can suddenly cause her airways to spasm, sending her into a fit of wheezing. Today, she is not entirely sure what set off her symptoms, but she could feel her chest tightening up as it became more and more difficult to catch her breath, a sensation that she has experienced many times before. She reached into her purse to take out her inhaler and took a few puffs. She still felt like she was trying to breathe through a snorkel to get the air down to her lungs. Realizing that she may need help, she asked her son to drive her to a nearby urgent care clinic.
At the urgent care clinic, Ms. Chen is evaluated by a physician, given a breathing treatment, and undergoes an electrocardiogram (EKG). Following the breathing treatment, she continues to have significant wheezing and shortness of breath, so the urgent care clinic physician coordinates for an ambulance to take her to an emergency room across town. Ms. Chen has had to visit the ER for her asthma before, but it has been a number of years since the last episode that was this bad.
In the ER, she is promptly placed in a room and evaluated by an emergency medicine physician. Ms. Chen undergoes further breathing treatments. A chest x-ray is taken, blood is drawn for labs, and another EKG done. Her labs are ok, her chest x-ray is clear, and her EKG remains normal. The physician then decides to obtain a chest CT (computed tomography) scan “just to be sure nothing was missed.” The CT scan does not reveal any significant abnormalities. Following more breathing treatments and an intravenous administration of solumedrol (a steroid), she improves. She ultimately is discharged home with self-care instructions, including directions for using her home inhalers and a prescription for oral steroids.
Chargemaster
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| $ | |
| All charges from chargemaster | |
| TOTAL | $ |
CALCULATE
Quick add all costs
Now take a look at using TDABC to calculate the likely actual cost to the hospital for providing these services. If you are interested in the detailed cost breakdown of each item, select the eye icons under ‘See Cost Breakdown’ to check out examples of how these costs are calculated.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In our current system, insurance companies attempt to negotiate the hospital’s charges lower. In response, hospital administrators raise chargemaster prices to keep profit margins high. As a result, chargemaster prices are hugely inflated, seemingly arbitrary numbers that have very little to do with the true costs of care. In a system that bases hospital reimbursement and patient costing mechanisms on TDABC-derived calculations or similar, it is likely insurance companies would negotiate for percentages above the costing total, as hospitals and providers need a margin in order to run. However, these negotiations would be derived from a realistic and non-arbitrary starting point.
The below table shows the difference between these costing mechanisms for Ms. Chen’s asthma exacerbation episode.
| Insurance Company A | Insurance Company B | ||||||
|---|---|---|---|---|---|---|---|
| Chargemaster - 30% | $2970 | Chargemaster - 50% | $4950 | ||||
| TDABC + 30% | $1211 | TDABC + 50% | $1397 | ||||
LET’S CHECK OUR UNDERSTANDING
Below are questions that will check your understanding of reimbursement mechanisms. If you need a refresher on the terms relating to these mechanisms, refer to Section 4, The Costs of Care: Different Approaches, and Dive Deeper: Basics of Health Care Financing in the US.
For these questions, assume the total charges are rounded to $9900 for the chargemaster total, $3000 for Insurance plan A, and $5,000 for Insurance Plan B.