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Hospital Accounting - "It's Complicated" (for the Love of Universal Health Care)

By       Message Lynn Petrovich     Permalink
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Some time ago I received a letter from my employer regarding its health insurance policy which said there would be some changes to it. First of all, that's never good. Second, I wasn't sure what the letter meant. I was confused. I thought it meant whatever I had been doing, I couldn't do anymore, but I wasn't sure. You see, I hadn't been doing anything prior to receiving the letter, and I didn't know if I should still not be doing anything or if I should start doing something. Actually, doing nothing is what I do best"well, when it comes to this health care thing, that is. If I don't need to use it, then that is when it works best for me and my family.

I mean, trying to understand the mechanics of our current health care structure requires an advanced degree in doublespeak. There's a contract but somehow it's always subject to unilateral alteration, especially if profits start dropping, then these insurance companies look for ways to re-assess the relationship (According to MS magazine until the year 2014, domestic violence, pregnancy, and cesarean sections are pre-existing conditions which could render a claim denied).

And there are times, I admit, I have to hand it to our for-profit health insurance for their ingenuity. The aforementioned letter forewarned of a 12 page pamphlet entitled "Important Notice of Changes to Policy". Among the 40 or so "revisions" (which all increased insured's out of pocket costs) was a real gem: The Company would no longer reimburse policyholders for prosthetic devices not prescribed by a physician and for which there was no loss of limb.

I wonder how long that had been going on before someone became the wiser.

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So you can see why I'm rather claim-shy; I avoid doctors and hospitals like the plague. That is, until one night several months ago when the ultimate crisis happened: A family member became ill, and we had to go to our local emergency room. A total of 37 hours, including one night, was spent in the hospital. Then we got the bill. It totaled $16,808.

After the deductible, our insurance company paid $2,739. That's it. Which begs the question: Which was the cost of the hospital's services, $16,808 or $2,739?

I've spent months trying to get an answer to this question. Everyone at the hospital from accounting, to billing, the doctors and nurses, employees, former employees, collection agents, even the hospital's Executive Director have been unable to articulate the tabulation of this invoice. I'm told "it's complicated, very, very complicated" and "no one knows exactly how the bills are computed because it's complicated." There's the chauvinistic approach: "Mrs. Petrovich, you don't need to know because it has nothing to do with you." And the demeaning: "It's something you wouldn't understand." Of course then there's the ever lovin': "It's just something we do, an adjusting entry, and no one really knows how it's done because [you got it] it's complicated."

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Without the knowledge of exactly how hospital bills are calculated, how can we ascertain if medical costs are indeed increasing? I mean if they're just throwing darts at a board, we have no control or foundation for determining medical cost trends.

And quite frankly, how difficult can it be? I mean pardon the analogy, but it's not brain surgery. It's cost accounting 101.

Reviewing the hospital's detail of services rendered, among the charges were $8,786 for the room (one night), and another $2,609 for the emergency room (2 hours ouch!), and $368 for one X-ray (was it printed on gold?).

Here's an interesting tidbit: If you can afford health insurance, the hospital will accept $2,739 as payment in full; if you can't afford health insurance, you'll owe more, like $16,808.

That's not complicated, that's sick.

So in an effort to thwart my frustration with regard to how much the hospital's services cost to the hospital and why they would negotiate with our for-profit health insurance conglomerates to accept a sum that is sixteen percent of what they billed, I decided to dive into their financial statements because, like most hospitals in America, it's a non-profit 501(c)(3) institution. IRS Form 990s are public information.

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There are strict guidelines for operating a non profit, 501(c)(3), which is understandable because non profit entities pay no income, property, or sales taxes. Contributions are tax deductible. Also, an important component is that earnings (not referred to as profits, but as "surplus") may not benefit any individual or stakeholder and must be retained by the organization and used to further their cause, which must advance the welfare of the public.

The latest IRS Form 990 available, 2008, was very interesting. The hospital, whose mission statement is to provide "medically necessary health care services to all individuals regardless of race, color, national origin, religion, or ability to pay" had a loss of almost $10 million on revenues of $266 million (of course we don't know which set of books were used to tabulate the revenue, the one showing $16,808 or the one booking $2,739). Despite this loss, they doled out bonuses to their (already) highly compensated employees. Since this hospital is part of a system of hospitals and that conglomerate paid its Executive Director in excess of $3 million (including half a million as bonus), I reviewed at least a dozen hospital's financials in the Tri-State area (Among nine hospitals, compensation to highly salaried personnel totaled over $55 million).

This particular hospital wrote off almost $12 million as uncollectible. (In fact one of their collection agencies told me they typically see over 1,000 accounts per year which they deem as uncollectible.). This hospital had a cumulative net fund balance (what's left over after subtracting what's owed) of negative $48 million.

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Lynn - CPA/MBA calls herself "The Green CPA". She runs a year-round tax clinic in a low-income community at the Jersey Shore where she meets the most wonderfully diverse and engaging citizens of this nation.

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