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What does “Customary and Reasonable” Mean?

I was reading an interesting discussion about US health care when I came across an important point:

It is now routine for them to send letters to patients with itemized lists of costs for services and payments from insurance companies that don’t balance. At the end, they have an entry for “Total unreimbursed costs”. The letter looks like a bill. They even include a postage paid envelope to make it easier to send them a payment. The thing is, the letter isn’t a bill. It just shows the difference between normal costs and the price negotiated with the hospital by your insurer. The patient owes nothing! But hospitals are raking in millions with this scam.

A major lab used to badger me with these letters every time anyone in my family had a blood test. I used to call my insurance company after each one, and get assured that I owed nothing. When I found out what the scam was, I called the lab and threatened to go to the State’s Attorney General. They stopped sending me the fake bills.

I don’t know about the responsibilities of insurance companies, but the problem hinges upon what kind of medical care is “customary and reasonable.” Yes, Blue Cross may have to pay 80% of a surgery procedure, but that 80% applies only to the amount Blue Cross considers “customary and reasonable.” So if the procedure cost $1000, and Blue Cross decides that $200 is a “customary and reasonable” amount to charge for the procedure, they only need to compensate 80% of the $200 (not 80% of the $1000 bill).

This is a perfect example about how organizational and accounting methods to control costs only end up hiding additional costs. Health care systems are inherently complex, and that makes it difficult for patients/consumers to make consumer decisions. This exception is so large that it essentially gives health care insurers arbitrary control over expenses; it also obfuscates the issue because the consumer doesn’t see the actual price/discount/”customary and reasonable” baseline at the time care is delivered.

Kelly Montgomery adds:

Insurance companies often pay claims based on the average cost of the procedure in your area. This is referred to as the “customary and reasonable” cost. Customary and reasonable cost varies from region to region and state to state.

You can ask your insurance company how they arrived at the customary and reasonable cost for your procedure, ask other medical providers how much they charge for your procedure, and/or ask your doctor if your procedure differed from the norm in any way. For example, your doctor may have charged more because you required more attention than the average patient or experienced complications during the procedure.

Sarah Max adds some advice:

To be fair, healthcare providers aren’t always forthcoming about what they charge for their services. “Asking a doctor what they’ll charge ahead of time is like pulling teeth,” said CareCounsel’s Gelb.

That’s exactly what patients need to do, said Ron Pollack, executive director of Families USA, a national health advocacy organization.

“The culture of billing in healthcare is different from any other product,” he said. “People don’t ask about the cost of services and physicians don’t volunteer it. Patients are clueless.”

His advice? “Find out from the physician what they’ll charge and ask the insurance company what they’re going to pay,” he said. “They may not tell you but you need to keep asking.”

After the fact, patients should question both insurers and providers if there is a significant discrepancy between the cost of the service and the amount that is covered. Sherry recommends taking the diagnostic code for the procedure and calling other providers to get a sense of what the customary charge is for your area.

If you think you have a case, appeal first to the insurer, then to the state department of insurance.

“Even if you lose, the message will start to be heard,” said Sherry, who also recommends writing letters to elected officials and key executives at your insurance company.

I just wrote an email to my insurer. I asked this question: How can I access information about how your company calculates UCR (“usual, customary, and reasonable”)fee determinations for medical procedures in my area? For example, if I knew I needed a particular procedure, how could I find out what blue cross considers to be UCR?

Semi-related: 2 pieces on health care by Ezra Klein. Debunking the medical malpractice myth and a book review of a health care policy book

{ 1 comment… add one }
  • Sal 5/11/2011, 10:50 am

    There’s a pretty straightforward answer to this: do you make more than $1,133,332 year? If yes, you’ll pay a lot for medical care. If no, you’re going to pay a lot and get screwed as well. This is America.

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