Will You Ever Understand Your Medical Bill?Commentary by John R. Graham
May 25, 2016
It is hard to exaggerate how painful the medical billing process is for patients. Steven Brill, an entrepreneurial lawyer turned journalist, became one of the most famous critics of American healthcare when Time magazine published a long article by him in 2013. It was a wide ranging criticism of pretty much everything in U.S. healthcare, which grabs and keeps our attention because it uses the absurd hospital bill as the fulcrum for his case:
“The first of the 344 lines printed out across eight pages of his hospital bill — filled with indecipherable numerical codes and acronyms — seemed innocuous. But it set the tone for all that followed. It read, “1 ACETAMINOPHE TABS 325 MG.” The charge was only $1.50, but it was for a generic version of a Tylenol pill. You can buy 100 of them on Amazon for $1.49 even without a hospital’s purchasing power. Dozens of midpriced items were embedded with similarly aggressive markups, like $283.00 for a “CHEST, PA AND LAT 71020.” That’s a simple chest X-ray, for which MD Anderson is routinely paid $20.44 when it treats a patient on Medicare, the government health care program for the elderly.”
(Steve Brill, “Bitter Pill: Why Medical Bills Are Killing Us,” Time, February 20, 2013)
It is hard not to get carried away on a wave of outrage when reading stories of patients faced with ridiculous bills, which (even if they can understand them) they might never be prepared to pay.
A new crop of entrepreneurs is hoping to solve this problem. Simplee, founded in 2010, has raised $37.8 million of venture capital in four fundraising rounds. Investors in this month’s Series C round of $20 million include American Express Ventures, the investing arm of the well-known charge card and credit card issuer. Simplee’s clients are health systems and physician groups which want to engage patients better through improved billing practices. Plus, they want to reduce increasingly problematic bad debts.
The hospital industry thought Obamacare would address the problem of accounts receivable going unpaid. The opposite has occurred. While hospitals are seeing more patients, those patients are less able to pay their bills. For-profit hospitals’ stock prices have suffered as they have written off more bad debt, and non-profit hospitals are experiencing the same phenomenon.
Other businesses are addressing the billing problem by focusing on employer benefits. Employers do not want employees confused and disgruntled by their medical bills, and health insurers can hardly be said to have solved this problem. Castlight (NYSE: CSLT) about which I wrote a year ago, offers a lot more than just helping clients’ employees understand and pay bills. It also engages beneficiaries with actionable information about the care that is appropriate for them.
After a blockbuster IPO, Castlight struggled to retain investors’ approval despite steady revenue growth. Quarterly revenue increased to $23 million from $16 million last year, although profitability appears a far off prospect. So, a strategic investor identified value where the stock market did not. Castlight has just announced a partnership with the software-as-service giant SAP (NYSE: SAP). This came with a capital injection that gives SAP almost 5% of Castlight’s equity. Castlight’s stock jumped about one quarter, suggesting investors are pricing in an eventual acquisition by SAP.
The Obama Administration itself is getting into the act, having just announced a competition to design “A Bill You Can Understand,” which will give prizes of $5,000 each to two designers who meet the challenges of making bills comprehensible and improving the workflow that generates them.
This sends a great signal. The Obama Administration’s commitment to billing transparency has had significant results. In 2013, the Administration managed to overturn a restraining order from 1979, which had prevented Medicare from disclosing how much it was paying physicians. The resulting dataset (and similar hospital inpatient and outpatient files) are easy to navigate, and freely available to anyone who goes to the website.
Fixing billing is a much harder task. Crazy bills are a symptom of increasingly dysfunctional health prices, which the government prevents from being formed by normal market processes. Until that changes, entrepreneurs and government-sponsored challenges can relieve some of the pain, but they cannot make it go away.
Investors’ Note: American Express (NYSE:AXP), Castlight (NYSE:CSLT) and SAP (NYSE:SAP) are businesses engaged in improving transparency in medical billing.