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PRODUCED BY AND FOR MEMBERS OF THE DEPARTMENT OF SURGERY March 2013 | Archived Issues

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Grand Rounds

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Surgery Scheduling

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Risk of Potentially Fatal Heart Rhythms with Azithromycin (Zithromax or Zmax)

Pharmacy Focus

The U.S. Food and Drug Administration has strengthened a previous warning regarding a small but significant increased risk of fatal arrhythmias associated with azithromycin (marketed as Zithromax® or Zmax®). Also, the FDA is evaluating unpublished findings by a group of academic researchers that suggest an increased risk of pancreatitis and pre-cancerous cellular changes in patients with type 2 diabetes treated with a class of drugs called incretin mimetics.

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President's Perspective: Antidote for Confusion - Some Facts about Payments and Pricing

Thomas M. Priselac
President and CEO

Here's something everyone can agree on: The current payment and pricing system for healthcare is confusing, and a huge source of dissatisfaction and frustration.

Regardless of your vantage point – patient, physician, employer, hospital manager, legislator – over the years it's become a challenging system for everyone. Insurance company statements are confusing, Medicare's rules and regulations alone are more than 130,000 pages, hospital bills can be difficult to decipher, and no one is quite sure exactly what the "price" of a service actually is.

Who's to blame? The government? Hospitals? Insurance companies?

Today's system is the result of decades of different policy decisions and actions by many different groups. As a result, there is often a lot of finger-pointing and confusion when it comes to the current payment and pricing system in healthcare. Changing the system will require federal and state governments, commercial insurers, hospitals and doctors to work cooperatively on a solution.

I strongly support efforts to revamp the payment and pricing system used by the government and by private insurance companies, and which hospitals and physicians must work under. Until these structural changes occur, however, we must continue to help people understand the confusing system. With this in mind, here are some facts related to three of the most frequently misunderstood aspects of payment and pricing, including information about Cedars-Sinai.

The price a hospital patient sees on a bill reflects the costs of the many roles the hospital plays in the community, including vital community services for which hospitals are not compensated. Uncompensated care is not limited to the traditional charity care we provide. In fact, Medi-Cal and Medicare payments do not come near the actual cost of caring for patients in these programs. Yet we do so as part of our longstanding commitment to community and to patients. As one of the largest providers of Medi-Cal services among nongovernment hospitals in California, last year we provided $95.6 million in the unfunded cost of care for Medi-Cal patients. As the hospital serving the largest number of Medicare patients in California, including a disproportionate number of those over the age of 85 with very serious medical conditions, we provided $304.7 million in the unfunded cost of care for Medicare patients. On top of this, we provided an additional $42.3 million in traditional charity care – completely uncompensated care for the uninsured and indigent who do not have Medi-Cal.

Our medical education and research missions, which benefit all residents of California, are reflected in our operating costs as well. As with Medi-Cal and Medicare, the payments for these important programs do not cover the actual cost of educating tomorrow's physicians and discovering new treatments for disease. With Californians and the nation facing a severe shortage of physicians, nurses and other health professionals, our education mission has become even more crucial in meeting society's future needs.

The prices for services in any hospital also reflect the total mix and scope of services the hospital provides. As a key medical resource that serves the Los Angeles region, California and beyond, Cedars-Sinai provides the largest combined volume of the most complex and costly care in cancer, heart disease, neurosciences, high-risk obstetrics and organ transplantation of any hospital in California. The infrastructure to assure the availability of these services on a 24/7/365 basis, as well as other crucial services such as our Emergency Department (serving 80,000 people annually) and Trauma Center, is costly, but invaluable to any of the thousands of people whose lives are saved because they received these services.

To continue to uphold our commitment to the community, and to remain financially viable so we can remain open to serve the community, these unfunded costs – which enable us to care for the most vulnerable, educate future healthcare professionals and develop new medical treatments – are partially recouped indirectly through payments from commercially insured patients. As you know, our physicians, staff and managers are continually developing new ways to improve our operating and clinical efficiency. But until the healthcare payment system changes to account for the role each hospital plays in the larger community, uncompensated care hospitals currently provide, as well as the investments made in education and research, we must continue to operate in the current system if we are to continue to serve the most vulnerable in our community and uphold our longstanding mission.

Not-for-profit hospitals need to have a positive financial margin. There are some people who continue to mistakenly believe that non-profit organizations should never have a positive financial gain, because they perceive that as "profit." The difference between a for-profit and a not-for-profit organization is that all of the financial gain of the not-for-profit is re-invested back into the institution to benefit the community. The nature of modern hospital care requires substantial ongoing capital investments. Not-for-profit hospitals need a positive margin to help pay for upgrading facilities and equipment needed to keep pace with advances in care and meet the rising demands of our aging population. As other communities in California and the nation have unfortunately found, chronic failure to have a positive margin leads to the deterioration of facilities and equipment, eventual bankruptcy, and closure.

In almost no cases does anyone – patients, commercial insurance companies or the government – pay a hospital full charges for inpatient care. For commercially insured patients, the actual amount that is paid to the hospital is always a significant discount from charges. Charges are neither the "cost" nor the "price" of care. Most of our contracts with commercial insurance companies pay, in general, less than half of charges. In addition, to assist low-income uninsured or underinsured patients, Cedars-Sinai has established financial assistance policies that offer free or significantly discounted care for those earning up to 450 percent of the federal poverty level (which equates to $105,975 for a family of four). In no case do we ever charge low-income uninsured or underinsured patients more than what we would be paid by Medicare for the services.

Meaningful pricing and payment reform must simultaneously meet the needs of consumers, assure access to needed clinical services for everyone and assure the continued availability of related essential programs that serve the broader community in the short- and long-term. For this to occur, traditional commercial insurance and Covered California (the soon-to-open health insurance exchange) need to recognize differences among hospitals in their role serving the community and region, in the level of uncompensated care they provide, and in how they are impacted by healthcare reimbursement decisions made by federal and state government.

Click here to read past President's Perspective columns on the Cedars-Sinai Intranet.