Medicare Through the Looking Glass : Health care: Insurers, hospitals and Uncle Sam figure what the patient doesn’t know won’t hurt her.

Whenever latter-day Henry Clays suggest a Great Compromise on health care with big government and big business working together in harmony, I think of my wife’s $15,000 overnight hospital bill.

Turns out we already have a health plan that encourages the government and private enterprise to play nice. It’s an exclusive 36-million-member club called Medicare, reserved for Social Security recipients 65 and up. Last year, it paid hospitals $75 billion. But when bureaucracy and business cohabit, strange things can happen. I discovered some of them while looking into my wife’s $15,000 hospital bill after minor surgery that required an overnight stay.

It seems that Medicare, the hospital, Blue Cross and the insurance arm of the American Assn. of Retired Persons (AARP) have joined in a loose alliance of silence that misleads patients. A Medicare statement told my wife that it had approved a $15,000 hospital bill, which she had never seen, and had paid $12,000 (80%). Turns out that Medicare really paid $1,600 (10.5%). Still, the bill required that she or her insurance company pay the 20% now “payable by you”--$3,000.

This was not a clerical error. Medicare, the hospital, Blue Cross (which handles Medicare hospital bills in Southern California) and AARP (her supplemental insurance company) all knew that her 20% payment would be almost twice as much as Medicare’s 80%. Only the patient was kept in the dark.

On the face of it, Medicare’s formula is simple: On receiving the hospital bill, Medicare decides how much it will approve. It pays 80% of what it approves. The patient, or her insurance company, pays the remaining 20%.

A staff physician told me that the hospital--and it’s not the only one--apparently inflates charges to get enough money from the patient to compensate for low Medicare payments. A Medicare financial official said that the doctor is “probably right,” but almost all hospital bills are approved as submitted.

Blue Cross, for its part, makes sure that Medicare patients are not charged more than private patients, but it is not empowered to see if such charges are excessive. And it audits only 3.2% of the claims to make sure the services billed were provided. So almost all Medicare hospital bills are approved. In defense, Blue Cross says that its approvals are under constant scrutiny by government auditors.

Medicare patients rarely see their hospital bills, which go directly to Medicare or its agent. Patients, I was told, do not understand the technical terms used in these statements.

Private insurance companies have a strange role in this charade. They play along, although aware that their 20% of a patient’s bill often amounts to more than Medicare’s 80%. An AARP insurance executive told me that “insurance companies are obligated by law to pay their share on the full amount approved by Medicare. But it is an intriguing and troubling situation.” It’s even more troubling for the patient without insurance.

Knowing Medicare’s payment formula, the hospital was not surprised when Medicare paid it only $1,600 instead of $12,000. It knew that its $15,000 bill would be approved by Blue Cross, and the patient or her insurance company would have to pay $3,000. So it would receive a total of $4,600, which it can live with.

Aside from giving a senior citizen a billing horror story to astound friends, why did the hospital let the patient believe that the $15,000 charge had been approved and paid? According to its business service manager, the hospital, even though operating in perilous financial seas, prefers to keep its “arrangements with Medicare confidential.” Perhaps to protect its Medicare accreditation?

The manager added that overall Medicare payments are “50 cents or less on the dollar,” but without Medicare patients, the hospital would close. This sounds like the merchant who claims to lose money on every sale but makes it up in volume.

“There’s a touch of Wonderland in our payment system,” agreed a spokesman for the Health Care Finance Administration, which oversees Medicare and Medicaid payments. There may be a touch of Wonderland in a script that tells the uninformed Medicare patient, “Go gyre and gimble, Alice, your bill is taken care of.” But the patronized patient pays for it later when Congress cuts Medicare or her insurance premiums rise.

But with doctor bills, I should note, there’s no Wonderland in the system. Medicare tells the patient exactly how much of the bill it approved and paid, so our Alice knows to the penny what she owes. And it’s a real 20%.

No one could explain to me why Medicare tells patients what it pays doctors but not hospitals. Can it be that hospitals trade on a Florence Nightingale image, which entitles them to a charitable wink? And their patients are required--by law, remember--to pony up in blissful ignorance.

This $75-billion irrationality with a heart of gold may not be fixed easily. The problem is shared responsibility. When everyone is responsible, no one is. It makes an art form of two-way finger pointing. The upshot is flimflam on a massive scale. For that reason alone, any proposed health-care plan seems to need a single responsible purveyor, whether Big Business or Big Government.

Because, as the poet observed, “no snowflake in an avalanche ever feels responsible.”