Hospitals Face Pressure to Change Pricing Policies

Published April 1, 2004

Under pressure from Congress and consumer advocates, the hospital industry said it would consider making price adjustments for the uninsured if Medicare officials approve the action. Health Care News raised the issue in September 2003 (see “Overcharging the Uninsured”), and the Wall Street Journal published a series of articles on hospital policies toward the uninsured last year.

The industry came under scrutiny last year for billing uninsured patients at list prices for lab tests, procedures, and other services, even while it offered steep discounts to patients covered by Medicare, Medicaid, private insurance, HMOs, and negotiated state-run health plans. Randy Suttles, president of Medical Savings Insurance Company, and Merrill Matthews PhD, director of the Council for Affordable Health Insurance, reported in Health Care News that hospitals typically charge the uninsured anywhere from 200 to 1,100 percent more than what Medicare beneficiaries or privately insured patients pay.

Thompson Scolds

Tommy Thompson, secretary of Health and Human Services (HHS), told hospitals they can immediately slash the prices they charge to uninsured patients without fear of government reprisal.

In a December 2003 letter, the American Hospital Association (AHA), which represents 4,800 hospitals in the U.S., told HHS federal rules blocked them from cutting prices for the nation’s nearly 44 million uninsured. The letter also claimed Medicare policy required “aggressive efforts to collect from all patients,” including the uninsured. The AHA asked Thompson to alter or clarify government rules so the industry could help uninsured patients without risking punishment.

Thompson said the hospitals had misrepresented government policy and were simply “not correct” in saying complex federal rules left them no choice but to bill the uninsured full price. He also noted his agency provides hospitals with some $22 billion a year in subsidies to care for the uninsured. In documents accompanying Thompson’s response, HHS denied hospitals must use tough tactics to collect payment from the uninsured.

“I strongly encourage you to work with AHA member hospitals to take action to assist the uninsured and underinsured,” Thompson wrote to Richard Davidson, AHA’s president. The documents, which were hand-delivered to the AHA, represent the federal government’s long-awaited answer to the industry’s position that federal rules prevent discounted billing or special collection treatment for the uninsured.

Rick Wade, spokesman for AHA, confirmed “there is a lot of clarification” in the Thompson letter, though “there could still be some tripwires.” While the documents would help hospitals offer discounts to the indigent, the AHA said, there could be problems offering price cuts to the working poor, who may be significantly over the poverty level but still unable to afford health care. Wade added: “We never intended to blame the federal government. We simply said the regulatory morass was so thick that hospitals couldn’t see their way clear to get past that.”

Positive Reaction

“This finally puts to rest the hospitals’ tired and inaccurate argument that the government made them charge uninsured and underinsured people these crazy inflated prices,” said Elisabeth Benjamin, a Legal Aid Society attorney.

Suttles registered his agreement with the Thompson statement but cautioned hospitals might not respond appropriately. “I strongly support HHS’s recently released letter,” Suttles said. “But be aware, the hospitals will posture and offer discounts, even 30 percent discounts, off of billed charges. A 30 percent discount off of a 500 percent inflated bill is no deal.”

In Suttles’ view, “The hospitals should charge reasonable rates to start with. At a minimum, they should charge uninsured and self-pay patients no more than average managed care prices. A practical limit would be Medicare + 20 percent. Medicare pays close to cost. A 20 percent profit on the backs of the self-pay patient should be enough.

“The hospitals can now stop their greed,” said Suttles. ” HHS says so.”

Matthews agreed, telling Health Care News, “Everyone knows hospital prices are ruses that bear no relation to the actual cost of providing care.

“The ones most adversely affected by these artificially inflated charges are the uninsured,” he continued. “When the uninsured working Americans can’t pay four times what those of us with insurance would be charged, the hospitals engage in very aggressive collection practices, collecting, in some cases, 95 percent of the bills. As a result, the uninsured have become huge profit centers for many hospitals.”

James R. Tallon Jr., president of the United Hospital Fund, a New York think tank, described Thompson’s letter as a welcome “template,” saying “while there was ample room for criticism of hospitals’ behavior, the hospitals were genuinely confused by the thicket of federal regulations.” He added the issue of the uninsured had “slipped off people’s radar screens,” and once it became clear there was a problem, hospitals responded.

“This is one of the classic cases where someone tells the story and lifts up the rock and what was underneath it was a lot of practices and a lot of suffering that were simply indefensible.”

Rational Approach to Pricing

Matthews said it is “perfectly fair” for the uninsured to pay for the care they receive … but it is not fair to make the uninsured a “profit center” for hospitals. Matthews recommended hospitals improve their pricing practices by:

  • creating a reasonable and transparent approach to pricing;
  • making pricing information available so patients know how much a patient with Medicare, Medicaid, or private health insurance will pay; and
  • working with the uninsured to ensure they get a price roughly equivalent to

Medicare or managed care.

Tallon says medical bills are now the second leading cause of personal bankruptcy, and “the issue of what hospitals charge for services and what tactics they use to collect unpaid bills has emerged as an increasingly charged political and social issue.”

The HHS move, coming in an election year, could help the Bush administration counter Democratic challengers who have argued the President hasn’t done enough to help the poor and uninsured.

In addition to its short-term impact on what the uninsured must pay, the HHS action could open the hospital industry’s pricing practices to further scrutiny. In recent years, as hospitals have felt squeezed and pinched by managed care, list prices for their services have skyrocketed, so that even simple procedures and short stays can cost thousands of dollars.

A congressional probe, led by the House Subcommittee on Oversight and Investigations, is already underway, examining the rates the nation’s 20 top hospital chains charge the uninsured. Labor unions, led by the Service Employees International Union, have organized campaigns in key cities, including New Haven, Connecticut, San Francisco, and Chicago, to highlight pricing disparities that hurt the uninsured.

Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].