Uncategorized

Hospital Bills, Insurers and Pricing

A few weeks ago I wrote here about my
unhappy experience of inadvertently mixing two different types of drain
cleaners together
. I learned then, and thought it useful to relate,
a painful in-home science lesson: the combination of hydrochloric acid
and hypochlorite (bleach) apparently forms chlorine gas, which was used
as an agent of chemical warfare early in World War I. Serious lung
damage and death are real possibilities. After a trip to the emergency
room, a follow-up visit to my doctor and the passage of time– I’m ok.

But the other day I got the bill, or thankfully, as I am insured
through my employer, the explanation of benefits. My present insurance
company, CIGNA, detailed the claim in an easy to read and understandable
manner. It is telling.

med-bill-breakdown2

I was in the
Emergency Room for about 4 hours (they had wanted to keep me overnight
for observation but released me under the condition (and my pleading)
that I return immediately if any number of things happened). I received
oxygen and breathing treatments, x-rays, lab work, an electrocardiogram,
and the care of a physician.  The total billed was $2,270. But perhaps
more importantly, the amount “discounted,” or the amount my insurance
company did not pay through its negotiated pricing contract with the
hospital, was $2007. Which is to say that my insurance company  paid a
total of only $263 of this bill. Thankfully, I owe nothing except a
small co-pay.

The greatest single item of the billed amount is actually the charge
for being in the Emergency Room itself. That charge, presumably
triggered the moment I signed in, was $1,364.40. My insurance company,
by agreement, paid only $158 of that charge.

But what if I weren’t insured?

Presumably, I would presently owe that hospital–which is a tax-exempt
entity under 501(c)(3) with a concomitant mandate to deliver “community
benefit” — a sum total of $2,270.  This for services my insurance
company paid a sum total of $263.

I understand robbing Peter to pay Paul, and quite frankly $263 seems a
little cheap for the care and services I received (as $2,270 seems
rather expensive). But if Peter is out of work and lacks insurance does
it make sense to charge him 9x more than Paul? Does anyone wonder why
uninsured Peter will do his best to avoid the hospital at almost any
cost– even at great risk to his health?

I’ve written about this subject before. How seemingly no
one except the uninsured pay “the chargemaster rate”
; how many
nonprofit hospitals in a recent IRS informational survey disclosed that they
count the discounts they offer insurers and Medicare as “community
benefit”
; how even more nonprofit hospitals who
bill greater amounts to the uninsured wind up counting the full amount
billed, if collection efforts fail, as “a community benefit
.” (e.g.,
if uninsured Peter above had received the care I received he would have
been billed $2,270. If he failed to pay, not considering the harm to
his credit record or the potential for being sued and a resultant
judgment entered against him, the hospital then counts the unpaid $2,270
as “community benefit.”)

Thankfully, the reverse Robin Hood charging practice is about to
change for at least some people. As Associate Dean  Kathleen  Boozang
pointed out in her
post last week
, provisions in the new Health Reform law, PPACA,
address the issue in part. Among other provisions aimed at tax exempt
501(c)(3) hospitals is the following:

Financial
Assistance Policy
.  Hospitals must develop a financial assistance
policy which enumerates a) eligibility criteria, b) an explanation of
how hospital charges are calculated, c) the process for applying for
financial assistance, and d) whether such assistance includes free or
discounted care.  If the hospital does not have a separate collections
policy, the financial assistance policy must explain what happens if a
hospital bill is not paid, including collections actions and reports to
credit agencies.  The financial assistance policy must be widely
publicized throughout the entity’s service area.

Limitations on Patient
Charges.
Hospital charges for emergency or other medically
necessary care provided to patients eligible for financial assistance
may not exceed the lowest amounts charged to insured patients, and may
not be based upon gross charges.

But of course, the Limitations on Patient Charges apply only to
patients eligible for financial assistance, which may or may not apply
to Peter who, if not eligible for financial assistance, may still be
subjected to a $2,270 bill for services I paid $263 for. And seemingly,
if Peter, ineligible for financial assistance, doesn’t pay that bill,
hospitals are still able to claim as a “community benefit” the full
amount of that non-payment of a bill 9x as high as an amount they were
willing to accept for the same services from someone else.

In May of last year I wrote the following; it is worth considering
again:

Nonprofit
Hospital Tax Exemptions Worth $638 Million, Exceed “Community Benefit”
by $373 Million for 10 Nonprofit Hospitals in Massachusetts

In recent posts
we’ve pointed out some of the questionable characterizations of
“community benefit” by nonprofit hospitals under 501(c)(3), a portion of
the Internal Revenue Code which garners tax exemptions for those
entities, such as nonprofit hospitals, which it harbors. In particular,
we’ve focused on how matters such as “bad debt,” Medicare “shortfalls,”
and even Private Insurer “shortfalls” have often been construed by
nonprofit hospitals to constitute the conveyance of a community benefit.
A “shortfall” may be deemed to have occurred when although the hospital
receives the amount it had agreed to with a Private Insurer, or which
was designated by the government through Medicare, that amount is less
than the hospital’s “list price” for such a services.

Despite this rather lax standard, Kaiser.org
reports
that an in-depth review by the Boston
Globe
determined that “the value of abundant tax exemptions
extended to Massachusetts General Hospital, and other private non-profit
hospitals, ‘far exceeds the amount the state’s leading hospitals spend
on free care for the poor and other community benefits.’”

Kaiser reports that in Massachusetts

The ten biggest hospitals in the state benefited from
$638 million in tax breaks in 2007, but reported only $265 million in
“community benefits” provided that year, the Globe found.

Even if one accepts the questionable characterizations of community
benefits, that still leaves an excess of $373 million in tax
exemptions–for merely 10 hospitals–in only one state.

Michael Ricciardelli is Managing Editor of Health Reform Watch, a web log of the Seton Hall University School of Law, Health Law and Policy program. He is a Senior Fellow of the Center for Policy & Research and co-author of Captured on Tape: Interrogation and Videotaping of Detainees in Guantanamo. His health policy interests are varied, but foremost include the implications of prospective legislation and Health IT.

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