Price-Gouging by Doctors and Hospitals
Filed under: Cost Control, Hospital Finances, Physician Compensation
Mark A. Hall
Carl E. Schneider
Mark A. Hall, Professor of Law and Public Health, Wake Forest University
Carl E. Schneider, Professor of Law and Internal Medicine, University of Michigan
[Ed. note: As noted above, we are very pleased to welcome Professors Mark Hall and Carl Schneider to the blog today.]
We cannot reform health care intelligently unless we understand the medical marketplace well. Debates about reform have scrutinized the health-insurance market, but they have neglected a crucially defective feature of the medical marketplace — the way doctors and hospitals charge patients when prices are not set by regulation or by negotiation with insurers.
The Problem
When patients are not protected by large private or public insurers, doctors and hospitals charge them astonishingly more than patients with Medicare or managed-care insurance. Some price difference would make sense, because insurers offer providers large volume and economies of scale. But we are not talking about discounts of 10, or 20, or even 30 percent. Providers routinely double, triple, or even quadruple prices for unprotected patients. Such huge mark-ups can only be regarded as price-gouging — exploiting market power to charge prices virtually unrelated to actual cost or market value.
A comprehensive analysis of data hospitals report to Medicare shows that, on average, hospitals charge uninsured patients two-and-a-half times more than they charge insured patients and three times more than their actual costs. In some states mark-ups average four-fold.
Data for physicians’ prices are less comprehensive, but information from office management systems is disturbing. Across a range of diagnostic and invasive specialty services (echocardiography, coronary catheterization, liver biopsy, upper GI endoscopy, circumcision, flexible sigmoidoscopies, hysterectomy, appendectomy, gall bladder removal, and arthroscopic knee surgery), many physicians in 2003 charged uninsured patients roughly two to two-and-a-half times what insurers paid. Only primary care physicians appear to be staying within plausible bounds. They typically charge uninsured patients only one-third to one-half more for basic office or hospital visits than they received from insurers.
Some Excuses
Providers defend themselves in several ways. First, they call these price differences steep discounts rather than huge mark-ups. This is almost laughable. Most providers charge “list prices” to only a small minority of patients (10-20%), so these are hardly a genuine baseline. Second, providers argue that because they often cannot collect list prices, they are on balance receiving little more than they would receive from insurers. However, when patients cannot pay inflated bills, doctors and hospitals regularly send them to collection agencies, ruining patients’ credit and bankrupting millions of them.
Third, providers blame the government by claiming that program and accounting rules require them to bill this way. But governmental agencies have declared that this is not true, and while some rules may still be irksome, rules about billing certainly do not require providers to set their prices as high as they do. Many tax-exempt (non-profit) hospitals recently wilted under scrutiny and adopted sliding-scale policies for low-income uninsured patients, but these policies do little to help insured patients who are receiving care out-of-network or uninsured patients from the broad middle class.
The Solution
Insurers’ attempts to stop price gouging have failed. Some large insurers have refused to reimburse out-of-network providers for the full amounts they charge on the grounds that those amounts are not “usual, customary, and reasonable.” But New York’s Attorney General called this “consumer fraud” because patients were left owing the full bill. Courts have been little help. Consumer class-action lawsuits have attacked price gouging by non-profit hospitals, but courts have dismissed most of these cases on various technical grounds.
Government regulation has inhibited price gouging, but only for people covered by government programs. Medicare, for instance, prohibits doctors from charging Medicare patients more than about 10% over Medicare-approved rates. But inflated pricing still afflicts the uninsured and privately insured people buying care out of network. Some reformers simply advocate greater price transparency so that patients know better what to expect when seeking care without the protection of insurers. But transparency will not fix the structural dynamics of market power that allow providers to charge almost whatever they want.
To help medical markets work better, the government should cap what doctors, hospitals, and other providers may charge patients who are not protected by regulated or negotiated discounts. The details can be debated and refined, but one approach is to cap charges at, say, 150% of a normal reference rate. The reference rate could be what Medicare pays, or a weighted average of what larger private insurers normally pay across a region. Doctors with boutique practices could still charge what they wished for extra concierge services, or perhaps doctors who don’t accept any insurance should be exempted. Design features are important and tricky, but they should not keep us from setting reasonable bounds within which markets can function.
We aggregate class action lawsuits. We only have one class action for price gouging in our database, a link to this is below. We would be happy to add more if pointed in the right direction.
http://www.classadvocate.com/?direct=y&category=product&product_level1%5B%5D=1165%3A1383
Typical liberal college professor rhetoric generated by individuals who live in a jaded, idealistic microcosm of society. I have spent 35 years in the health care industry.
Of course hospitals must charge exorbitant prices to individuals who are able to pay their bills, to fund the individuals who receive these same services for free, due to our stupid lawas which take the position that all people HAVE THE RIGHT to the same level of health care. This policy is wrong!
In addition to costing over a trillion dollars over 10 years to administer, Obamacare will cost this nation over 250,000 jobs! We have already seen thousands of jobs lost in anticipation of his reform. On our web site, http://www,gorillamedicalsales.com , a job board for medical device sales representatives to find employment, vacant sales territories are not be filled by medical suppliers, as the await sicialization.
I’m thinking too many people are trying to make money off of the same product. It really makes me mad that MD Anderson charges me right at $10,000 per shot per month. When I can find someone that can give me the shot outside of the hospital I can buy the same drug for $3,000. This is not right. They milk you for everything before you die. If someone can not see something wrong with this, then I think you must be in on the payoff. For this price I get to wait to be seen, poked, and then have to pay $10. to park. Oh, don’t forget about the $150 offfice visit that does not include a Dr.
That hospitals and doctors price gouge is so well known in medicine that it’s not even debated. The courts have been protecting both hospitals and doctors for years. Everyone has bought the “defensive medicine” rationale for years, which is totally bogus. Organized medicine is a money making business, and why not, when the courts protect them, the patients have no real say in their care, and fear rules. The fear I refer to is the thespian skills of the physicians to scare people into procedures. Remember, it’s all about doing something profitable with absolutely no concern for patient care. I can say with certainty that 98% of procedures for prostate cancer on men over 65 are done only for money, and I can prove it! To explain why physicians and hospitals have become such low lifes is too complicated for this note, but I’m in medicine and have seen it all. I’m tired of hearing about “quality care”. Medicine is about $$ , patient care being only a tangential benefit, so be happy if your physician even knows how to take a correct blood pressure. It’s not going to change as long as our courts, licensing boards and leaders continue the kid glove treatment of these people. Medicine is a total disaster.
Price gouging by physicians? WOW, really? My fees HAVE NOT CHANGED in 20 years. We used to accept the BCBS indemnity of 80%, and often write off the other 20% if the patient could not or had difficulty paying. Do you counsellor? Medicare now pays about 32% of my fee from 20 years ago, I am prohibited by law from balance billing, so we just write it off. Medicare reimbursements have declined so much in the last 20 years that if I still charge the same fee, you call it price gouging? Have your fees dropped by 68% in the last 20 years? I doubt it. I’ll tell you what. I will gladly take the $500/hour the malpractice defense lawyer charges, including phone calls. I could work less and spend more time with my family. Oh, by the way, how many lives have you saved? Have you ever made the crippled walk? Relieved someone’s pain? Improved quality of life? Comforted the dying in the middle of the night? I thought not. Sleep well.
It may well have escaped you, but the authors are both Professors– having eschewed the attorney fees you mention in favor of the far less lucrative career of teaching. Having said that, your attack upon Lawyer fees does not change the data regarding the widespread practice of charging uninsured patients in multiples of what insured patients are charged. That you may be excepted from that data does not change the prevalence of the billing practice as stated. As we’ve posted prior, the prevalent practice of doing so– and then attributing the non-payment of such as a “community benefit” by non-profit hospitals is disturbing at best: http://www.healthreformwatch.com/2009/05/23/grassley-and-baucus-seek-to-further-define-the-difference-between-charity-care-and-bad-debt-for-nonprofit-hospitals-as-a-matter-of-collections-timing/#more-2216
As for writing off the unpaid balances, as it regards for profit enterprises, those are written off against other income, no? And if the charged rate is 4x as much as is charged to either Medicare or Private Insurers, and then written off because no paid or not paid fully–you do see where the problem is, no?
As for saving lives, relieving pain and improving the quality of life, members of the Bar accomplish those things every day. The results may be seen in both legislation and private suits which have forced industry– including the pharmaceutical industry and medical profession– to compensate those they have injured and change practices in order to better safeguard consumers and patients. http://www.healthreformwatch.com/index.php?s=surgical+checklist It would be thoroughly disingenuous to not take account of the positive impact the Bar has had in the lives and health of people.
Michael Ricciardelli, J.D.
AHIP, the health insurers trade association, has released a new study showing widespread price-gouging, just as we describe, but of a much greater magnitude than even we had imagined, with mark-ups of 10-fold or more:
http://www.ahipresearch.org/ValueofProviderNetworksSurvey.html
For press coverage, see:
http://www.nytimes.com/2009/08/12/health/policy/12insure.html?_r=1&hpw
Mark Hall
Wake Forest
Thank you for the article. Patients must stand up against price gouging. To help self insured employers, their employees, and even providers control costs, we developed a transparent fee schedule, a new non network product at http://www.Healthgram.com. We arm the member and the employer with information on exactly where the hospital or provider may be overcharging patients. We can do this at the CPT,HCPCS level. It is very important that everyone understand what is reaonable and that not all doctors and hospitals are overcharging for their services. Unfortunately, we are seeing more and more hospitals start to price gouge and over inflate their chargemasters. Some hospitals have started to charge 10X more than cost for fixed cost items like implants. We see many bills from hospitals where they are charging 10000% over Medicare and over their true cost to provide the service. I believe case law will bring about the needed change and hosptial systems (both non profit and for profit) will have to answer for their actions and their unreasonable charges. There are many ethical doctors and hospitals out there and the ones that have integrity are starting to accept the transparent Healthgram model because we are the only true benefit plan that is an alternative to high deductible health plans. We offer a fixed payment for all provider services with no coinsurance and no deductibles. Doctors recognize and embrace a benefit plan that pays them at a profit without them having to go after their patient. By doing so, we restore the doctor-patient relationship.
I am a 20-year-old college student, and I recently visited an internal medicine doctor in Palm City, FL. After I waited 3 hours for his 15 minutes visit, the doc sent me home with advice on stress reduction. I also had to listen to his personal experience with college years’ stress. My mom, a registered nurse for over 23 years, was flabbergasted about his approach to my care.
My copay was $15, which was asked of me to pay before service was rendered.
Now, I am just learning that the doc sent a bill to my PPO insurance for $437. The insurance paid him $272.42 and sent a balance of $149.58 to me to pay in full by 11/9/09.
You would think that he really meant stress reduction!!!
Where am I going to get that kind of money to pay him after he got $15 from me and $272.42 from my insurance for a simple regular visit? He is not a specialist, and it is not that he wrote any presciption for any screening test, lab work, medication etc…
I CALL THIS PRICE GOUGING PURE AND SIMPLE!!!
However, not all of them are the same. The reasonable good docs are rare, but they still exist out there.
My mom’s doc is a real conscientious family doc. He only charges $35-$45 when you do not have insurance or you have a high deductible.
What a pile of bunk! Physicians can only get paid what an insurer pays them, unless they are a “cash” practice. You are trying to put the responsibility on the physician, when in most cases, they bill for what they do and get paid by the insurer amounts determined NOT BY THE PHYSICIAN, but by the payor! Patients think the issue is with the doctor, when it is embedded with the payor!
We do not make up what we charge for what we do, unless we choose not to accept insurance. Until we move from procedural to wellness medicine, this will never change and until the truth is told to patients, the process will never change. STOP FEEDING the rhetorical comments and get your facts straight.
Gary, you might want to take a closer look at the article:
When patients are not protected by large private or public insurers, doctors and hospitals charge them astonishingly more than patients with Medicare or managed-care insurance. Some price difference would make sense, because insurers offer providers large volume and economies of scale. But we are not talking about discounts of 10, or 20, or even 30 percent. Providers routinely double, triple, or even quadruple prices for unprotected patients. Such huge mark-ups can only be regarded as price-gouging — exploiting market power to charge prices virtually unrelated to actual cost or market value.
Michael Ricciardelli is correct! I have insurance. I went to the Hospital for an infusion that I typically get at my gastro’s iv clinic. The cost of the drug I get is $600 a vial. The hospital charged over $3,000 a vial. How do you explain that? The clinic I go to normaly only charges $800 a vial!!!! Where does the hospital get off charging this much of a disparity? I’ll tell you what they told me…. “we have to make up for what we lose on medicade and Medicare some how”. So why is it my personal responsibility to cover these suposed losses? NOT FAIR! I pay taxes, I pay health insurance premiums, tell me why I have to make up the difference? I call it fraud!!!
This article has the wrong starting points and makes untrue assumptions:
1. Medicare payment is far, far below the actual market rate and cost of the treatments. In other words, it’s charity care. The best way to tell if someone has the Liberal Deep, Deep misunderstanding of how healthcare functions is if they think Medicare works. Medicare is the central destabilizing problem in all of healthcare. Go back to 1965 and every single indicator on healthcare was better… cheaper, providers happier, patients happier.
2. The differences are BOTH (not 1 or the other) a steep discount and a large overcharge. The federal goverment FORCES providers to take Medicare prices (the discount), and then the providers NEED to make up this difference by overcharging those who actually legally can be billed more. Don’t you see that this is 100% the result of government meddling in the marketplace????
3. The idea that defensive medicine isn’t real is hugely, immensely, horrifically laughable. Get this through your head, and if you can’t, you should try to find the “reset button” on your brain and go back to the drawing board to figure out WHY YOU’RE WRONG. Make no mistake: You are wrong if you don’t understand the factual, academic, 100% certain existence of defensive medicine and its roots in lawsuits. THEN: Realize this truth - Lawyers unrelenting support of starving resources out of healthcare ultimately feeds them: Less resources = more mistakes = more lawsuits. Imagine if Doctors were able to actually set a real market price for services, representing what it actually costs to properly provide them???? Far fewer mistakes and higher quality.
One more point to correct Michael Ricciardelli: Malpractice law has 100% certainly, unequivocally hurt medical care in this country. Malpractice law does NOTHING to improve safety or mistakes… Do you honestly think that not getting sued is the strongest incentive for doctors to take good care of their patients and avoid mistakes???? We’re good people who’ve dedicated our entire, massively talented lives to taking care of the people around us. We spend millions of dollars and countless extra hours doing clinical research to try to figure out the best and safest ways to provide care. We know our patients intimately and on average work 1/3 of the year for FREE when people cannot pay. Malpractive lawsuits are necessary and right in some cases, but Settlements are often private and don’t contribute to practice guidelines. Additionally, the wrong-doing they correct (rightfully) is quite literally a drop in the bucket compared with the overwhelming effort and dedication put in by the MD’s of this country, day after day, their entire lives.