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.

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 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.