Hospitals and the Uninsured–More BS

Jonathan Cohn is one of the few single-payer advocates for whom I actually have some respect. I think his support of government-run health care is misguided, but he knows the system and is obviously a thoughtful person. So, I was surprised to find him repeating an utterly baseless canard about the way hospitals behave toward the uninsured:

It was during the 1980s and 1990s, when the insurance companies began putting unprecedented pressure on them to reduce costs, that many changed their pricing structure — in ways that transferred higher bills onto the uninsured — and outsourced their collection work to specialized legal firms.

This is … well … BS. As I have pointed out previously, hospitals don’t have separate price lists for patients based on insurance coverage, ability to pay, or any other non-medical criterion. When it comes to hospital charges, one size really does fit all.

There is, of course, some variation in reimbursement. Medicaid, for example, pays far less for a given service than commercial insurance pays. And the typical uninsured patient pays nothing at all. But, if the service is the same, the charges are identical for Medicaid, commercial and uninsured patients.

And the suggestion that it is profitable to refer patient accounts to “specialized legal firms” is profoundly naïve. The average recovery rate for such firms is about 15%. And that’s before the attorney takes his cut. So, in all but a few poorly run hospitals, legal action against patients is relatively rare.

The general thrust of Cohn’s article is that simply lambasting the “bad guys” won’t get health care reform done. True enough. But it is also true that listing hospitals among the “convenient villains” of our health care delivery system is both unfair and uninformed.

UPDATE:

Jonathan Cohn advises me that I misinterpreted his words conerning how hospitals charge the uninsured. His comment can be read here.

Comments 9

  1. Scott wrote:

    “But, if the service is the same, the charges are identical for Medicaid, commercial and uninsured patients.”

    Correct. The charges HAVE to be the same, or it would be considered a kickback.

    Posted 30 Jul 2007 at 10:04 am
  2. Jonathan Cohn wrote:

    First, thanks for the kind words about my work. I try very hard to be accurate and intellectualy honest — and, in fact, I was doing so here.

    Indeed, I chose my words very carefully and deliberately in this article. I did *not* say the insured and uninsured pay different prices. I said they ended up facing higher bills — and that this was a by-product of changes in hospital price structures during the 1980s and 1990s.

    And this is unquestionably true. It was during the 1980s and 1990s that insurance companies began demanding discounts on charges as part of their annual contract negotations. It was part of the managed care revolution (the part that gets the least attention, but probably had the most to do with managed care’s ability to hold down overall health care spending during that time).

    It would work this way: Insurer A would demand that Hospital B give, say, a 20 percent discount on charges for all of Insurer A’s beneficiaries. If Hospital B refused, then Insurer A would refuse to approve admissions into Hospital B (except in emergencies) — and instead steer its patients to Hopsitals C, D, or E (or whichever gave it the best price).

    Now, particulalry in the early years of managed care, when insurers had all the barganing leverage, hospitals freuqently gave large discounts to keep the patients coming. But then, the next year, they’d raise their charges — in part to compensate. Naturally, this prmopted the insurers to demand even bigger discoutns the next year. And on and on and on.

    The result is a growing disparity between the “charge master” — the list prices for servcies at the hospital — and what insurers actually pay for them. Gerard Anderson at Hopkins has done a lot of research on this and found that, in some cases, actual list charges are 3 to 4 times what insurers actually pay.

    WHich is fine — except that people without insurance don’t get the discounts. So hospitals ask them to pay the full bill, at least initially. And so you get this situation where people without insurance are, in effect, being asked to pay much larger bills.

    Now, about the specialized legal firms. It was during this same period that a lot of hospitals became much more focussed on improving their bottom lines, because their revenue streams were dwidling. (This wasn’t simply a function of private insurance; Medicare reimbursements went down in the Balanced Budget Act of 1997.) One way was by conslidating into large chains and networks (to get more bargaining leverage with the insurers). Another was to streamline operations.

    To accomplish the latter, a lot of consultants advised hospitals that they should outsource collections from in-house departments to legal firms specializing in this — a.k.a. collection agencies. These firms promised higher revenue — not a lot, I grant you, but enough to make a difference. (Remember, particularly at this tie, they thought they needed every penny.)

    Plus there was the added benefit that hopsitals with reputations for dogged collection were less likely to attract uninsured patients in the first place.

    You say “legal action against patients is relatively rare.” Have you ever spent any time at a courthouse, during debt collection hearings? Well, I have. A lot. I can tell you they are not rare at all. As I recall, one of the Chicago-based hospital chains I examined in detail (via courthouse records) had its attorneys file literally thousands of debt collection cases a year — and that’s only the cases that made it that far. Many more never made it to the courts because the attorneys were able to work out payment plans beforehand — plans that caused considerable hardship, even though the patients in theory should have been elegible for more lenient treatment or outright charity care. (Remember, most of these hospitals are non-profit, so they benefit from tax breaks becuase they serve teh public community.)

    I cover all of this with much greater detail in chapter 6 of my book, Sick. (www.sickthebook.com) But you don’t have to take my word for it. Prof. Anderson’s congressional testiony about this issue should be available on the web. And the WSJ really broke this story through a series of stories looking at Yale University Hospital in New Haven and, later, a hospital in Urbana, Ill. Just google the clips from Lucette Lagnado.

    Posted 30 Jul 2007 at 10:19 am
  3. Marc Brown wrote:

    What exactly is your manifesto for healthcare in the US?

    Posted 30 Jul 2007 at 10:27 am
  4. Scott wrote:

    Jonathan Cohn Said
    “The result is a growing disparity between the “charge master? — the list prices for servcies at the hospital — and what insurers actually pay for them. Gerard Anderson at Hopkins has done a lot of research on this and found that, in some cases, actual list charges are 3 to 4 times what insurers actually pay.
    WHich is fine — except that people without insurance don’t get the discounts. So hospitals ask them to pay the full bill, at least initially. And so you get this situation where people without insurance are, in effect, being asked to pay much larger bills.?

    Jonathan brings up a great point and frankly I am surprised that this issue has not been brought to the forefront sooner.

    This is what happens when there is absolutely no consumer market. Healthcare is an industry driven market with industry prices. So the uninsured and the people whose benefits have been denied are forced to pay prices meant for the insurance company.

    Posted 30 Jul 2007 at 4:58 pm
  5. Catron wrote:

    Mr. Cohn, thanks for your comments. I’ll add an “update? to the post referring readers to them. Meanwhile, a couple of points:

    I said they ended up facing higher bills — and that this was a by-product of changes in hospital price structures.

    The actual verbiage in the Globe piece was “many changed their pricing structure — in ways that transferred higher bills onto the uninsured.? While you evidently didn’t intend it, I think it’s highly probable that most of your readers interpreted that passage to mean “higher prices for the uninsured.? The news media have certainly interpreted similar assertions that way. And, as these two comment streams suggest, a significant percentage of the public has apparently come away with the same impression.

    Insurance companies began demanding discounts on charges … The result is a growing disparity between … the list prices for servcies at the hospital — and what insurers actually pay for them.

    FYI, during a significant portion of the 1980s and 1990s, I was employed by a not-for-profit hospital as Director of Patient Financial Services (i still work in hospital finance). In that capacity, I was intimately involved in managed care negotiations and charge master revisions. Your description of the “managed care revolution? is reasonably accurate, although it assumes a fee-for-service environment that often did not pertain. More importantly, it omits two VERY important facts: (1) only a small minority of uninsured patients ever pay anything at all, and (2) virtually all hospitals offer both discounts and incredibly liberal (no interest) installment plans.

    As to the specialized legal firms, my precise words were “in all but a few poorly run hospitals, legal action against patients is relatively rare.? The Chicago chains you cite are examples of those “poorly run? institutions. Most hospital finance types regard collection policies such as those you mention to be both offensive and stupid. And when I say “relatively rare,? I mean that the number of unpaid self-pay hospital accounts that end up in court amounts to a pretty small percentage of the total (when you consider all American hospitals).

    Posted 30 Jul 2007 at 7:21 pm
  6. Catron wrote:

    Marc, I think reform is indeed needed but that a free market approach is the correct way to go. The first steps should be deregulation and tax reform. The right changes in those areas would eliminate many of the perverse incentives that have the system out of whack. For more on what should be done, read this piece by David Gratzer.

    Posted 30 Jul 2007 at 9:21 pm
  7. Mr. Moderate wrote:

    hospitals don’t have separate price lists for patients based on insurance coverage, ability to pay, or any other non-medical criterion.

    I have personal experience that this is not the case, but in favor of uninsured people who can afford to pay. I had to get a second MRI at a hospital. At the office I was told that reviewing the health insurance policy they probably wouldn’t pay for a second MRI. I could let the hospital submit it to the insurance, which they probably wouldn’t pick up, and the cost would be $1000. Alternatively I could pay for it out of pocket and the charge would be $500. I had the luxury of being able to and chose to do the latter.

    Posted 31 Jul 2007 at 10:36 pm
  8. Mr. Moderate wrote:

    There is, of course, some variation in reimbursement. Medicaid, for example, pays far less for a given service than commercial insurance pays. And the typical uninsured patient pays nothing at all.

    The typical uninsured pays nothing at all? In the United States? The many bankruptcies due to medical debts along with those who end up covering tens of thousands of costs out of pocket make that statement seem specious to me.

    Posted 31 Jul 2007 at 10:37 pm
  9. Matt wrote:

    So if the uninsured aren’t paying anything, why does our local hospital garnish so many people’s wages if they stop making payments under their payment plans? Those hundreds of people at this rural hospital must be atypical.

    Posted 01 Aug 2007 at 6:04 pm

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