Hospital Overcharging-Where the Rubber Meets the Courtroom
In a landmark class action lawsuit, Seattle based Swedish Hospital, now part of the Providence Hospital Group is being sued for charging an uninsured Issaquah man who visited the emergency room much more than what it charged privately insured patients or those covered on government health insurance programs. Though this disparity in hospital billing phenomenon is not new, what is raising the level of accountability is the class action lawsuit, because this will allow the courts to examine the billing of all uninsured patients for all seven of Swedish Hospital’s emergency departments. Though class action lawsuits often end in relatively small settlements for the plaintiffs in the suit, they are big money for the attorneys, at least those with the cojones to see them through to the end.
Lifting the Veil on Hospital Billing
Basically here is how hospital billing works, there are different reimbursement levels for services for different contracts, including the various insurers, as well as Medicare, and Medicaid. The government plans of course, by virtue of their bully pulpit actually pay the least for services and private insurers pay more of the reduced gross hospital charges, per patient. As in the Puget Sound Business Journal Article, the uninsured person was charge $10,000 for the same services(found in legal discovery) for which the insurance company contracts paid $3,500.
Why charge the patient without health insurance more than the insured person? The answer is two-fold, first there is no underlying contract to secure payment for the hospital, so the facility takes on the risk(as required by the government under Emergency Medical Treatment Act) of providing potentially costly services. Secondly, often the uninsured person is not able to pay the normal fees for services, so there are charitable discounts or write offs for this patient demographic. Is this method of billing legal, yes, ethical, well that is where it gets to be a sticky wicket. The hospital can charge 100% of gross prices for services to anyone without insurance coverage, but it rarely gets that amount of money from the uninsured patients, so the hospital offers a charitable discount to entice the patient to pay the services, and then the hospital takes a charitable deduction for the unpaid portion of the gross charges. Though this may seem reasonable from an accounting standpoint, the hospital is able to take a deduction for gross charges it never expects to receive, because the gross charges are inherently designed to provide at least enough payment from the other payers, including Medicare, Medicaid, and private insurers to keep the facility solvent. Thus, in the case of an uninsured patient who actually pays his bill, even if it is paid at a higher rate than the hospital normally would receive for those services, the hospital still deducts any portion of the unpaid gross charges as their charitable discount. This may even make the reimbursement from the uninsured patient better than from the other contracts, just not as consistent. So, is it fair that we allow hospitals to charge the uninsured patients more than what they get from patients with greater resources?
At various times when I have been uninsured and forced to access services at hospitals, I found quite a variance in the charitable care discount I was offered, and the billing practices of different facilities. One hospital required a 40% payment based on gross charges and the other wanted 60%. If one hospital requires the patient to pay 60% of gross charges for services, this is greater reimbursement than most insurance contracts, and hence a very good deal for the hospital. This is also enhanced by the fact the hospital can claim the 40% as charitable care, assuring political fodder for future negotiations with state and federal regulators.This is yet another example of a health system failure in the United States, because of our bifurcated financing system, and social inequities. Of course it isn’t right that the uninsured are charged more than those with insurance plans, but it is legal, and hospitals develop their fee schedules based on a complex mix of patient demand, high marginal cost for services, and regulatory requirements. The class action lawsuit will be costly and in the end just add to the hospital fees, but it does shine a light on this inequity. One of the things we all could use is transparency in the prices of health care services in this country. Though we are making progress on patient safety outcomes and reporting, thanks in large part to the IOM’s report more than a decade ago, we still have a huge battle ahead to fully inform and empower health care consumers as they navigate the black box of the American health care system.
For more information on this hospital conundrum and how to negotiate with a hospital should you need services and lack health insurance(fifty million at last count), go to Chapter Nine of Unraveling U.S. Health Care-A Personal Guide, out this month by Rowman and Littlefield. https://rowman.com/ISBN/9781442222984
For practical advice on resourcing your health care, read more of what the healthpolicymaven has to say. This article was written by Roberta E. Winter, MHA, MPA, someone who has negotiated insurance contracts for private employers, analyzed network reimbursement data for hospitals, and advocated for the empowerment of health care consumers.