Two years ago, Phil’s daughter Mary spent a month at a major San Diego nonprofit hospital, recovering from a near-fatal disease. Like one in four Californians, Mary was uninsured. The stay was billed at over a quarter-million dollars.
“I was overwhelmed,” says Mary (not her real name), a San Carlos resident who was in her late 20s at the time. She was still recovering when the bills began coming in. “At one point, I said, ‘It would have been easier to die.’ That’s the best way to put it. It’s inhumane.”
She and her father wish to remain anonymous and to keep the hospital unnamed in case she requires medical assistance in the future.
“I called the number given on the bill, gave them the account number, and said we didn’t have that kind of money,” Phil says. “The operator who received my call just said, ‘That’s okay, sir, I am authorized to offer a 50 percent discount.’ That was the very first time I called the billing department.”
A patient-advocacy group got them an additional 5 percent off the bill, but making the payment remained near impossible for Phil and his recovering daughter. Surprised by the elasticity of the charges, Phil began researching hospital-billing practices on the internet and stumbled upon hospitalbillreview.com, a medical-bill evaluation service run by Chapman Consulting. Marc Chapman, president of the Austin, Texas–based company, advised Phil to request a detailed bill with current procedural terminology codes, known as CPT codes, which hospitals use in lieu of a line-by-line description of services.
“The first bill I received was just like a credit card bill,” Phil says. It listed only the amount due. When he requested a detailed bill, they sent an itemized bill without the codes. He asked for a bill with the CPT codes, and as he recalls, “They seemed reluctant to provide it.”
For $200 (some review services charge as much as 50 percent of the amount of the bill), Chapman provided Phil with a line-by-line analysis of charges complete with CPT codes, the price charged by the hospital, the price Medicare pays, and a “reasonable and acceptable” charge of 150 to 180 percent of the Medicare price. All the charges were inflated, some as much as five times the Medicare rate. The actual hospital costs were around $60,000. Chapman said a reasonable and acceptable bill would be about $84,000.
Little wonder, then, that the billing department offered a half-price discount so readily; they were still making over 100 percent in profit.
“[Overbilling] is common practice,” says Brian Heller, Ph.D., a health-insurance consultant in Ohio. “Hospitals have to jack up their charges to offset the nonreimbursed or underreimbursed care they provide.”
However, the hospital in question states in its annual financial disclosure report that it lost $872,022 in 2008 to unpaid outpatient bills, an insignificant sum compared to the year’s $413,075,407 net patient revenue. Note that hospitals quote their unpaid bills and charity work at their billing rates, not their actual cost, which is typically about 25 percent of their billing. The hospital’s actual cost of unpaid bills was only about $220,000, or less than 0.05 percent of net patient revenue.
“Most hospitals bill an amount much greater than what Medicare pays them for the services,” says Talina Smith, a health-provider billing agent with experience in seven states and several companies, including a private ambulance service in San Diego. “This in and of itself isn’t very surprising. Medicare pays some of the lowest rates of any type of insurance coverage with the exception of Medicaid programs. Most commercial insurance companies pay more than Medicare. For people with good health insurance coverage, this is hardly ever noticed, as the hospital will typically be contracted with their insurance, and therefore, the insured patient would not see any extra charges. However, for uninsured folks like [Mary], these bills are horribly scary.”
One example of overcharging on Mary’s bill involved the daily blood tests for which the hospital billed her more than $40,000. Using Chapman’s calculation, the tests should have cost around $3500. According to Medical Billing Advocates of America, most hospitals would bill approximately $30,000 to $35,000 for a routine appendectomy. Medicare would reimburse $4200 to $5000 as payment in full. An HMO may contract to pay $7000 for the same bill. Commercial insurance companies may reimburse $9000. Uninsured patients will be forced to pay the full $35,000.
It’s difficult to believe that hospitals would charge such grossly inflated fees to the very people who can least afford them, the uninsured and underinsured. Smith is familiar with several explanations for this practice, and from a business standpoint, they all make sense. Hospitals need money to cover costs of such things as expensive medical equipment, lawsuits and malpractice insurance, and the unpaid bills of patients who cannot or refuse to pay. Meanwhile, 70 percent of bankruptcy claims in the United States are due to medical debt among insured and uninsured patients alike, according to the research of Elizabeth Warren, a professor at Harvard University’s law school.
“Ten Ways to Avoid Outrageous Hospital Overcharges,” an article on msn.com, a news website, cites a case where a patient was charged $129 for a “mucous recovery system,” or a box of tissues. Medical Billing Advocates of America cites cases of patients being charged $57.50 for a teddy bear (called a “cough support device” on the bill), $57 for a two-by-two-inch piece of gauze used to wipe down surgical equipment (called a “fog elimination device” on the bill), and $1004 for a “courtesy” toothbrush. Mary was billed for a medication, propranolol, at a price 102 times higher than Costco pharmacy charged (no one bothered to tell her that it would cause her hair to fall out) and a laxative at a 5200 percent markup. She was charged $67.83 for a bacterial culture for which Medicare pays $13.22, $29.75 for a blood test for which Medicare pays $8.38, and $536.25 for a consultation for which Medicare pays $194.45.
Virtually all hospitals charge uninsured patients more than they charge those with health insurance, said Gerard Anderson, a health policy professor at Johns Hopkins Bloomberg School of Public Health, on 60 Minutes in March 2006. Senator Chuck Grassley, then chair of the Senate Finance Committee, said that billing practices for uninsured patients are “an institutional bias against uninsured people” and “something to be outraged about.”