Thrills, Chills, & Hospital Bills: Why Are They So Crazy?

There is little credibility to (most) hospitals’ claims that uninsured patients drive them to the brink of insolvency by crowding emergency rooms and then not paying their bills, as explained in my analysis of the California Health Care Deforminator, Model ABX1 1.

Indeed, it looks like the hospitals bring these problems onto themselves, by charging uninsured patients a lot more than insured patients. A recent examination of California hospitals’ billing practices shows that negotiated rates to private insurers result in payments of less than one third of the invoiced price (the allowed/billed ratio)!

Let’s put it this way: if real transaction prices for privately insured patients are 30 percent of list prices, isn’t it obvious that the list prices (the hospital “chargemaster”) are absurd, unrealistic, and unlikely to result in anything approaching full payment?

Yes, that is the case, as a current ruckus over San Diego’s Scripps Health demonstrates. A proposed class-action on behalf of 60,000 uninsured patients seeks reductions of about $73 million off bills owed by uninsured patients, going back to 2002. It verges on pointless, because most of the patients never paid their bills anyway.

All that’s happened is a bunch of paperwork has flown around between Scripps Health, discharged patients, and bill collectors. And at the end the hospital looks pretty evil; but they could do a lot better job of informing the public that these crazy bills are caused by government interference in hospitals’ setting prices. As the ever-so-moderate Commonwealth Fund reported a few years ago, Medicare rules demand that hospitals charge Medicare the lowest rates, and cannot reduce charges to uninsured patients until they have put patients through a painful debt-collection process.

Some state have tried to temper this. California’s AB774, implemented in August 2006, requires hospitals to charge low-income and uninsured Californians no more than the Medicare rate. Well, that sounds fair enough, but I’m sure some unintended consequences will arise from the state government trying to fix a problem originating in the federal government!

The best solution, of course, is to remove both the state and federal government from fixing hospital prices, and allow communities themselves to decide how charity care is delivered – and paid for.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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