Out-of-Control Hospital Charges Come Under Scrutiny

A recent Time Magazine cover article is the latest in a series of eye-opening reports about runaway hospital charges. Here we break down some of the critical numbers to know.

A recent Time Magazine cover article is the latest in a series of eye-opening reports about runaway hospital charges. Here we break down some of the critical numbers to know.

It is unequivocally clear that we need to reduce the amount of money spent on healthcare. Nobody disagrees with this. Between the aging of Baby Boomers and the 30+ million newly insured patients under Obamacare, the perfect storm of healthcare consumption has been created.

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Among the many challenges associated with making American healthcare more cost-effective is the irrationality of patient bills. Have you ever seen a patient’s ED bill, or better yet, a hospital bill? They are generally indecipherable except for the bottom line – the total. And the total is invariably an astronomical amount when compared with what we know as physicians to be the true value of what was delivered.

Recently I came upon two powerful sources of information related to hospital charges. The first is a website called TrueCostofHealthcare.org and the second is an extensive article in TIME magazine by Steven Brill. My goal is to abstract a few key pieces of information from both of these sources to help put into perspective just how nutty (and unethical) charges for medical care can be and to expose some of the finances of hospital-based medicine.

A number of years ago a California lawyer had a field day successfully suing a number of the larger hospital chains in the state for charging cash patients full charges when no one else was expected to pay full charges. In essence, the patients least able to pay their bills were charged the most for services – by a huge amount. The bottom line – in court it was repeatedly decided that no one was asked to pay the full bills except uninsured patients (not insurance companies, HMOs, Medicare — no one) and, as a consequence, uninsured patients shouldn’t be expected to pay what no one else was expected to pay. In response to the suits, hospitals were required to pay money back to patients. The same lawyer went after one of the major ED groups in California also for full charge billing and I believe a settlement was reached.

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It’s one thing to talk in generalities but specific examples drive home the magnitude of just how bad the problem has gotten. And, having seen some bills of family members I can assure you that these cases are by no means exceptional.

Here are some of the details from a case in the TIME article. An out-of-state cancer patient who went to MD Anderson in Texas for care experienced the following:

• The six day visit would require a prepayment of $48,900
• $35,000 additionally was required upon the start of treatment
• The total bill was $83,900 – required in cash
• An injection of the chemotherapeutic drug, rituxumab, was billed at $13,702 / the TIME author estimated the hospital paid $3,000 to $3,500
• The hospital’s profit margin was 26% on revenue of $2.05 billion in fiscal 2010

Another scenario described a 64-year-old who went to the Stamford Hospital ED by ambulance because of chest pains. After a three-hour visit she was discharged with a diagnosis of indigestion. The bill for the uninsured woman was $21,000 – $995 for the ambulance, $3,000 for the doctors and $17,000 for the hospital.

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• Her charge for three troponins were $199.50 each (Medicare would have paid $13.94 each)
• Her CBC was charged out at $157.61 (Medicare pays $11.02)
• Her nuclear stress test was billed out at $7,997.54 (Medicare would have paid $554).
• The cardiologist she saw in the ED charged $600 to read the test on top of the $342 for examining her.
• Her bill was eventually negotiated down to about $11,000 after the patient hired a medical billing advocate at $97/hr.
• In 2010, Stamford Hospital reported to the government that it spent $27.5 million for laboratory work and billed out $293.2 million for it (about 11 times cost)
• Operating profits for Stamford Hospital, in a city with a disproportionate percentage of Medicare and Medicaid patients, were 12.7% in fiscal 2011.
• The Stamford CEO is paid $1,860,000

A 61-year-old slipped and fell in her yard, had a bloody nose and was taken to Bridgeport Hospital in Conn. Total ED charge, $9,418. She claimed to have seen a resident for 15 minutes

• Charge for CTs of the head, face and chest was $6,538 – Medicare would have paid $825. Scan readings were $261
• Her troponin test was $239
• Her insurance only covered $2500. The hospital sued for the $7000 difference. The patient lost and had to pay all but $500 and some superfluous fees.
• An insured (annual payout limit, $60,000) blue collar worker went in for an outpatient installation of a spinal neurostimulator. The bill came to $86,951
• The patient was responsible for more than $40,000, not counting doctor bills (he apparently was not informed of the anticipated costs)
• The bill for medical and surgical supplies came to $7,882 ($3 for a pen to mark the skin, $39 for a surgical gown, $32 for a warm blanket)
• Pharmacy charges were $1,837 (including $108 for Bacitracin ointment)
• The Medtronic stimulator was billed out at $49,237. The TIME author estimated the wholesale price of the stimulator to the hospital was likely about $19,000 (a $30,000 profit for the hospital).

And, take a look at some of the salaries of the executives of these “nonprofits.” The TIME article noted that the compensation for the hospital’s president of MD Anderson Hospital last year was $1,845,000. He is also asserted to have unspecified financial ties to three pharmaceutical companies. To put this into perspective, the Chancellor of the University of Texas (MD Anderson is one of its hospitals) makes only $750,000 a year.

But $1.8 million is chump change compared to the compensation for some of the other hospital execs. In 2011, the CEO at Montefiore Medical Center in New York had a salary of $4 million while his CFO received $3.3 million. The CEO of Sutter Health, a nonprofit chain in Northern California, made $5.2 million in the same year. These salaries hardly look like those expected of “non-profit” non-Federal income tax paying organizations.

And what about the cries that many hospitals operate in the red? I’ve heard that half of the hospitals in California operate in the red, and I’ve heard that one-third of hospitals nationally are “losing money.” But what does this even  mean? How can hospitals sustain themselves year after year if this is the case? Brill, the author of the TIME article, asserts that the average operating profit margin for all nonprofit hospitals is 11.7%. He also claims that, despite “charity” care (estimated at 5% of gross revenues) that the approximate 2900 nonprofit, Federal income tax exempt hospitals in the country have higher average operating profit margins than the approximately 1000 for-profit hospitals after they pay their taxes. In other words, being a non-profit produces more profit than being a for-profit.

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But as in most business-related investigations, you need to follow the money and the healthcare industry spends serious dollars lobbying Washington to get what it wants. According to the TIME article, healthcare lobbying since 1998 has cost $5.36 billion – substantially more than the $1.53 billion spent by the defense and aerospace industries and the $1.3 billion spent by oil and gas interests over the same period. 

Finally, to help put charges and payments into perspective, here are some examples from a survey of San Francisco area hospitals. Dr. David Belkin, on his web site TrueCostofHealthcare.org, compares hospital charges with what Medicare would pay. 

What can be done about the gross disconnect between hospital charges and reality?  As it stands now, if a person is without good health insurance they are at grave financial risk, with many being one ED visit away from disaster. Unfortunately, there is no easy solution. The practice of hospitals having charges with little relationship to reality is longstanding and well entrenched. Every state does it, except perhaps Maryland, which has some mandated system of standardized charges.  Government payors ignore the bills and pay what they calculate to be appropriate. But insurance companies are the ones designed to be snagged by the hospitals’ infamous “chargemaster” and “cash” patients become inadvertently swept up in process.

As hospitals partner and consolidate, the idea is that their bargaining power with insurance companies will increase. It’s the goal of the hospitals to have insurance companies negotiate their prices off their chargemasters rather than negotiating upwards from government payment rates. As long as U.S. healthcare is not mandated to change to a more equitable and transparent system, examples such as those noted in the TIME article will continue. And remember, even when Obamacare is fully in place, it is estimated that there will still be 25 million uninsured and many with commercial plans will be underinsured.

The answer, in my book, is something which many in the United States will reject but which – though imperfect – has been a source of pride for our Canadian neighbors for years. I’m talking about a single payor system in which essentially everyone is covered and prices are negotiated province wide between the government and providers. We are a long way from achieving that goal – and many wouldn’t touch it with a 50 foot pole – but an honest appraisal of our current charge/payment quagmire should lead the reasonable observer to the conclusion that we’re in desperate times, and we need to take drastic measures. 

Richard Bukata, MD is Editor of Emergency Medical Abstracts (www.ccme.org)