• 1/26/2003
  • Lucette Lagnado
  • The Wall Street Journal

Under pressure from lawmakers and consumer advocates, the hospital industry said it would consider making broad price cuts for the uninsured — provided the federal government approves. The announcement by the American Hospital Association included a stark admission that some hospital billing and collections practices are unfair to needy patients. But even as some big hospitals scramble to curtail their most aggressive tactics, such as putting liens on debtors’ homes, the trade group is also blaming much of the problem on Medicare. In a letter delivered Tuesday to the Department of Health and Human Services, the hospital group said Medicare regulations “make it far too difficult and frustrating” for hospitals to reduce prices for people who can’t afford health care. The letter asks the agency, which oversees Medicare, the federal health-care program for the elderly, to change or clarify its rules so that hospitals “have the ability to do what they can to respond to the needs of these patients.” In a document filed in support of its letter, the trade group also said it would urge its 4,800 member hospitals to adopt a set of voluntary guidelines on billing and collections. At the heart of the issue is the hospitals’ common practice of charging full listed prices to the nation’s 43.6 million uninsured patients. Meanwhile, other patients enjoy steep discounts negotiated on their behalf — either by private insurers and HMOs or by government programs such as Medicare and Medicaid, the federal-state program for the poor. In some areas, the hospitals’ official charges amount to several times the discounted rates. Adding to the problem for the uninsured, many hospitals have become more aggressive in seeking payment of these bills. Hospitals have placed liens on debtors’ homes, garnisheed wages, seized bank accounts and, in some cases, sought the arrest of debtors who miss court dates, a practice known in some states as “body attachment.” The letter, addressed to Secretary of Health and Human Services Tommy Thompson, marks a turning point for an industry that has been reluctant to acknowledge that its financial practices contribute to the plight of the uninsured. In a series of articles this year, The Wall Street Journal has examined hospitals’ aggressive billing and collections methods, including charging uninsured patients full listed prices while other patients get discounts.

The hospitals contend the pricing disparity is the result of Medicare regulations requiring hospitals to maintain a uniform list of charges for every treatment and service they administer — even for patients who aren’t covered by the program. The hospitals claim they can’t offer unilateral reductions in these charges to categories of people, such as uninsured patients, without fearing they may be violating Medicare rules. In a longer document accompanying its letter, the hospital group also blamed Medicare for some of their collections practices, claiming the program’s rules “create a very strong presumption that hospitals must use aggressive efforts to collect from all patients,” including sending collection letters, making telephone and personal contacts, and initiating court action. It isn’t clear whether Medicare’s complex rules are as inflexible as the hospitals claim. Tom Gustafson, deputy director of the Center for Medicare Management, a Medicare division, said the rules allow hospitals to offer poor people discounts from listed charges “on a patient-by-patient basis, and it has to require verification of the financial need of each patient.” Mr. Gustafson said Medicare officials need to study the hospital group’s concerns and added: “We are prepared to think about, to consider and to learn about this situation in greater detail.” A spokesman for HHS Secretary Thompson said the secretary would consider the issues the industry was bringing to his attention.

Over the past year, lawmakers, labor unions and patient advocates have increasingly urged hospitals to make changes in the way they bill and collect from patients. The House Subcommittee on Oversight and Investigations this summer launched a probe into hospital billing and collections, and plans to hold hearings early next year. “In the worst instance, hospitals simply apply outrageously high charges — higher than what Medicare pays, higher than private payers — and then will relentlessly and sometimes mercilessly pursue poor people for their money, even to the point of having them arrested,” said Rep. James Greenwood, a Pennsylvania Republican and chairman of the subcommittee. A new Connecticut law, which went into effect in October, makes it harder for hospitals to sue patients and to seize their bank accounts or place liens on their homes. That law also slashes interest rates charged on patient bills to 5% from 10%. In Illinois, state legislators are weighing laws that would end what they call “discriminatory pricing,” the practice of billing uninsured patients more than insured patients — on the theory that uninsured people tend to be minorities against whom it is illegal to discriminate. In New York, a pending bill in the state legislature would limit the amount hospitals could bill poor uninsured patients to no more than the sum Medicare or private insurers would pay, whichever is larger. Now the hospital industry is pushing for big changes in Medicare. Its letter requested that Medicare issue a “safe harbor” rule enabling hospitals to discount or waive charges for the uninsured without risking trouble with the program. The association is also asking Medicare for a new advisory process under which hospitals could quickly get rulings on when and how they could discount rates to the uninsured.

If Medicare makes these changes, “hospitals will gladly and willingly deconstruct the terribly frustrating system that ties their hands and is ruining their reputations,” said Richard Wade, a spokesman for the American Hospital Association. The Medicare rules requiring hospitals to maintain lists of their charges date to the establishment of the program in the 1960s. The original purpose of the uniform charges was to prevent hospitals from charging some classes of patients more than others, or overcharging the Medicare program. That made sense in the early years of Medicare, when hospital charges generally reflected the cost of providing care plus a modest profit. In the 1980s, as powerful HMOs emerged, they began demanding their own discounts from the hospitals’ listed charges. Hospitals in turn began boosting their charges, in part as an effort to set a higher starting point for negotiations. Lost in the mix were uninsured patients, who continued to be billed as they always were, unaware of the discounted rates and with no one to negotiate on their behalf. Mr. Gustafson, the Medicare official, conceded that the listed charges “had a lot more meaning 20 or 30 years ago, before managed care.”

For uninsured patients, the impact of being billed at full hospital charges can be harsh. Last year, Judith Geva, an uninsured 51-year-old small-business owner, had an emergency hysterectomy at North Shore University Hospital in Manhasset, N.Y., part of the North Shore-Long Island Jewish Health System. She received a hospital bill for full charges of $21,508. For the same procedure, which requires a three-day stay, Medicaid pays the hospital $8,456, and Medicare pays $7,600, according to the hospital and the government programs. The hospital said private insurers and HMOs in the area would reimburse it at roughly the same rate as Medicare. Ms. Geva says her home software business had suffered a downturn and she couldn’t afford to buy insurance or pay her hospital bill. She says she had applied for Medicaid but was turned down, in part because she owns a house. In February, North Shore turned her bill over to collections, and the hospital sued her three months later. Ms. Geva says she e-mailed legislators and searched the Internet in vain seeking assistance, until she found the Long Island Health Access Monitoring Project, a group that helps the uninsured. A retired physician in the group called a hospital executive, and Ms. Geva’s bill was cut by more than half, to $10,000 — an amount still higher than what any government program or private insurer would have paid. Ms. Geva says she charged most of the bill on her Discover card, and is trying to pay it back, with interest. She adds that she now has health insurance.
Terry Lynam, a spokesman for North Shore-LIJ, said Ms. Geva had been billed full charges in keeping with Medicare regulations, and that the hospital refers bills to collection agencies after 60 days. “The collection efforts weren’t heavy-handed,” he said. Mr. Lynam added that North Shore-LIJ “recognizes the flaws in the billing process” and is planning to implement a far-ranging new financial-aid plan. Starting in February, the hospital said, uninsured patients and those in families below a certain income ceiling would qualify for sliding-scale reductions from Medicaid rates, which are already much lower than the hospitals’ listed charges. Mr. Lynam said the hospital believes this plan will pass muster with Medicare.

Other hospitals are planning sweeping changes to their billing practices. Ascension Health, the nation’s largest Catholic hospital chain, said it will offer free care to every uninsured patient whose income falls below the federal poverty level, provided they don’t qualify for government aid. (The poverty level is $8,980 for an individual, and $18,400 for a family of four.) Poor patients with an income up to twice the poverty level also would be eligible for discounts. The amount of the discounts would be left to the discretion of individual hospitals in the 67-hospital Ascension system, which is based in St. Louis, Mo. Douglas French, chief executive of Ascension, said the chain also plans to seek Medicare approval for even more dramatic price cuts. Ascension wants to bill all uninsured patients — rich and poor — at the same discounted rates its hospitals get from HMOs and insurers. Under that plan, “basically, nobody gets [full] charges,” said Bruce Vladeck, a member of Ascension’s board of directors. However, Mr. Vladeck, a former head of Medicare, said he isn’t sure the unilateral discount for uninsured patients would pass muster with his old agency. A major for-profit hospital chain, HCA Inc. of Nashville, Tenn., said it struggled for months to craft a program of price breaks for uninsured patients that would satisfy Medicare rules. HCA’s plan, launched this fall, offers free care to uninsured patients who earn up to twice the federal poverty level. HCA also offers a sliding scale of discounted fees to patients who earn as much as four times the poverty level. “It wasn’t casually, ‘Oh, we will do this,’ ” said Jeff Prescott, an HCA spokesman. “We sat internally for more than a year trying to craft what could be done within the existing environment.” A Medicare spokesman declined to comment on the HCA plan.

Meanwhile, another large, for-profit chain, Tenet Healthcare Corp. of Santa Barbara, Calif., said it hasn’t been able to move forward on its own discounting plan, which involved billing low-income, uninsured patients at the same discounted prices it gets from HMOs. Medicare raised questions on the plan, and the company said it is awaiting a legal opinion from the Inspector General of the Department of Health and Human Services. In the meantime, Tenet says, it has drastically curtailed lawsuits against uninsured debtors and restricted the use of liens, eliminating them entirely for patients whose home is their only asset. In its appeal to regulators, the American Hospital Association said it was urging its members to adopt “fair billing and collection practices,” such as requiring hospitals to better monitor their collection agencies. However, the guidelines stopped short of barring hospitals from using specific collections tactics such as putting liens on houses or seeking the arrest of debtors. Responding to criticism that hospitals frequently don’t tell patients that charity care or financial aid is available, the guidelines urge institutions to offer financial counseling and to make that counseling “widely known.” The hospital group also urged its members to lift the veil of secrecy that has surrounded their lists of charges, stating that hospitals should make available for public review “specific information in a meaningful format about what they charge for services” to help patients understand their bills. Mr. Wade, the group’s spokesman, added: “We have to be much more transparent about our charges.”