Valuable service: Technician Doreen Emgeian, of Women & Infants Hospital, conducts a bone density scan to screen for osteoporosis on Ellen Heath of Cranston.
More ‘transparency’ urged to help consumers
Call it the $5 aspirin syndrome. For reasons that even hospital CEOs can be hard-pressed to explain, the gap between what it costs to treat a hospital patient and what shows up on the bill can be astronomical. And what hospitals are actually paid – well, that’s a whole other story.
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A 2004 R.I. Department of Health report shows that the actual cost behind every $1 charged by Rhode Island hospitals ranged from 95 cents at Bradley Hospital, to just under 30 cents at The Miriam Hospital (13 of the 14 institutions’ costs were under 57 cents).
But if those figures conjure up images of hospital executives swimming in money, think again. In fact, industry leaders say regardless of what hospitals charge, Medicare and Medicaid pay them less, overall, than the cost of the services they provide.
Under new charity care guidelines adopted by the hospitals, uninsured patients with incomes below 200 percent of the federal poverty line pay nothing at all. And those with incomes between 200 and 400 percent of poverty pay on a sliding scale of 10 to 90 percent of charges.
“There is nobody – flatly nobody – that is self-pay who pays full charges,” said John F. Gillespie Jr., senior vice president for planning and marketing at the Lifespan network.
So who does pay the full amounts listed on hospital bills? No one, really, hospital executives say. But private health plans do pay, overall, more than it costs hospitals to serve their subscribers, effectively subsidizing the uninsured and those covered by the government.
An article in the latest issue of Health Affairs, a widely respected policy journal, says in 2002, nationwide, private insurers paid roughly $1.22 for every $1 worth of care their subscribers got. Medicare, meanwhile, paid about 95 cents, and Medicaid paid even less.
It’s a “remarkably simple” dynamic, the article says: Since even nonprofit hospitals can’t afford to lose money, “as some pay less, others must pay more. No business can survive if all payers pay marginal costs,” or if major payers underpay while the rest pay “average” prices.
Of course health plans don’t lose money, either, so ultimately, the cost shift works its way into employers’ insurance premiums. In other words, when Medicare, which accounts for 38.5 percent of U.S. hospitals’ costs, underpays by 5 cents, the pennies come out of your pocket.
It’s not an even trade, the article stresses: Hospitals narrow the gap through increased efficiency and service reductions. Some cost-shifting, however, is inevitable – and if you ask hospital executives, they’ll acknowledge that fact.
“Those of us in the business know that cost-shifting goes on,” said Louis Giancola, president and CEO of South County Hospital. “We know that we have to recover income from one service in order to make up for the losses with another service.”
The shift goes on at different levels: There’s the difference in what the hospital will collect for, say, an MRI depending on the patient’s coverage type. And there’s the built-in subsidy in the price of, say, MRIs or CT scans to make up for hospitals’ losses on mammograms.
It’s a system that the government, health insurers and – more grudgingly – employers have all tacitly accepted for years. Now, however, it’s starting to directly affect consumers, and the pressure is mounting to start making hospital bills, and what hospitals are paid, more closely reflect what it costs to provide services.
What’s changed is the health insurance market. Faced with double-digit premium hikes each year, employers are increasingly imposing deductibles of $1,000 or more on their workers’ health plans, and a new kind of product, dubbed “consumer-driven” health plans, encourages subscribers to shop around and find out how much it will cost them to get specific services.
Hospital officials tend to loathe high-deductible plans, because it forces their institutions to collect large amounts of money from their patients – a task they neither like, nor are particularly successful with.
There are complications, too: Constance A. Howes, president and CEO of Women & Infants Hospital, said it’s common for the hospital not to be able to figure out how much a patient actually needs to pay, because there’s no up-to-date information on how much of the deductible has already been met.
To deal with such situations, one insurer recently advised Women & Infants to make an imprint of the patient’s credit card and have her sign a document agreeing to be charged whatever the amount due turns out to be – whenever the hospital figures it out.
“That’s a scary thing,” Howes said.
It’s not just those patients who face uncertainty, though. Say you’ve just split your head open, and you need to go to the emergency room. You have a $2,000 deductible on your health plan. Do you have any idea, before you enter the ER, how much the treatment will cost you?
And charges for the same services vary dramatically from hospital to hospital; a Wall Street Journal analysis of California hospitals in 2004 found more than a $1,000 spread in the prices for a chest X-ray, for example.
Academic medical centers generally charge more – and are paid more – for their services than community hospitals; it’s built into the Medicare pay scale, to support medical education and the higher-end services those institutions provide. Rhode Island Hospital, for example, is the state’s only Level I trauma center. Women & Infants is a hub for mothers with high-risk pregnancies and premature or otherwise fragile newborns.
If your head injury just requires a couple of stitches and a quick check for signs of a concussion, then chances are, it’s more cost-effective to go to a community hospital than to Rhode Island Hospital – or even better, to go to your doctor or a walk-in clinic.
The same goes for non-urgent services: If you need an MRI, and you’re probably going to have to pay the full cost – if you’re insured, you’ll get the health plan’s negotiated rate, but variations still apply – you’ll probably pay less if you go to a stand-alone radiology center.
At this point, however, patients have no way of knowing any of this. Hospitals’ price lists, known as “chargemasters,” aren’t posted anywhere, and even if they were, since they don’t mirror what insurers pay, they wouldn’t be of much use to high-deductible plan subscribers.
To help consumers, Gov. Donald L. Carcieri this year is pushing for legislation to require health plans to disclose to patients the negotiated amounts they pay to providers for services, procedures, tests, drugs or supplies that are subject to a deductible or coinsurance.
Prices for the most common items would have to be posted on the Internet, while the rest would have to be disclosed over the phone upon request.
Stephen J. Farrell, CEO of UnitedHealthcare of New England, has already expressed concerns about the legislation (Blue Cross & Blue Shield of Rhode Island did not reply to a request for comment for this story). Hospital executives aren’t keen on it, either.
For starters, they say, the information is proprietary, part of their business dealings. Secondly, they say posting prices alone to guide consumers could be disastrous, because price is only one of many important factors they should consider.
“I happen to be a fan of consumer-driven health care,” Gillespie said, but “it is utopia to say we’re going to have a totally transparent system” with prices on the Internet.
Howes and Giancola noted that prices alone can be deceiving, too, because consumers won’t know if a higher fee reflects higher-end equipment or expertise. Hospitals also have to keep their equipment available 24 hours a day, Howes said, and that increases their costs.
“I think that we underestimate the ability of consumers to take into account new information when we say they can’t handle it, that it’s too complicated,” countered Health Insurance Commissioner Christopher F. Koller. And posting prices, he added, could force providers to make their prices more “transparent” and try to be more cost-efficient.
“I don’t subscribe to the notion of proprietary negotiating secrets,” Koller said. “This is my money [as a consumer]. … It’s like going to a grocery store and not being told what the prices are.”
