Think again: Why Obama's disclosure of hospital charges won't help you

May 24, 2013
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The Obama administration was kidding itself when it declared this month that its release of Medicare charge data for the 100 most common hospital procedures would be a help to consumers.

There followed a flood of news reports about the vast difference in charges for identical procedures from one hospital to another. Newspapers and websites ran maps and colorful charts, all billed as a breakthrough tool for consumers.

They aren’t.

The problem is, everyone assumed that charges at hospitals function in a similar way as in the rest of the economy—you know, the part of the economy where supposedly rational buyers send rational signals to sellers by their purchasing decisions, and prices gradually adjust to reflect those interactions.

But this isn’t the rest of the economy. This is health care. And the two worlds have very little in common with each other.

“Comparing hospital charges is almost totally worthless,” wrote Dr. Bernie Emkes, the medical director of managed care services at the Indianapolis-based hospital system St. Vincent Health, in an email to me.

Hospital charges have evolved over time in response to payment policies implemented by the federal Medicare program and in response to the intense negotiations with private health insurers.

Medicare has for years paid hospitals the lesser of a hospital’s actual charges or the “usual and customary” fees or “prevailing” charges that Medicare essentially sets on its own, Emkes wrote. So it made sense for hospitals to hike their charges so they were always at least as high as the “usual and customary” or “prevailing” rates.

Hospitals also hiked charges higher and higher, so they could give larger and larger discounts to insurance companies and yet still get paid more and more each year. (I'm not defending this practice—or health insurers who went along with it, while disingenuously touting that their large discounts were actually holding down the cost of health care—I'm just describing what happened.)

Actually, hospital charges have become so meaningless that few health insurers even use them in their negotiations anymore. The insurers just negotiate a fixed fee with the hospitals, which will be far lower than the charges and probably has no mathematical relationship with those charges at all.

“No one pays full charges in this day and age,” Emkes wrote. “Insurance plans negotiate discounts and [the] indigent receive massive discounts if warranted.”

Indeed, the only way I found to make good use of the Medicare charge database was to ask each Indianapolis-area hospital for its standard discount for the uninsured. That is one instance in which hospitals still use their charge data: to calculate a discount for the uninsured.

Now this practice can be abused horribly, as Steve Brill documented so well in his mammoth "Bitter Pill" article in Time magazine. But it also can be used to at least get an idea of how much each hospital is actually getting paid for the 100 most common procedures.

Indianapolis-area hospitals give standard discounts to uninsured patients with modest incomes, and those discounts range from 35 percent to 40 percent. Those adjustments bring the hospitals’ bills at least in the range of what private insurance plans and their customers are paying, local hospitals said.

Indiana University Health takes the averages of the three largest discounts it has negotiated with private health plans to arrive at its discounts for the uninsured, which average 40 percent at its three downtown hospitals.

Joe Stuteville, a spokesman for Franciscan St. Francis Health, said his hospital system’s 35-percent discount for uninsured patients is “an amount virtually equal to what insured patients get through their [insurance] providers.”

  • Welcome
    J.K. - This could be a very interesting blog given the universal nature of the subject at hand. I look forward to reading future posts. That being said and knowing the news cycles moves by the second these days, take some time to proof your writing and uphold the quality standard I have come to know and respect from the IBJ.
    • Thanks
      Joe, I re-read my post and spotted one typo. It's now fixed. Thanks for reading. -- J.K.
    • Dig Deeper
      Glad to see a new blog on health care. It is much needed! But what is really needed is digging deeper than comments provided by local hospital administrators. My experience is that hospitals do not just "offer" discounts to the uninsured. Hospitals expect the uninsured to pay the full list price for services unless they are provided with an application and evidence of inability to pay (on the basis of some hidden standard--if such a standard exists at all). Unless the hospital deigns to grant relief, hospital bills are quickly sent to collection (and go ultimately to court) based on that full retail price (the one that bears scant relation to the cost of service). Maybe some hospitals are better than others (that would be interesting to know), but this seems to be the system: charge the uninsured significantly more than the insured--a more immoral system I cannot imagine. While that Medicare data may not have a lot of value, one thing jumps out from it for me. Among all the hopitals in town, Wishard appears to have the lowest list prices for procedures compared to the amounts charged to Medicare. Which leads me to believe that Wishard probably puts fewer people into bankruptcy (compared to other hospitals in town) because it appears that their "list" prices are significantly lower than at the private hospitals in town. That is not a conclusion that can definitively be made from this data (since this data is, as you say, not all that useful in itself), but would make an interesting avenue for further investigation. In any event, glad to see the IBJ interested in this area.
      • O
        Obamacare is a train wreck. Of all of Obama's failures (and there are countless), Obamacare will end up playing the largest part in destroying his legacy. The entire law will kill jobs and bankrupt the country. Too bad public is too disinterested to actually realize what is happening.
        • consider this
          To Indy Commenter: While on the surface it seems that hospitals charge uninsured patients more than insured ones, there is an important point that you're omitting. People with insurance pay thousands of dollars in insurance premiums and so contribute overall to the health care dollars pool that helps defray everyones' costs. People without insurance do not pay these premiums and so are gambling if they get sick. If they don't get sick, it's a successful gamble. If they do get sick, it's not. I don't necessarily feel sorry for some of the uninsured as often it is a decision they make consciously and decide to spend their disposable income on other things (cigarettes, cable tv, iphones etc.).....
        • Good point
          Indy Commenter, It's good of you to point out the distinction between a hospital's standing uninsured discount and how they actually determine eligibility for that discount. I'll keep that in mind for things I write in the future. In general, I view both hospital systems and health insurers in the same light: they both try to maximize their own financial interests, as much as they are allowed to do.
        • bored by demonizing
          (we really should try exclude simple, blanket partisanship from the discussion. The fact is, already there are people alive today who wouldn't be under the previous system.) (The blog itself raises some interesting points, but the disclosure is on balance a step in the right direction; commenters to this paper need, in many cases, raise their intellectual game.)
        • Another opinion - also from Forbes

        • Discounts?
          Not all hospitals give discounts to uninsureds. As a matter of fact, they do every they can to make you pay the full amount, including threatening letters. Believe me I've experienced their "full nelson".
        • obama is a fraud
          i wonder if this article takes into account how many worker's hours have been cut to go from full time to part time. the 30 hour work week is progressing. how many workers are now working less than 30 hours making less money and then therefore also going to be required to buy their own insurance once the employer is no longer covering individuals below 30 hours. how many companies on the verge of expanding to more then 50 employees will scale back to avoid being required to provide health insurance to all employees once over the 50 employee limit. the entire obamacare bill will be a disaster for jobs. too bad too many people are taking the lets wait and see approach. clueless the damage that will be done. the entire healthcare system needs fixed. problem is obamacare will only make things worse. similar to the tax code that needs revamped and rewrote, yet americans think we can just take more from the rich as a way to 'fix' things. we're now getting record poverty and food stamps. libs can keep wishing for change, but the results of every obama policy are already proven to fail. obamacare won't be any different....but hey, lets sit back and just wait and see
        • Tom
          You obviously are among the uninformed and highly opinionated people who have no clue! Dig deeper yourself to find out more about the twisted billing systems used in the U.S. for health care billing. We need a single payer system and the benefits need to be cut back. Medicare, Medicaid, and private insurers can not afford to give everyone everything they demand.
        • What?
          Ok, to state that network discount means nothing is so far out of bounds! Every Self Fund plan in this city is fighting to get the deepest network discount as possible. For example if you are running $5 million in claims a year, would a 3% deeper discount make a difference? That would be about a $150,000 in savings. Maybe that could be used in the company to hire more employees or buy more equipment. The hospital industry has been a in buy up mode. They have bought every small practice they can and then start charging the hospital rates for claims. The cost of medical care directly impacts the health insurance premiums.
          • Just checking
            Tony, Are you saying that my original post calls the network discounts negotiated by insurers meaningless? If so, then please let me me clarify. The discounts are still quite meaningful--I'd much rather pay Anthem's negotiated rate than the list price of the hospitals or pharmacies. I just meant to say that that listed charges are meaningless, or nearly so. -- J.K.
          • Recap
            To Tom (from everyone) - thank you, now we don't have to listen to Russ Limbagh for the next six months. To the blogs point - how will hospitals handle their pricing when EVERYONE has insurance?? The mantra for many years has been the swell controls we'll have on cost increases when all patients have insurance coverage. Will the hospitals then give us an honest cost plus reasonable profit price? When will the state exercise some control over the exhorbatant cost of advertising, as well as needless aquisitions? And when will the IRS (yes) take a look at the tax-exempt status of health groups that operate as non-profits, and act like the worst of the big banks? Thanks for the blog JK.
            • You're Welcome
              Betrn'u, I'm happy to have started a good discussion. I'm particularly interested in price transparency, so it will be interesting to follow what happens on that front in the months and years ahead. Thanks for reading and commenting. -- J.K.
            • Prices Motivate Behavior
              I share your interest in price transparency. I'm on a high deductible health plan with a health savings account. The idea was that I'm somehow going to "shop around" and choose low cost providers for my health care needs, or pay the difference. Thing is, price information on even basic medical procedures is pretty scarce. I can get an up-front price on virtually everything else I buy, but not for most aspects of medical care. Those where price information is available (shingles vaccinations, lasik, flu vaccinations, etc.) seem to be pretty price-competitive. Most of the rest is a mystery and most providers do not hesitate to take advantage of our ignorance in that respect. Knowledge is power. If health care providers were required to post price information, I bet we'd see some downward pressure on those prices. Prices are strong incentives. They matter.
              • More Questions
                This article raises more questions than it answers: 1) Why, as Dr. Emkes states, can't one compare charges from hospital to hospital. Where is the explanation as to why a colonoscopy or MRI would cost more at St. Vincent's than it does at IU hospital? No explanation is given as to why people can't know what the REAL costs for a hospital-based procedure or service are. 2) After explaining how hospitals play illusionist by jacking up prices then claiming discounts, you attempt -- seemingly with a straight face -- to tell us their discounts for the indigent. Discounts from what? The same jacked-up prices? What the Obama administration is trying to do by releasing their charge list runs contrary to the smoke-and-mirror hospital economics described here. That IS a good thng for consumers. If they can get the hospitals to step in line like they have the insurers, Obamacare will be successful.
                • I think you're right
                  Mordant, I do think greater price visibility would lead to lower prices. In fact, there's a sliver of evidence of that happening here in Indianapolis, which I plan to write about in the near future. I think lower prices is the Obama administration's goal, and it's a good one. I just don't think database is a very effective tool, by itself, to get there. Thanks for reading. -- J.K.
                • Smoke and Mirrors
                  Commissioner McCarty, You are exactly right to call hospital charges "smoke and mirror economics." But then I think you have to also admit that releasing an entire database of those charges, as the Obama administration did, is also smoke and mirrors. I actually think the release of the database is a good thing. It allows analysis by outside groups, who can make adjustments to the numbers to make them more useful. My attempt to apply the uninsured discounts to the database is just a quick-and-dirty way to make the numbers more meaningful, by translating them at least a bit closer to actual prices consumers might pay. But to say that the release of the database, by itself, is a help to consumers ignores reality. Still, I share your hope that the release of these data, and hopefully much more of them, ultimately leads to real and transparent prices in health care. -- J.K.
                  • Agree
                    J.K, I agree that the intent was not accomplished and that all it did was raise more questions. However, as you point out, it's good to raise the questions because attempts to address them may result in greater transparency on everyone's part - a helpful result!
                  • Change ppl did not expect
                    True comments by all but as a bedside nurse u all are oblivious to what is actually happening. Your care is being dumbed down by politics. If its not able to be measured by some arbitrary number. It simply does not matter. Ultimately ur potential for recovery on any given illness has a profit loss ratio an up Until January 1 2013 everyone got it all even if u were a loss cause. Now if ur diagnosis only pays 10 days treatment and u might go over that arbitrary profit margin u are opened up. Closed up and referred to hospice. Which explains the sudden drop in census throughout the city. Check out the census reports city wide. Check out the increase in hospice referrals.
                  • not looking good
                    This whole thing is not looking good. Costs are going up people will get less care, there is going to be doctor shortages and the government is going to have more controll over our heathcare. I came across a program Empowering Minds on PBS or public television with Martin Sheen.I love this guy. It was very informative on the healthcare issue. if you see it watch it

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