Uninsured—and probably you, too—paying double what Medicare does

May 30, 2013
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For the past four decades, Indianapolis-area hospitals have consistently expanded their geographic reach into new territories to seek out patients with private health insurance.

That’s because private insurers, such as Indianapolis-based Anthem Blue Cross & Blue Shield, pay much higher reimbursement rates to hospitals than do government insurance plans, such as the federal Medicare program for seniors.

Now, thanks to President Obama and me, we can see exactly how much more, in a database I created, here.

Basically, private health insurers would have paid double what Medicare paid for the most common inpatient procedures. That’s right, 100 percent more than what the federal government paid, for caring for patients staying in a hospital with the exact same conditions.

So how did I get to that number?

I downloaded a massive spreadsheet of hospital charges from 2011 made available in May by Obama’s Department of Health and Human Services, which oversees Medicare. I used that federal data to construct my own database for Indianapolis hospitals. I included all Indianapolis-area hospitals owned today by these four systems: Community Health Network, Franciscan St. Francis Health, Indiana University Health and St. Vincent Health.

Then I adjusted their prices based on their standard discounts for the uninsured, which were 35 percent at Franciscan and 40 percent at the other three. The hospitals claim their discounts for the uninsured are roughly equivalent to the largest discounts given to private health insurers.

I’m not entirely convinced that’s true, but I’ll accept the hospitals’ statements for the sake of argument. They at least made it possible for me to adjust the federal data to be in the ballpark of what private health insurers pay.

The database shows charges for the 100 most common diagnosis-related groups, or DRGs. These categories describe different medical conditions patients have and how seriously ill they are.

For example, if you had simple pneumonia with no complications and you were uninsured, you would have paid $7,914, on average, for treatment at Community North Hospital. But if you had simple pneumonia with complications, you would have paid an average of $10,828. And if you had simple pneumonia with major complications, you would have paid an average of $13,520.

Looking at these data by DRG means they are comparable across hospitals, regardless of whether one hospital took care of more sick patients than another hospital.

If you had been a Medicare patient with those same conditions, and you also went to Community North, you (and the government) would have paid 83 percent less for the first two types of pneumonia and 54 percent less for pneumonia with major complications.

That's also the case at the other Indianapolis hospitals. IU Health's charges to the uninsured averaged 86 percent higher than what Medicare pays. Community Health's charges to the uninsured averaged 94 percent higher than Medicare. St. Vincent's charges to the uninsured averaged 120 percent higher than Medicare. And Franciscan's charges averaged 121 percent higher.

To get the overall difference among all the hospitals, I took the number of patients classified in each DRG that each hospital treated in 2011 and multiplied by the average charge for Medicare. Then I did the same thing, but this time using the average charge for uninsured patients.

I totaled each column, one for all the Medicare patients, and then one for all the unisured patients. Then I calculated the percentage difference between the two. The result was 101.6 percent. Again, you can see my spreadsheet here.

And there you have it. Roughly speaking, Indianapolis-area hospitals are charging you, your insurer and the uninsured double what the federal government has decided to pay them.

Hospitals will argue that they charge private insurers more because Medicare is underpaying them. That may be true. although there was doubt cast on that argument recently. No matter what, it’s a stark gap. I just thought you’d like to know.

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  • Cash is King
    While what you say is correct, if you offer to pay cash fot that $15,000 hospital stay, you will be able to negotiate the bill down to about $8,000. Why? Because you have eliminated the insurance company. It takes 6 months or more and multiple employees for a hospital to get paid. Pay up front and the cost is lower for them and for you. Good case for Medical Savings Accounts.
  • Misleading Article
    Your article is a bit misleading. You are using Medpar data which has been available for years. Obama didn't make that possible, you could have pulled the same information 10 or 20 years ago. By injecting a political tone in your article (Obama suddenly making this information available), you cast doubt on the validity of your argument. Also, you are looking at data for Medicare patients only. It is wrong to assume that if you have 60 discharges for a specific DRG that it would be 50/50 Medicare and uninsured. Additionally, you are not taking into consideration any of the charity services that these hospitals write off. Finally, just because a hospital sends out a bill, it doesn't mean they get paid. You are leading your readers to believe that the hospital is actually getting paid the amount you call Total Private Payments when in actuality, they are not.
    • Healthcare Controller
      Healthcare CFO, Thank you, excellent point. Charges and actual receipts are not 1 to 1. EDs might collect 20cents for each dollar charged, before covering any costs including physician salary. If medicare rates were all that we could expect, then our healthcare industry would quickly slide to a 3rd world level.
    • Distorted System
      The only fair way to provide healthcare services to all citizens in our country is to move to a single payer system. Our government demands low income taxpayers to subsidize the healthcare provided to Medicare, Medicaid, and (yes) private insurance. Private insurance is subsidized through income deductions for premiums paid. There is no valid reason to continue to force all workers to pay into Medicare and Medicaid when many still do not receive employer sponsored health insurance. Far too many low wage earners can not afford to purchase health insurance and also can not even afford health care for themselves, yet they are forced to contribute to the coverage of millions. A single payer system would also eliminate the need for providers to write off the bills of those who receive care and have no way of paying for it. And finally, I believe that our country needs to cover only truly necessary medical care and if you demand extra then you must be able to pay for it out of pocket or go without. Entitlements have become far too rich and providers are very guilty of pushing unneeded services that are richly reimbursed.
    • Not so Fast
      J.K. is a journalist and not an MBA - but the basic point is still accurate. If the Medicare charges are $10,000 but Medicare payments are only $3000, and insurance gets a 40% discount, then insurance pays $6,000 which is double what Medicare pays. Yes, valid points that hospitals have to make margin to cover bad debt, ED's etc. which is why we've all 'cost shifted' forever, right?
    • Health Care Costs
      The article and the responses all point to the same issue - our system of purchasing health care is a mess, period. And Obama Care is not the solution as evidenced by the growing number of shocking revelations about the "goodies" stuffed inside. Unless and until we move to a system where those who consume health care must bear a substantial portion of the true cost causing them to be more informed consumers with responsibility for managing their own health combined with long needed changes in Tort Law these costs will never come under control. As a Nation we can provide for those who are unable to provide for themselves but we cannot and should not continue to attempt to provide for those who refuse to accept personal responsibility.
    • Do something...
      S. W. Baranyk is on the right track... Tell me any other business where service cannot be denied even if someone does not have the ability to pay?? Car need a new engine because you didn't do routine maintainance, try getting a new one from your local mehanic or dealer when you tell them "I can't pay for it"... Good Luck... No one is denied healthcare, its their ability to pay that is in question.. period and how it is paid for is not .. I repeat NOT a "Right"! Many of those that can't pay do little to nothing to prevent the condition(s) that they need medicial attention for.... At what point are they held accountable for their own well being?? Healthcare can provide cheaper care as long as you're ok with your child, parent, brother or sister being treated with technology & medicines of 1970's or 80's... oh that's right you want only the best for your child, mother, brother, etc, but aparently you only want to pay for someone who took an online course in anatomomy/physiology.... Most people want everything for cheap.... why do people pay higher prices for luxury cars... are they better at getting from point A to B? If not then why pay the higher price...?? healthcare is a life and death business, yet we want to pay "penny candy" prices for it while we do nothing on our own to prevent it in the first place... Your article is the typical view of "my hand is out... give it to me for free or cheap while I do nothing on my own"...sickening!
      • Keeping it Real-er
        SW and the other ranters who are concerned about cost 1) ACA requires EVERYONE to have insurance - just like the insurers have told us for years is needed to increase the pool and spread the risk. Did they lie for fifty years? 2) Everyone has to have insurance; presumably everyone will have skin in the game. This includes those who now get EIC and such - I bet some of that goes for insurance. 3)If "goodies" means access to a primary care doctor, I guess so. 4)Lot's of the stuff we consider "state of the art" was developed with research from taxpayer funded institutions. Maybe we need to reconsider who's getting paid with our resources. 5)Changes in tort should not preclude a truly injured party from not waiving their right to sue, which seems to be the conservative definition. 6)Private insurers, by definition, add to the cost, and that overpaying for health care is a certainty if some insist they are essential to our "world class" system.
      • Healthcare Costs
        To Health Game Player, JK, and the others who learned all they know about healthcare finance from magazine articles and websites, you are being misled. Just because a hospital is non profit doesn't mean it shouldn't earn a profit. A profit is necessary to reinvest in capital. You can't buy equipment and technology without profit. Most hospitals require at least 5% margins just to replace aging facilities and equipment. Granted, the system needs to be fixed, but hospital administrators aren't the bad guys here. You people want that 128 slice CT scanner available to you when you need it, how do you think the hospital will pay for it if all of their cash goes to cover salaries, benefits, and supplies? If JK had taken the time to find useful data (rather than praise Obama for data that has been available for years) you could form a better opinion. Hospitals don't have one set discount for uninsured. They have a sliding scale discount that is determined by the patients income in relation to the federal poverty level. Oh, but had he told you all the facts, this story wouldn't have been nearly as good.
      • Don't get paranoid
        CFO - All I know is the muck that got thrown out in National Healthcare Debate 101 & 201.Granted I haven't got to the upper level classes, but I heard a lot from many of the folks that claimed to know in those two periods. The premise of Romneycare and the ACA is universal coverage, lobbbied for hard by the insurers and health providers,and now that it's here, the sky is falling. I am sure this isn't the be all and end all to a very complex problem, but the price variations still smell bad. BTW, I don't think everyone wanted the 128 slice CT, I think the hospitals and GE told us we did (in that expensive commercial, remember).
      • Well!
        Sadly...things may get worse. We'll see but without a federal subsidy, expect a nice increase in premiums.
      • Real?
        Keeping it Real, exactly who are these people you refer to who hold the view of "my hand is out... give it to me for free or cheap while I do nothing on my own" ?
      • Alan
        We need a single payer system. No matter what country you live in, health care is expensive. But it is way more expensive in the U.S. than it is in any other developed country. Under a single payer system hospitals, doctors, insurance companies, etc. will still make money, just not as much. Consumers of health care will still pay, just not as much.
      • Karen..
        Referencing those who do little if anything in terms of health prevention actions, yet they need/want presciptions, medical procedures and treatments due to their health conditions and then complain that it is expensive. Not being overweight helps with lowering blood pressure... so no meds needed or much less at lower doses... reduces expense.... doing nothing means unmanaged BP and higher and more doses of meds which costs more and thus increases complaints of healthcare being expensive... Same theme is true for diabetics and cardiovascular disease, eat healthier less or no meds and/or not need a bypass, (not always, but reduces odds significantly)... Look around and see with Indianapolis rated 45 out of 50 cities on the healthy scale (1 being best) and tell me a few more people could not being putting more effort into being healthier and reducing their own cost of healthcare?? Many just want a pill or procedure to "make it go away"... well that costs $$ Can't have it both ways...
      • My view
        This article is a "hack job". The author seems to have done no real reporting and just accepted the data as valid without critical thinking. This kind of "reporting" is why journalists are held in such low esteem. There are many nuances which this author has completely missed, and real factual errors, about which he seems to be clueless, and incurious. I see no evidence in this article that he even bothered to actually ask anyone in the medical field for their view. Just a regurgitation of the same "data" presented in many other articles by the same unthinking "reporters". Not good IBJ.
      • who pays?
        I was reading this article and the comments. I have to say this is one of the most productive conversations on this subject. the government has so much buying power with Medicare they can drive prices down. I recently watched a PBS special Empowering Minds with Martin Sheen about healthcare costs. The insurance companies make the hospitals jump through so many hoops just to get paid. Medicare pays usually without to much scutiny. That's why there is so much fraud and scam in the system. This is why so many doctors are leaving private practice. They can't make money on what Medicare pays and dealing with insurance is time and work intensive. concierge care is the future.

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      1. Those of you yelling to deport them all should at least understand that the law allows minors (if not from a bordering country) to argue for asylum. If you don't like the law, you can petition Congress to change it. But you can't blindly scream that they all need to be deported now, unless you want your government to just decide which laws to follow and which to ignore.

      2. 52,000 children in a country with a population of nearly 300 million is decimal dust or a nano-amount of people that can be easily absorbed. In addition, the flow of children from central American countries is decreasing. BL - the country can easily absorb these children while at the same time trying to discourage more children from coming. There is tension between economic concerns and the values of Judeo-Christian believers. But, I cannot see how the economic argument can stand up against the values of the believers, which most people in this country espouse (but perhaps don't practice). The Governor, who is an alleged religious man and a family man, seems to favor the economic argument; I do not see how his position is tenable under the circumstances. Yes, this is a complicated situation made worse by politics but....these are helpless children without parents and many want to simply "ship" them back to who knows where. Where are our Hoosier hearts? I thought the term Hoosier was synonymous with hospitable.

      3. Illegal aliens. Not undocumented workers (too young anyway). I note that this article never uses the word illegal and calls them immigrants. Being married to a naturalized citizen, these people are criminals and need to be deported as soon as humanly possible. The border needs to be closed NOW.

      4. Send them back NOW.

      5. deport now

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