A Review of Hospital Billing and Collection Practices
OPENING STATEMENT OF THE HONORABLE JIM GREENWOOD
CHAIRMAN, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
"A REVIEW OF HOSPITAL BILLING AND COLLECTION PRACTICES"
We convene this afternoon to review hospital billing and collection practices for uninsured/self-pay patients. Today in this country an average working man or woman treated at a hospital can be stuck with a bill that is double what managed care or government programs pay. These are uninsured/self-pay patients who don't have the weight of an HMO to negotiate on their behalf or don't qualify for government health assistance. Then to add insult to their injury, they are sometimes aggressively pursued for these inflated debts. This situation is unfair and unjust.
To put these hospital charges in perspective, let's look at a simple chart that paints a troubling picture. This provides a basic breakout of hospital revenues and costs. Based on our research, these proportions seem common in the hospital industry.
The black column, second from the left, is the cost to the hospital for providing the service. On either side of the cost column, Medicaid and Medicare can be seen to pay, on average, a bit less and a bit more, respectively. Third party payors, such as insurers and managed care, represented by the yellow column, pay within a wide spectrum but, on average, provide profitable reimbursement. The red column on the far right is what many hospitals expect uninsured/self-pay patients to pay.
Why are these rates so high?
This charge to uninsured/self-pay patients is, generally speaking, the hospital's "charge master" rate. That term will come up a lot today. So let's talk about "charge masters" for a moment.
"Charge masters" are catalogs of prices for all services and supplies offered at a hospital - they sometimes run hundreds of pages and contain thousands of line items. The "prices" in a "charge master," as indicated in the chart, can bear little relation to the actual cost and reasonable profit for the hospital. Indeed, some items on a charge master, can reach well over a 1000% mark-up. And these "prices" continue to grow each year increasingly out of proportion to costs. In California urban hospitals, for example, the average price mark-up over cost has risen from 174% in 1990 to 310% in 2003.
Most hospitals, I think, will admit to being hard-pressed to justify these charges. Rather, hospitals will explain that charge master prices are the product of many complex and sophisticated market forces in health care including government entitlements, managed care, and rising costs. There is without a doubt a number of significant and powerful moving parts in health care finance, but we must not allow the working-class uninsured to get chewed up in these machinations.
Hospitals will say they address the matter of high charge master prices through their charity programs which provide care free, or at a reduced cost, to the needy. Unfortunately, this too often covers only some people for only certain services. Further, I question whether we can be assured of the fairness or reasonableness of charges which, in some instances are merely discounts off an already inflated number. For example, let's return to the chart. Using the 2002 numbers, even if an uninsured patient had a 25% discount, he or she would still be paying twice the cost. A partial discount off an inflated number seems very arbitrary. Even given all the well-administered, generous and commendable charity programs offered by hospitals, ultimately there are still individuals who are expected to pay these full charge master rates.
It would seem that through these charity programs, hospitals are trying to include the uninsured in a finance and accounting system that appears simply not designed for or allow for participation by individual consumers. And if, in the end, managed care, government programs and the uninsured are not paying the "charge master price" then what purpose does this current charge master structure serve?
Let's turn to what happens when someone is eventually asked to pay these inflated bills. Hospitals will point out that they collect only pennies on the dollar and, based on our investigation, this would seem to be the case. The question for our purposes here, however, is not what they actually collect but what happens to the part they don't collect. In a September 2003 study, one non-profit hospital in Connecticut was found to have had, over a nine year period, medical liens on 7.5% of the homes in a community it purported to serve. The hospital may indeed only collect 10¢ - but the other 90¢ may be secured by the patient's home.
Many hospitals have claimed to have recently revisited and revised their collection practices. While that is encouraging, I remain concerned, however, when I read articles like the two that appeared in the Wall Street Journal over the past couple weeks about two of the systems appearing before us today. In the first article, from yesterday, one hospital system conceded that as many as half of those uninsured patients possibly eligible for discounts under a new charity program were not told of their potential eligibility. And they offered this admission, unfortunately, only after being confronted with a report by an advocacy group alleging that large numbers of uninsured patients seeking care in their facilities were not learning about available charity discounts.
The second article from two weeks ago, described the case of a man who recently had his bank account seized because of a 13-year old hospital bill from one of the systems here today. Perhaps what's more troubling in the story than the age of the bill was the excuse offered by the hospital. The hospital indicated that this was a mistake on the part of lower-level hospital staff that, when brought to the attention of senior executives, was immediately remedied. Are the new commitments recently articulated by so many hospitals to reform their billing and collection practices only known at the management level? Are "lower-level staff," who are actually "front-line staff," aware of these new policies?
Not to put too fine a point on this, but the awareness, participation and cooperation of this "front line" hospital staff is vital. How these hospital employees present payment options to a patient can mean the difference between having a bill covered by a charity program or placing the full amount on a high-interest credit card. As a further illustration, one system with us today, in a customer service training manual produced to the Committee, made an explicit statement of "four main priorities when securing payment" on a self-pay account:
"Priority 1: Obtain any insurance information
Priority 2: Attempt to obtain payment in full or settle the account
Priority 3: Negotiate a payment arrangement
Priority 4: Determine fund eligibility."
The manual goes on to say that billing agents should use their discretion in applying these principles, but if an agent followed these priorities as written, a needy patient might never learn about charity care before paying by a credit card or agreeing to an unmanageable and unreasonable payment plan with the hospital. How the billing process is executed in practice by the hospital staff is more important than any new written policy or any promises or pledges from management.
At the outset of this investigation, hospitals generally acknowledged many of these concerns with billing and collection practices but claimed Medicare rules, in some instances, tied their hands with respect to what they could do for uninsured/self-pay patients. In December 2003, five months after the start of this Committee's investigation, the American Hospital Association sought guidance from the Department of Health and Human Services on these rules.
Two months later, both Secretary Thompson and the HHS Office of Inspector General responded largely rebuking the industry's positions. The final panel of this hearing will feature two representatives of HHS and we will explore further with them this guidance.
In this regard, I will seek from HHS and the hospitals an answer to the question of why steps to address this situation have not been taken until now. If hospitals believed that Medicare rules created roadblocks to doing the right thing for the uninsured, why did they not raise it with HHS earlier? Cost-to-charge ratios are reported to HHS in Medicare costs so that the agency must have seen the growing divergence between costs and charges. Is no one at HHS watching to see whether their rules and regulations are causing harm?
In December 2002, Trevor Fetter, CEO of Tenet Healthcare, who is here today, made some very interesting remarks in an investor conference call shortly after joining Tenet. This was almost a year and a half ago - and in many ways he framed precisely the issues for which we come here today. Quoting Mr. Fetter:
"I'd like to turn to an issue that has bothered me for years. I mentioned earlier [in the conference call] that Medicare requires hospitals to set charges the same for everyone. This means that the uninsured or under-insured patient receives a bill at gross charges. [The red line of the chart]. In other words, the entire hospital industry renders its highest bills to the customers who are least able or likely to pay. The problems that this creates are obvious. The bills are tremendous and incomprehensible to most people. The patient leaves the hospital, presumably after some traumatic event, and the hospital bill adds to the trauma.
As a result, they don't pay. [Thirty percent] of the patients account for nearly [one hundred percent] of the collections from this group. [Seventy percent] of the patients pay virtually nothing, but Medicare requires that the hospitals make a bona fide effort to collect. The administrative costs are huge; the ill will that is generated among these patients is huge, and the whole situation is far from ideal from a social or economic perspective. Tenet employs more than [five thousand] people to render bills and attempt to collect from these patients. It's ridiculous."
It's not unreasonable to assume that Mr. Fetter was not the only member of the hospital industry to recognize this problem. If so, why is there action only now? Were lawsuits and a Congressional investigation necessary for the industry to address this?
Finally, we will likely hear today testimony and comments about the role of universal health coverage in the issues we are addressing in this hearing. In anticipation, let me say this. In Congress, we have debated, and will continue to debate, the critical matter of health coverage for the foreseeable future. But since this Committee started this investigation almost one year ago, we have seen concrete action improving the condition of uninsured/self-pay patients facing medical debts. Our focus on billing and collection issues has yielded specific and immediate results. I look forward to continuing and building this direct approach to these problems that is helping real people, right now.
We welcome today representatives from the Department of Health and Human Services and the chief executives of Ascension Health, Catholic Health Initiatives, HCA, New York Presbyterian and Tenet Healthcare. We also welcome our panel of experts and advocates: Dr. Anderson, Ms. Jacoby, Mr. Rukavina and Dr. Collins. Thank you all for joining us here today. I look forward to your testimony.