Tuesday, September 21, 2004

Hospital Charges for the Uninsured

Kitten in inboxLucette Lagnado's article today in the Online WSJ (subscription required),
Anatomy of a Hospital Bill, details a couple financially devastated by an uninsured health care crisis, with the couple owing nearly $40,000 for a less-than-24-hour stay for a cardiac stent for myocardial infarction.
Like many of the 45 million Americans who don't have health insurance, the Shipmans gambled -- unwisely, it turns out -- that they could make do without it. Among the many factors they didn't take into account was the high markups hospitals tag onto care for uninsured patients, charging them far more than what they charge big private or government plans for the same care.

Ms. Lagnado then details a number of line items from the Shipmans' hospital bill, comparing the estimated cost of supplies and services with the line item charge, and Medicare and Medicaid reimbursements. From these comparisons come several unstated conclusions: a) hospital charges are exhorbitant with an excessively large profit margin; and b) Medicare and Medicaid reimbursements are a fair estimate of what should have been charged. The first conclusion may or may not be true; the second is most definitely untrue.

Information on what hospital costs are for mandated coverage for the uninsured, or underinsured (Medicaid/Medicare) patients are the missing ingredient in seeing how fair or unfair such charges are. Physicians deal with this problem on a lesser scale. Medicaid in Washington State where I practice reimburses approximately 40-45% of practice expenses for outpatient care. Medicare reimbursement is at or slightly below expenses, depending on your location in the state (Seattle area receives about 30% greater reimbursement than elsewhere in the state). Hence these patients represent a financial loss to a practice, at the same time driving up overall practice costs with a heavy burden of increased administrative and billing costs, unfunded federal compliance and HIPAA mandates, and significant payment delays (Medicaid typically takes 45-60 days to pay uncontested clean claims). Physicians still have the legal freedom (if not always the ethical freedom) to turn away patients unable to pay, or decline to see patients in Federal programs (45% of physicians in Washington state are no longer seeing Medicaid patients). Hospitals, on the other hand, are required by law to see such patients, under anti-dumping and other regulations. This is high-cost care, typically delivered in Emergency Rooms to sicker patients. Liability risks are also substantially higher in this environment and population.

The hospitals maintain that this is the reason for high-charge line items and large markups. This may well be true, but what I have not seen is any detailed accounting from hospitals or hospital associations on what these unreimbursed expenses actually are. This is the missing piece of the puzzle. Since their insured reimbursement rates are fixed by contract or Federal or state law, they can only recover some unreimbursed costs from collecting from the uninsured. Bad PR and bad policy, to be sure - but the alternative is to sustain large losses which may put the entire health care enterprise at financial risk.

There's another aspect of this story that I find troubling:
Indeed, at the time of Mr. Shipman's illness, the Shipmans weren't poor. Mr. Shipman was earning $80,000 a year in salary and commissions selling furniture. They were living in an attractive rented townhouse in suburban Virginia and driving a leased BMW. In March 2002, the Shipmans say, Ms. Shipman left a job with benefits in order to return to college, and the couple decided to go without health insurance. They figured they were healthy and relatively young; health coverage would have cost them several hundred dollars a month, money they figured would be better spent on tuition.

It would seem that there is a problem with priorities here: a couple making $80,000 a year and living well, as they were, can afford health insurance. They are, of course, free to roll the dice and forego insurance, but should they be allowed this freedom?

Now, I'm not a big fan of government regulation, since I daily struggle with the burdens of the vastly over-regulated health care profession. But there is a balance in society between personal liberty and responsibility to others. I cannot get a home mortgage unless I have homeowners insurance, even though I might have lots of other better things to do with the premiums. Nor can I drive a car legally in Washington without car insurance. The reason is simple: my freedom to forgoe such insurance is trumped by the potential consequences to others should my gamble prove wrong. If my house burns down, or I run my car into yours, another person or institution is forced to pay for my mistake or misfortune. Why should it be any different in health care?

One public policy which I believe should be implemented is mandatory catastrophic health care coverage - large deductible plans designed to cover the worst-case scenarios which can bankrupt a family. Making such coverage universal would provide a broad-based risk pool which would keep premiums lower, and designing the plans for expensive medically necessary care (no tummy-tucks, infertility, or liver transplants for end-stage alcoholics) would further make them more affordable. There would need to be some federal or state support - means-tested, of course - for low-income individuals, which could be funded by reducing or eliminating the tax deduction for employer-provided health insurance. This would serve the additional benefit of beginning to break the pathological codependency between employment and health insurance coverage.

Clearly something has to change, and soon. Class action suits against hospitals for price gouging and heartrending stories of families bankrupted by health care costs will not solve the problems of cost-shifting our health care expenses and responsibilites onto others. We're doing that now, and the system is breaking under the strain.