In N.C., hospitals’ rack rate hits the uninsured hard

Few pay the full charge, but those who do really get hit

aalexander@charlotteobserver.comApril 22, 2012 

Virtually every North Carolina hospital charges far more for procedures than it costs to perform them.

On average, the charges are about triple the costs, according to data that hospitals submit to the federal government.

Hospital officials say that for most patients, charges are meaningless. That’s because hospitals provide large discounts to private health insurers, while Medicare and Medicaid pay based on rates set by the government.

In that sense, hospital charges resemble the hotel rack rates that almost no one pays.

But here’s the rub: Some patients and insurers do get stuck paying the full charge or something close to it. Among them are uninsured patients who earn too much to qualify for charity care.

“It’s the conscientious working people who get screwed,” says Tom Getzen, a professor at Temple University in Philadelphia who heads the International Health Economics Association.

If uninsured patients pay their bills, hospitals can profit handsomely. Here’s why:

Many hospitals offer limited discounts to uninsured patients who don’t qualify for full charity care. At Catawba Valley Medical Center in Hickory, for instance, an uninsured patient earning $25,000 a year would qualify for a 25 percent discount off the full charges if he or she paid right away.

That would bring a $20,000 hospital bill down to $15,000. But on a typical hospital stay, even that would amount to more than twice what the hospital spent to provide care. That’s because the hospital’s charges are, on average, more than three times its costs, according to federal data.

At Duke, uninsured patients get a 50 percent discount from established charges. WakeMed and UNC Health Care offer a discount of 35 percent. Both rates would still allow profits if the patients paid in full.

Officials for area hospitals say such patients aren’t a profit center because many never pay their bills.

Paying full freight

At many hospitals, charges are increasing rapidly. That means bills for the uninsured – and for some other patients – are also rising fast.

At Carolinas Medical Center, for instance, average charges were about twice as high as costs in 2000, according to reports that the hospital files with the federal agency that oversees Medicare. Ten years later, charges were more than triple the costs.

Among those hurt worst by the growing charges:

• Motorists. Their insurers often pay full hospital charges, so rising charges contribute to rising premiums.

• Employers. Under state law, workers’ comp insurers can’t get a discount of more than 25 percent from North Carolina hospitals. That leaves employers paying more for coverage.

• Taxpayers. Until recently, North Carolina paid 100 percent of billed charges for state prison inmates who received hospital care. Under a recent legislative reform, the hospitals can receive either 70 percent of charges or twice the amount paid by Medicaid – amounts that still allow them to profit handsomely at the expense of taxpayers.

Presbyterian Hospital charged the state $204 each time it performed an EKG test on three prison inmates, according to bills. The average cost of an EKG to the hospital is less than one eighth that amount – $23, according to the American Hospital Directory.

Higher hospital charges can also translate into higher health insurance premiums. The reason: Most insurance contracts with hospitals include provisions for paying a percentage of billed charges. That’s why “it matters what they charge,” said Jarvis Leigh, Aetna’s top hospital contract negotiator in the Carolinas.

All of this, experts say, gives hospitals a strong inducement to boost their charges.

“Every incentive is for the hospitals to charge as much as possible for these procedures,” says Jason Beans, who heads a Chicago-based company that examines medical bills for payers. “Hence the prices are as arbitrary as can be. It’s driving up our costs drastically.”

Patients with insurance have a “bodyguard” who negotiates on their behalf, Beans said.

“The people who do not – their lives can be absolutely ruined by it,” he said.

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