Proposal for Fair Treatment for People Without Health Insurance

Jed Margolin



The Problem

In the periodic national debates on health care, one issue has been curiously absent.

Do you know that people without medical insurance are charged more than twice as much for medical services as are the insurance companies?  The U.S. Department of Health and Human Services doesn't have a problem with this practice.  [Reference 1]

The way this is accomplished is that each medical service has a given "List Price" which cash customers are required to pay. However, insurance companies pay only 40% of this List Price (a 60% discount), even though the medical care given is exactly the same.

The discount given to insurance companies is the result of a "negotiated rate" due to their "buying" medical service in "bulk". In other words, they get a quantity discount.

While some of my doctors give me a similar discount, most do not. Laboratories never do. They simply refuse to negotiate.
 

Negotiated Rates?

When I asked my (now former) health care provider whether the discount given to insurance companies depends on the number of their customers who receive their health care from them, I was met with silence.

It would be reasonable to expect that if the "negotiated rate" is due to their "buying" medical service in "bulk", then this discount should be different for different insurance companies depending how many of their customers use each medical facility. Also, individuals should receive discounts as they use more and more medical services.

If, indeed, the 60% discount given to insurance companies is the standard discount, then there is obviously no negotiating taking place.

Similarly, a standard 60% discount also means that they are not "buying medical service in bulk" because, by definition, a quantity discount depends on the quantity.

My own opinion is that this "negotiated rate" business is just a smokescreen for health care providers to engage in price gouging. Since the people who are being gouged are generally seeking medical care because they are sick (and therefore vulnerable) this is a cruel and immoral business practice. Since this practice is so widespread, it may also constitute criminal conspiracy.
 

Quantity Discounts?

In particular, it may be a violation under the Robinson-Patman Act, which has been interpreted to make it illegal for companies to give quantity discounts to customers where the cost savings to the seller are not commensurate with the discount given. [Reference 2]
 
 

RICO Act?

A criminal conspiracy to engage in price gouging may also trigger prosecution under the RICO Act. And if the health care providers claim that the insurance companies forced them to act the way they did, then the insurance companies can also be prosecuted.
 

Paying for Services

I pay my bills. I should not be singled out to subsidize those who can't.

Some insurance companies and HMOs are, no doubt, slower to pay than others. Are the ones who pay promptly charged more to make up for the ones who are slow to pay?  I doubt it. (Or maybe they are all equally slow to pay.)

As a cash customer, I should pay LESS than insurance companies and HMOs.

1.   I am usually required to pay when I receive the service. Sometimes I am required to pay BEFORE I receive the service. Sometimes I am billed for services that I have ALREADY paid for.

2.   The physician does not need to spend time asking the insurance company or HMO if they will approve a particular course of treatment or a particular prescription. I am the patient and the buyer, and I decide. And I generally take my physician's advice.

3.   Since most insurance plans require the customer's co-payment, the health care facility must process the co-payment and also bill the insurance company. Since I pay the bill at the time I receive the service, and this takes the same amount of time that it would take to make a co-payment, the health care facility saves the additional work of also billing an insurance company.
 

Even People With Insurance Are Being Screwed

It is not just people without medical insurance who are being taken advantage of.

Let's assume that a typical co-payment of 20% is required of the insured.  For a $100 medical bill the true cost is $40 because that is what the insurance companies would pay. If you pay $20, you are paying 50% of the cost.

This is before the yearly deductible, during which time the patient is being charged full list price (2.5 times the amount that insurance companies pay). There is also the office visit charge that many insureds are required to pay.

But wait, it's even worse than that. Some people buy their own medical insurance, so add that to the cost. People who get medical insurance from their employer may think it's free. It isn't. Employers have a certain amount of money they can spend on their employees. The money spent on medical insurance is money that does not go directly to employees in the form of wages. So even people with "free" medical insurance from their employers are being screwed.
 

Solution 1: Enforce Existing Laws

The solution to this monstrous inequity might not require any new laws, merely enforcing the existing laws, namely the Robinson-Patman Act and the RICO Act.

A criminal conspiracy to engage in price gouging may trigger prosecution under the RICO Act. (RICO stands for Racketeer Influenced and Corrupt Organization.) People who are found guilty under the RICO Act (including company CEOs and the like) are generally sent to prison.

I believe that a patients' bill of rights should include not being subjected to price gouging by health care providers. Unfortunately, that is not likely under the current administration. However, it might make for an interesting issue in the current Presidential Election. There are currently an estimated 43 million Americans without health insurance. [Reference 3]  That is a lot of votes.
 

Solution 2: Make Some New Laws

Laws can be passed to require health care providers charge everyone the same amount for the same health care, whether they are insurance companies, HMOs, or cash customers. And none of this phony "negotiated rate" or "discount" stuff.  Unfortunately, such consumer medical protection laws are highly unlikely to happen anytime soon. The reason is Bill Frist, the Senate majority leader. Here's why.
 

Solution 3: the IRS?

The only Federal agency that still might have some independence is the Internal Revenue Service.

Since cash customers sometimes cannot pay their grossly inflated medical bills, the for-profit health care providers write off these losses against income. Since these losses are inflated, the health care providers are committing fraud against the IRS.
 

Solution 4: Insurance Companies (long shot)

If health care providers were required to charge all their customers the same rate, even the insurance companies would benefit. Most medical insurance requires a yearly deductible. Since their customers would be getting more medical services for the same money amount, there would be less chance that they would even have to file a claim.
 

Solution 5: Private Enterprise

Many membership companies like Costco and most credit card companies provide additional services and benefits to their members, like discounts on car rentals, flowers, and other products. They are able to do this because they are such experienced  (some say formidable) negotiators.

I have a suggestion for an additional service they can provide.

The benefit I propose is that these companies negotiate with the health care providers so that their members receive the same discount as the insurance companies, plus a few percent for the company.  (They might even get better rates than the insurance companies.)

Everyone would win:

1.   People without medical insurance would save money by paying less for medical care.

2.   Doctors could practice medicine without having their medical judgment questioned by non-doctors. Medical care would be determined solely by doctor and patient.

3.   Doctors would not be burdened by the paperwork required by insurance companies. They would simply get paid.

4.   Even insurance companies would benefit. Most medical insurance requires a yearly deductible. Since their customers would be getting more medical services for the same money amount, there would be less chance that they would even have to file a claim.

The company will not be acting as an insurance company so it should not be subject to the various regulatory agencies. (They would not be keeping medical records; they would not be deciding what treatments people can receive.)
 

Solution 6  Legal (Civil)

Perhaps an attorney can be found to pursue a class action lawsuit against health care providers. It could be enormously profitable for such an attorney.
 

Jed Margolin
San Jose, CA
March 9, 2004


 
Please send comments here

Copyright 2004 Jed Margolin


Reference 1  - Uninsureds Pay More

It appears that in December 2002, the Hospital Association of America sent a letter to the Department of Health and Human Services saying that they felt that federal regulations prohibit them from giving the same discount to people without health insurance that they give to insurance companies.

It also appears they did not receive a reply, so in July 2003, they asked the Health Subcommittee of the U.S. House of Representatives Committee on Energy and Commerce for help.

The subcommittee went into action and sent letters to Ascension Health Inc., HCA Inc. and 18 other medical providers to request their financial records.

Apparently, as a result, in January 2004, the Committee on Energy and Commerce sent a letter to Secretary Tommy Thompson of the Department of Health and Human Services asking if there are any federal regulations that prohibit health care providers from giving people without health insurance the same discount that they give to insurance companies. The letter requested the information by February 6, 2004.

As of March 9, 2004, HHS had apparently not responded.

However, on February 2, 2004, the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued guidelines HOSPITAL DISCOUNTS OFFERED TO PATIENTS WHO CANNOT AFFORD TO PAY THEIR HOSPITAL BILLS that would have addressed this issue, except it only applied to people who could not afford to pay their hospital bills.

In other words, health care providers can continue to gouge you until they have taken everything you have worked for your entire life, and then, when you are destitute, they can give you a discount.
 

Here's how the press has covered it so far:

From the San Diego Union-Tribune on July 16, 2003 Congressional probe looks at hospital bills for uninsured

By Mark Sherman
 ASSOCIATED PRESS
2:57 p.m., July 16, 2003

WASHINGTON Republican lawmakers began an investigation Wednesday of hospital billing practices that charge uninsured patients far more than insurance companies do for the same services. The House Energy and Commerce Committee is asking the 20 largest hospital systems for extensive information about their pricing systems. "We're targeting a problem, not a company or an industry," said Ken Johnson, the committee spokesman. "The people who can least afford it are paying full sticker price for some hospital services

You can read the entire article here.
 

This is how the Austin Business Journal reported the story:

From Austin Business Journal - July 17, 2003
Ascension, HCA, others asked to reveal financial information by Stephanie Patrick, Dallas Business Journal Staff.

As part of an investigation into the billing inequalities many uninsured patients are said to face during hospital visits, federal officials sent letters Wednesday to Ascension Health Inc., HCA Inc. and 18 other medical providers to request their financial records.

The medical providers are being asked by the U.S. House Committee on Energy and Commerce to provide information such as net operating income, net revenue collected for Medicare and Medicaid patients and net revenue per patient daily from third-party payors.

The medical providers have until July 31 to comply and also must provide information on the total disproportionate-share hospital payments received, sources where they received any funds for bad debt or charity care on services provided to the uninsured, and whether line-item charges in individual patient bills ever have been earmarked for bad-debt pools or any other such resource or state or local administered fund.

and later,
"We understand that medical providers commonly interpret federal law to require the establishment of uniform charge master lists setting forth rates for each of their services," according to a letter obtained by the Dallas Business Journal.

"Yet, based on the committee's preliminary investigation, these rates are often inflated far beyond their actual costs and reasonable profit due, in part, by the providers' need to make up for the steep discounts from charge master prices demanded by the third-party health plans. For example, according to the U.S. Department of Health and Human Services, California urban hospitals in 2002 averaged a 304.8 percent mark-up over actual costs in their master charge list prices."

While the third-party health plans have bargained to pay far less than these retail charges, individual uninsured patients are expected to pay this full, undiscounted "sticker" price.

You can read the full article here.
 
 

So far, the only apparent action on the part of The Committee on Energy and Commerce has been to send a letter to Tommy Thompson, Secretary of the U.S. Department of Health and Human Services asking if there were federal regulations requiring health care providers to gouge people without insurance.

From The Committee on Energy and Commerce:

Committee News Release
The Committee on Energy and Commerce
W.J. "Billy" Tauzin,  Chairman

Tauzin, Greenwood Want More Information on Hospital Billing

WASHINGTON (January 22) - As part of an investigation into the billing problems many uninsured patients face during hospital visits, House Energy and Commerce Committee Chairman Billy Tauzin (R-LA) and Oversight and Investigations Subcommittee Chairman James Greenwood (R-PA) today sent a letter requesting information from the Department of Health and Human Services on federal regulations affecting hospital billing practices.


From the letter:

Dear Secretary Thompson:

As you may know, the Committee on Energy and Commerce is conducting an investigation into the billing practices of certain medical providers for uninsured patients. Such individuals, we have learned, are often expected to pay substantially higher amounts for medical services than third-party health plans (such as medical insurers, health maintenance organizations and preferred provider organizations) or government health care programs. The uninsured appear caught in the middle of the sophisticated and complicated forces driving health care financing including managed care, government entitlements, rising costs and shrinking public funds. These practices raise significant public health and consumer protection issues.

Medical providers have pointed to certain federal regulations as principal impediments to addressing these problems. On December 16, 2003, the American Hospital Association sent you a letter asking for help with the "federal regulations that make it far too difficult and frustrating to give uninsured Americans and others of limited means the same reduced rates for hospital care that state and federal governments, health plans and private insurers ultimately pay." The AHA issued this letter in concert with a "white paper" outlining a number of specific regulations which they claim hamper their efforts to help uninsured patients in terms of charges and collections.

Here is the entire letter.

The letter set a deadline for February 6, 2004.

I called The Committee on Energy and Commerce on March 8, 2004 to ask whether they had received a response. I was told that the only person who knew the answer was Tony Cooke. (Presumably this is Anthony M. Cooke, Majority Counsel for Oversight and Investigations, at (202) 226-2424, who is mentioned in the letter to HHS.) I left Mr. Cooke a polite message on his voicemail asking:

1. Did HHS respond to their letter?

2. Are there federal regulations that prohibit health care providers from giving people without health insurance the same discount they give the insurance companies?

Mr. Cooke did not return my call. When I called again I was told that since I was writing an article on the subject he was not allowed to talk to me and I was turned over to the Press Office. Mr. Miles Warner took down my questions and said someone would call me back.

Guess what? Nobody called me back. (Oh, Crap, now I'm a journalist.)

I called again the next day, and got switched around to several different people.  In general the people who knew the answers wouldn't talk to me and insisted that I talk to someone in the Press Office, preferably the Press Secretary.  Unfortunately, because the committee recently had a change of chairman (Rep. Billy Tauzin stepped down as chairman and was replaced by Rep. Joe Barton) the organization is in flux and nobody knows who the Press Secretary is these days. I finally spoke to an unidentified gentleman (either he didn't tell me his name or by then I was tired of writing down names) who said that they had not received a reply from HHS. His main basis for the statement seemed to be that if a reply had been received it would have been posted on their web site. Since it isn't on the web site they didn't receive a response.
 

If you would like to see the other areas where The Committee on Energy and Commerce is protecting the American People go here.
 

On March 9, 2004, I spent a few hours calling people at the Department of Health and Human Services to get an answer. As with the Committee on Energy and Commerce, everyone at the Department of Health and Human Services insisted that, since I was writing an article for my web site, my questions could only be answered by people in the Press Office, who, of course, weren't in at the moment.

I eventually found someone in the Industry Guidance Branch who directed me to their web site (www.oig.hhs.gov) for my answer.

The article HOSPITAL DISCOUNTS OFFERED TO PATIENTS WHO CANNOT AFFORD TO PAY THEIR HOSPITAL BILLS is at: http://oig.hhs.gov/fraud/docs/alertsandbulletins/2004/FA021904hospitaldiscounts.pdf and is interesting reading, but is, essentially, useless.

From Page 1, Paragraph 2:

No OIG authority prohibits or restricts hospitals from offering discounts to uninsured patients who are unable to pay their hospital bills.  It has been suggested that two laws enforced by the OIG may prevent hospitals from offering discounted prices to uninsured patients.  We disagree and address each law in turn.
And from Page 2, Paragraph 3:
As noted in the preamble to the proposed regulations, the exclusion provision does not require a hospital to charge everyone the same price; nor does it require a hospital to offer Medicare or Medicaid its "best price." However, hospitals cannot routinely charge Medicare or Medicaid substantially more than they usually charge others.


In other words, health care providers can continue to gouge you until they have taken everything you have worked for your entire life, and then, when you are destitute, they can give you a discount.
 

I have not seen anything in the press about Health and Human Services' (Executive Branch) defiance of the House Committee on Energy and Commerce (Congress).

I have not seen anything in the press about Health and Human Services' contemptible efforts to defuse the issue by diverting the focus to people who can't pay.
 

The most recent article I have found, as of the date I am writing this, is from USA Today Posted 2/24/2004 11:38 PM     Updated 2/25/2004 3:09 AM  Hospitals sock uninsured with much bigger bills   by Julie Appleby, USA TODAY.

Where is the media?



Reference 2 - Robinson-Patman Act

From the web site sponsored by the law firm of Lucash, Gesmer, & Updegrove at
http://www.consortiuminfo.org/antitrust/rob-pat.shtml .
(Go to this web page for active links to the Robinson-Patman Act)

The Robinson-Patman Act

The Robinson-Patman Antidiscrimination Act amended Sections 2(a) through 2(f) of the Clayton Act, 15 U.S.C. 13(a) through 13(f), and added 15 U.S.C. Sections 13a, 13b and 21a. Without accounting for any of this Act's several exceptions, and assuming satisfaction of several jurisdictional requirements provided for within the Act, Section 2(a) of the Robinson-Patman Act requires sellers to sell to everyone at the same price, while section 2(f) of the Act requires buyers with the requisite knowledge to buy from a particular seller at the same price as everyone else.

Sections 2(c), 2(d), and 2(e), as elaborated by the FTC through the FTC Act, prohibit sellers and buyers from using brokerage, allowances and services to accomplish indirectly what sections 2(a) and 2(f) directly prohibit. For a detailed discussion of the principles underlying the Robinson-Patman Act click here.

15 U.S.C. Section 13 - Discrimination in price, services, or facilities

15 U.S.C. Section 13a. - Discrimination in rebates, discounts, or advertising service charges; underselling in particular localities; penalties

15 U.S.C. Section 13b. - Cooperative association; return of net earnings or surplus

15 U.S.C. Section 21a. - Actions and proceedings pending prior to June 19, 1936; additional and continuing

Although the Robinson-Patman Act only applies to companies engaged in interstate commerce, health care providers who accept payments from out-of-state insurance companies are obviously engaged in interstate commerce.
 

From an article in the San Francisco Examiner on November 3, 1996: Bound and determined by Rachel Elson, Special to the Examiner:

The settlement of an American Booksellers Association antitrust suit against five publishers accused of violating the U.S. government's monopoly-busting Robinson-Patman Act has also forced the publishing industry to rethink discounting and promotion policies. As a result, independents are now getting a better, if not equal, crack at some publishers' discounts and promotional dollars - a price differential that Landon says can make a big difference in narrow-margined book business.
Here is the full article.



Reference 3  - Number of Uninsured

Henry J. Kaiser Family Foundation

Uninsured in America
Diane Rowland, Executive Vice President and Executive Director of the Kaiser Commission on Medicaid and the Uninsured, testified on March 9, 2004 at a U.S. House Ways and Means Subcommittee on Health hearing on issues concerning Americans who lack access to affordable health insurance.

Here is Ms. Rowland's testimony

Note that it doesn't say anything about how people without health insurance are charged more than are the insurance companies.


If you have ever wondered whether the physician who treated you is an employee or an independent contractor you might find this article interesting.