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Pay, But Negotiate

"Reverse cost shifting" is a perverse and often financially devastating byproduct of an overly complicated hospital payment system in which different payers have different levels of information.
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If you are the uninsured person in Virginia who, between 2005 and 2009, paid $20,615 out of pocket for a hysterectomy, please call me. I would like to salute you for paying your medical bills, but mostly I would like to shake you for not negotiating a lower payment.

You showed up as a footnote -- "One patient paid the hospital $20,615 out of pocket," -- in a 2012 academic paper I read while researching the costs of various methods of laparoscopic surgery. The paper included information on payments your hospital collected from 48 patients who underwent surgical removal of the uterus (hysterectomies) between January 2005 and March 2009. You were the only uninsured patient out of seven who paid anything -- hence the salute. But your out-of-pocket payment was $10,470 more than the average PPO (preferred provider organization) payment for the same procedure; $11,659 more than the average HMO payment; $11,739 more than private insurance; $14,357 more than Medicaid; and $17,686 more than Medicare -- hence the shaking.

You are probably wondering how a hospital could have made you pay more than insurance companies paid. Unfortunately, this occurs every day, but -- to be fair -- it is not deliberate. In fact, hospitals deliberately do the opposite -- a practice called "cost shifting" -- where they charge high rates to insurance companies to subsidize the costs of care for uninsured or underinsured patients. Most hospitals also have "charity policies" to defray prices for the low-income uninsured.

What you suffered -- I call it "reverse cost shifting" -- is a perverse and often financially devastating byproduct of an overly complicated hospital payment system that is confusing even to hospital leaders, and in which different payers have different levels of information. Reverse cost shifting first took hold decades ago because hospitals mistakenly thought Social Security laws made it too risky to negotiate discounts with the uninsured. This misunderstanding arose from the hospital industry's interpretation of language from Section 1128(b)(6)(A) of the Social Security Act, which provides that the secretary may exclude an individual or entity (e.g., hospital) from participation in a federal health care program (e.g., Medicare) if the secretary determines that the individual or entity ''has submitted or caused to be submitted bills or requests for payment... in excess of such individual's or entity's usual charges...''

The key phrase here is "in excess of such individual's or entity's usual charges." For many years, hospitals interpreted this to mean they could not charge any patient less than the hospital charged Medicare for the same service. As a result, many hospitals deemed it too risky to negotiate discounts with individual uninsured patients.

In 2004, the HHS OIG's office (Office of Inspector General) corrected this misinterpretation with the decisive statement, "No OIG Authority Prohibits or restricts hospitals from offering discounts to uninsured patients who are unable to pay their hospital bills." But the damage had already been done. The effect of reverse cost shifting was summarized in a 2001 article published for "The Access Project" (supported by the Robert Wood Johnson and Annie E. Casey Foundations). The authors concluded: "In 1996, self-payers [i.e., the uninsured] paid, on average, 87 percent more than what their care actually cost. As a comparison, private insurers paid, on average, 22 percent above the cost of their care."

Despite the OIG's clarification, reverse cost shifting is still common. One reason is simply that many patients are either too timid to haggle or are unaware that they can. A more systemic problem is a lack of published hospital prices, and the often-confusing fact that even when published, hospital prices are very different from the prices shoppers encounter at the grocery store or mall. Hospital prices are more like a combination of an estimate (since many factors, such as complications during treatment, can drive up final prices) and an auto dealer's "manufacturer's suggested retail price" (MSRP) (since hospitals do not expect to be paid as much as they charge).

Here is my advice on how to avoid becoming a repeat victim of reverse cost shifting: before you pay your bill, try to find out what others have paid for the same service. Start by looking at what the federal government pays. Go to the website, and click on "Research, Statistics, Data and Systems" and then "Medicare Provider Charge Data." This site features Medicare payment information for the 100 most common inpatient services and 30 most common outpatient services. Although it features a limited list of procedures (hysterectomy is not listed), this site is useful because it shows you not only what each hospital charged (equivalent of MSRP), but also what the hospital actually received (closer to what you should pay). For example, in 2011 your hospital charged an average of $25,333 for a laparoscopic gall bladder removal, but it received only $7,996.

After researching what the government pays, look at what insurance companies pay. One way is to visit the Healthcare Blue Book website. This features what Healthcare Blue Book calls its "Fair Price," defined as "the typical fee that providers in your area accept as payment from insurance companies." This site lists the fair price for a vaginal hysterectomy (no cancer) as $8,453.

Finally, use the information you found to negotiate a lower price. And remember -- never pay hospital MSRP, and you will never again earn your own payment footnote.