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A remedy for medical bill ills

The obvious solution for making the cost of treatments clear and consistent is to replace individual contracts between insurers and providers with fixed prices determined by a panel of experts.

April 08, 2011|David Lazarus
  • It's common practice for Los Angeles' Cedars-Sinai Medical Center, shown above, and other hospitals nationwide to heavily inflate medical bills to accommodate contractual discounts with insurers. The practice often makes it difficult for patients to understand what theyre paying for when they receive treatment.
It's common practice for Los Angeles' Cedars-Sinai Medical… (MARK RALSTON, AFP/Getty…)

There are loony medical bills, and then there's the bill Robert Hsu was hit with after undergoing heart surgery at Cedars-Sinai Medical Center in January.

Hsu, 84, of Thousand Oaks had an aortic valve replaced on his ticker. He spent four nights in the hospital.

The bill: $266,567.46.

But is that how much his insurer, Medicare, was billed? No. As I recently reported, hospitals routinely inflate their charges — often by huge margins — so they can still make money after contractual discounts are imposed by insurers.

In Hsu's case, the discount was a hefty $224,819.89. In other words, Cedars-Sinai shaved about 84% off its bill to meet the terms of its contract with Medicare.

In response to my column, dozens of people like Hsu contacted me to share their experiences of jaw-dropping bills — and the steep discounts that invariably followed. Cedars was mentioned frequently, but a number of other hospitals also figured in the tales of medical woe.

For example, John Reynolds, 88, of Koreatown injured himself in a fall and spent a week at California Hospital Medical Center. "There was no special treatment of any kind," he said.

He was billed $115,409.21 for the hospital stay, or almost $16,500 a day. But the bill to Medicare was discounted by $101,103.73 — a more than 87% reduction.

Eric Sherman of Tarzana went to Cedars for cancer surgery. The initial bill was for about $150,000. It was discounted by about 77% before going to Sherman's insurer, Blue Shield of California.

The discount system began decades ago when Medicare and other government-run insurance programs demanded reduced prices from healthcare providers. Private insurers insisted on equal treatment, and soon it became standard practice for medical bills to be heavily inflated to accommodate the contractual discounts.

This is a system that makes a mockery of free-market economics and leaves the consumer in a bewildered state of ignorance when it comes to medical pricing.

"There's no correlation with what things actually cost," said Dr. Phil Schwarzman, medical director of the emergency department at Burbank's Providence St. Joseph Medical Center. "It's impossible for patients to know the real cost of treatment."

And because each insurer cuts its own contract with healthcare providers, the cost to one can be wildly different from the cost to another. Again, consumers are left out in the cold when it comes to understanding what they're paying for when they receive treatment.

So what's the answer? Obviously this is a complex problem with a lot of moving parts, and I don't mean to single out insurers when hospitals are clearly complicit in this deliberate effort to obscure medical pricing.

But the easiest way to introduce some transparency to healthcare costs would be to end individual contracts between insurers and providers. Instead, medical prices could be determined by a panel of experts, and all insurers would be required to reimburse as per the panel's guidelines.

This would essentially give us a single-payer insurance system like they have in most other developed countries — that is, there would be an established cost for medical procedures and an established level of reimbursement to providers.

The big difference, however, is that I'm not saying we have to do away with private insurers (although I'd be just as happy with a taxpayer-supported Medicare-for-all program). Instead, we'd still have private insurers and private hospitals.

Hospitals would have an incentive to hold down prices in hopes of attracting more patients from insurers. Insurers would have an incentive to hold down costs in hopes of attracting more members.

And consumers, at last, would be empowered to make informed decisions about the treatment they receive and the costs paid.

"Having greater transparency that reflects a singular price, as opposed to multiple prices, is a direction we definitely need to go," said Ron Pollock, president of the advocacy group Families USA. "You can't have 30 different prices for 30 different payers."

As it stands, we have a system that intentionally masks the economics of healthcare and offers few incentives for price controls. We all bear the cost of this recklessness in the form of sky-high medical bills as well as ever-increasing insurance premiums, co-pays and deductibles.

Hsu, the heart patient, saw his bill tumble from nearly $267,000 to about $42,000, which presumably still allowed Cedars to make a profit and is probably closer to the actual cost of the treatment provided.

"It's a rotten system," said Hsu, who, as a former medical-school teacher, isn't a stranger to the ways of healthcare. "It's a system that doesn't work."

The solution is obvious: Make the actual cost of treatment clear and consistent. Is there a single lawmaker who disagrees with that?

David Lazarus' column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to david.lazarus@latimes.com.

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