MarketWatch From ‘ Soak The Rich ’ To ‘ Soak The Poor

In 2004, the rates charged to many uninsured and other “self-pay” patients for hospital services were often 2.5 times what most health insurers actually paid and more than three times the hospital’s Medicare-allowable costs. The gaps between rates charged to self-pay patients and those charged to other payers are much wider than they were in the mid-1980s, and they make it increasingly more difficult for some patients, especially the uninsured, to pay their hospital bills. This has triggered lawsuits and some recent government efforts involving price transparency. Three specific policy options that could lower the markups are a voluntary effort by hospitals, litigation, and legislation. [Health Affairs 26, no. 3 (2007): 780–789; 10.1377/hlthaff.26.3.780] F i fty years ago the poor and uninsured were often charged the lowest prices for medical services. In a classic health economics article, Reuben Kessel explained in 1958 why it was rational for physicians to charge the wealthiest the most and to discount prices for the poor.1 It included a quote from a “highly respected surgeon” that, according to Kessel, “presents the position of the medical profession”: I don’t feel that I am robbing the rich because I charge them more when I know that they can well afford it; the sliding scale is just as democratic as the income tax. I operated today upon two people for the same surgical condition—one a widow whom I charged $50, the other a banker whom I charged $250. I let the widow set her own fee. I charged the banker an amount which he probably carries around in his wallet to entertain his business friends. Almost fifty years later, uninsured and other “self-pay” patients are often presented with bills by hospitals, doctors, and other health professionals with charges that are 2.5 times what most public and private health insurers actually pay. This paper focuses on relative prices in the hospital industry because there are better cross-sectional and longitudinal data on hospitals, not because hospitals are any more likely than other providers to charge higher rates to the “uninsured” and other selfpay patients.3 I begin by examining the rates that uninsured and self-pay patients were expected to pay for hospital services in 2004. Hospitals often present such patients with bills that reflect the hospital’s full charge, derived from the its chargemaster file, or a price list that it has established containing undiscounted prices for all of the services it provides. I then examine some of the factors that have caused the gaps between charges and costs and between 7 8 0 M a y / J u n e 2 0 0 7 H e a l t h T r a c k i n g DOI 10.1377/hlthaff.26.3.780 ©2007 Project HOPE–The People-to-People Health Foundation, Inc. Gerard Anderson ([email protected]) is a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health in Baltimore, Maryland. charges and what most insurers actually pay to widen over the past twenty years. I conclude by examining three policy options that could lower the amounts that uninsured and other self-pay patients would be expected to pay.