A REVIEW OF HOSPITAL BILLING AND

COLLECTIONS PRACTICES

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 24, 2004

Serial No. 108–107

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

A REVIEW OF HOSPITAL BILLING AND COLLECTIONS PRACTICES

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95–446PDF 2004

A REVIEW OF HOSPITAL BILLING AND

COLLECTIONS PRACTICES

HEARING

BEFORE THE

SUBCOMMITTEE ON

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON ENERGY AND

COMMERCE

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

JUNE 24, 2004

Serial No. 108–107

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

2

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman

W.J. ‘‘BILLY’’ TAUZIN, Louisiana

RALPH M. HALL, Texas

MICHAEL BILIRAKIS, Florida

FRED UPTON, Michigan

CLIFF STEARNS, Florida

PAUL E. GILLMOR, Ohio

JAMES C. GREENWOOD, Pennsylvania

CHRISTOPHER COX, California

NATHAN DEAL, Georgia

RICHARD BURR, North Carolina

ED WHITFIELD, Kentucky

CHARLIE NORWOOD, Georgia

BARBARA CUBIN, Wyoming

JOHN SHIMKUS, Illinois

HEATHER WILSON, New Mexico

JOHN B. SHADEGG, Arizona

CHARLES W. ‘‘CHIP’’ PICKERING,

Mississippi, Vice Chairman

VITO FOSSELLA, New York

STEVE BUYER, Indiana

GEORGE RADANOVICH, California

CHARLES F. BASS, New Hampshire

JOSEPH R. PITTS, Pennsylvania

MARY BONO, California

GREG WALDEN, Oregon

LEE TERRY, Nebraska

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

DARRELL E. ISSA, California

C.L. ‘‘BUTCH’’ OTTER, Idaho

JOHN SULLIVAN, Oklahoma

JOHN D. DINGELL, Michigan

Ranking Member

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

RICK BOUCHER, Virginia

EDOLPHUS TOWNS, New York

FRANK PALLONE, Jr., New Jersey

SHERROD BROWN, Ohio

BART GORDON, Tennessee

PETER DEUTSCH, Florida

BOBBY L. RUSH, Illinois

ANNA G. ESHOO, California

BART STUPAK, Michigan

ELIOT L. ENGEL, New York

ALBERT R. WYNN, Maryland

GENE GREEN, Texas

KAREN MCCARTHY, Missouri

TED STRICKLAND, Ohio

DIANA DEGETTE, Colorado

LOIS CAPPS, California

MICHAEL F. DOYLE, Pennsylvania

CHRISTOPHER JOHN, Louisiana

TOM ALLEN, Maine

JIM DAVIS, Florida

JANICE D. SCHAKOWSKY, Illinois

HILDA L. SOLIS, California

CHARLES A. GONZALEZ, Texas

BUD ALBRIGHT, Staff Director

JAMES D. BARNETTE, General Counsel

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida

CLIFF STEARNS, Florida

RICHARD BURR, North Carolina

CHARLES F. BASS, New Hampshire

GREG WALDEN, Oregon

Vice Chairman

MIKE FERGUSON, New Jersey

MIKE ROGERS, Michigan

JOE BARTON, Texas,

(Ex Officio)

PETER DEUTSCH, Florida

Ranking Member

DIANA DEGETTE, Colorado

TOM ALLEN, Maine

JANICE D. SCHAKOWSKY, Illinois

HENRY A. WAXMAN, California

EDWARD J. MARKEY, Massachusetts

JOHN D. DINGELL, Michigan,

(Ex Officio)

(II)

C O N T E N T S

Page

Testimony of:

Anderson, Gerard F., Director, Johns Hopkins Center for Hospital Finance and Management, Professor, Department of Medicine, Johns

Hopkins School of Medicine, Professor, Departments of Health Policy

and Management and International Health, Bloomberg School of Public

Health ............................................................................................................ 15

Bovender, Jack O., Jr., Chairman and Chief Executive Officer, HCA ......... 91

Collins, Sara R., Senior Program Officer, Health Policy, Research and

Evaluation, the Commonwealth Fund ........................................................ 37

Fetter, Trevor, President and Chief Executive Officer, Tenet Healthcare

Corporation .................................................................................................... 103

Jacoby, Melissa B., Associate Professor, University of North Carolina

at Chapel Hill, School of Law ...................................................................... 23

Kuhn, Herb, Director, Center for Medicare Management, Centers for

Medicare and Medicaid Services, U.S. Department of Health and

Human Services ............................................................................................ 130

Lofton, Kevin E., President and Chief Executive Officer, Catholic Health

Initiatives ...................................................................................................... 85

Morris, Lewis, Chief Counsel, Office of Inspector General, Department

of Health and Human Services .................................................................... 135

Pardes, Herbert, President and Chief Executive Officer, New York Presbyterian Hospital .......................................................................................... 97

Rukavina, Mark, Executive Director, the Access Project .............................. 31

Tersigni, Anthony R., Chief Operating Officer and Interim CEO, Ascension Health .................................................................................................... 79

Additional material submitted for the record by:

Bovender, Jack O., Jr., Chairman and Chief Executive Officer, HCA:

Letter dated July 19, 2004, enclosing response for the record .............. 782

Letter dated July 27, 2004, enclosing response for the record .............. 832

Clarkson, Douglas S., Assistant General Counsel, Tenet Healthcare Corporation:

Letter dated August 5, 2004, enclosing response for the record ........... 596

Letter dated September 10, 2004, enclosing response for the record ... 801

Fetter, Trevor, President and Chief Executive Officer, Tenet Healthcare

Corporation, letter to Hon. John D. Dingell, dated July 20, 2004, enclosing response for the record ........................................................................... 795

Lofton, Kevin E., President and Chief Executive Officer, Catholic Health

Initiatives:

Letter to Hon. John D. Dingell, dated July 20, 2004, enclosing response for the record ............................................................................. 819

Letter to Hon. James C. Greenwood, dated July 22, 2004, enclosing

response for the record .......................................................................... 1591

Pardes, Herbert, President and Chief Executive Officer, New York Presbyterian Hospital:

Responses for the record ........................................................................... 669

Letter dated July 22, 2004 enclosing additional responses ................... 770

Rukavina, Mark, Executive Director, the Access Project, response for

the record ....................................................................................................... 724

Service Employees International Union, prepared statement of .................. 590

Tersigni, Anthony R., Chief Operating Officer and Interim CEO, Ascension Health:

Letter to Hon. John D. Dingell, dated July 20, 2004, enclosing response for the record ............................................................................. 719

Letter to Hon. James C. Greenwood, dated July 22, 2004, enclosing

response for the record .......................................................................... 1237

The Cost of Care for the Uninsured: What Do We Spend, Who Pays,

and What Would Full Coverage Add to Medical Spending?, a report

prepared for the Kaiser Commission on Medicaid and the Uninsured .... 575

(III)

(1)

A REVIEW OF HOSPITAL BILLING AND

COLLECTIONS PRACTICES

THURSDAY, JUNE 24, 2004

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, Washington, DC.

The subcommittee met, pursuant to notice, at 2:20 p.m., in room

2123, Rayburn House Office Building, Hon. James C. Greenwood

(chairman) presiding.

Members present: Representatives Greenwood, Stearns, Burr,

Bass, Walden, Ferguson, Rogers, DeGette, Allen, Schakowsky, and

Waxman.

Staff present: Mark Paoletta, majority counsel; Anthony Cooke,

majority counsel; Brad Conway, majority counsel; Michael J. Abraham, legislative clerk; Edith Holleman, minority counsel; Amy

Hall, prsfessional Staff; Bridget Taylor, professional staff; Voncille

Hines, research assistant; and Dave Vogel, legislative clerk.

Mr. GREENWOOD. The subcommittee will come to order. Let me

begin by apologizing to all for the delay, it’s the unavoidable exigencies of voting, but we welcome you all. The Chair recognizes

himself for the purpose of making an opening statement.

We convene this afternoon to review hospital billing and collection practices for uninsured/self-pay patients. Today in this country

an average working man or woman treated at a hospital can be

stuck with a bill that is double what managed care or government

programs pay. These are uninsured/self-pay patients who don’t

have the weight of an HMO to negotiate on their behalf, or don’t

qualify for government health assistance. Then, to add insult to

their injury, they are sometimes aggressively pursued for these inflated debts. The situation is unfair and it is unjust.

To put these hospital charges in perspective, let us look at a simple chart that paints a troubling picture. This provides a basic

breakout of hospital revenues and costs. Based on our research,

these proportions seem common in the hospital industry.

The black column, second from the left, is the cost to the hospital

for providing the service. On either side of the cost column, Medicaid and Medicare can be seen to pay, on average, a bit less and

a bit more, respectively. Third-party payers, such as insurers and

managed care, represented by the yellow column, pay within a

wide spectrum but, on average, provide profitable reimbursement.

The red column on the far right is what many hospitals expect the

uninsured and self-pay patients to pay. This charge to uninsured

and self-pay patients is, generally speaking, the hospital’s ‘‘charge

2

master’’ rate. That term will come up a lot today, so let us talk

about charge masters for a moment.

Charge masters are catalogs of prices for all services and supplies offered at a hospital. They sometimes run hundreds of pages

and contain thousands of line items. The prices in a charge master,

as indicated in the chart, can bear little relation to the actual cost

to the hospital. Indeed, some items on a charge master can reach

well over 1000 percent markup.

And these prices continue to grow each year increasingly out of

proportion to costs. In California urban hospitals, for example, the

average price mark-up over cost has risen from 174 percent in 1990

to 310 percent in 2003. Most hospitals, I think, will admit to being

hard-pressed to justify these charges. Rather, hospitals will explain

that charge master prices are the product of many complex and sophisticated market forces in health care, including government entitlements, managed care, and rising costs. There is, without a

doubt, a number of significant and powerful moving parts in health

care finance, but we must not allow the working class uninsured

to get chewed up in these machinations.

Hospitals will say they address the matter of high charge master

prices through their charity programs which provide care free or at

a reduced cost to the needy. Unfortunately, this too often covers

only some people for only certain services.

Further, I question whether we can be assured of the fairness or

reasonableness of charges which, in some instances, are merely discounts from an already inflated number. For example, let us return

to the chart using the 2002 numbers. Even if an uninsured patient

had a 25 percent discount, he or she would still be paying twice the

cost. A partial discount off an inflated number seems very arbitrary. Even given all the well-administered, generous and commendable charity programs offered by hospitals, ultimately, there

are still individuals who are expected to pay these full charge master rates.

It would seem that through these charity programs hospitals are

trying to include the uninsured in a finance and accounting system

that appears simply not designed for or allowing for participation

by individual consumers. And if, in the end, managed care, government programs and the uninsured are not paying the charge master price, then what purpose does the current charge master structure serve?

Let us turn to what happens when someone is eventually asked

to pay these inflated bills. Hospitals will point out that they collect

only pennies on the dollar and, based on our investigation, this

would seem to be the case.

The question for our purposes here, however, is not what they actually collect, but what happens to the part they don’t collect? In

a September 2003 study, one nonprofit hospital in Connecticut was

found to have had over a 9-year period medical liens on 7.5 percent

of the homes in a community it purported to serve. A hospital may

indeed only collect 10 cents, but the other 90 cents may be secured

by the patient’s home. Many hospitals have claimed to have recently revisited and revised their collection practices. While that is

encouraging, I remain concerned, however, when I read articles

like the two that appeared in the Wall Street Journal over the past

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couple of weeks, about two of the systems appearing before us

today.

In the first article, from yesterday, one hospital system conceded

that as many as half of those uninsured patients, possibly eligible

for discounts under a new charity program, were not told of their

potential eligibility. And they offered this admission, unfortunately,

only after being confronted with a report by an advocacy group alleging that large numbers of uninsured patients seeking care in

their facilities were not learning about available charity discounts.

The second article from 2 weeks ago described the case of a man

who recently had his bank account seized because of a 13-year-old

hospital bill from one of the systems here today. Perhaps what is

more troubling in the story and the age of the bill was the excuse

offered by the hospital. The hospital indicated that this was a mistake on the part of a lower-level hospital staff that, when brought

to the attention of senior executives, was immediately remedied.

Are the new commitments recently articulated by so many hospitals to reform their billing and collection practices only known at

the management level? Are lower-level staff, who are actually the

front-line staff, aware of these new policies?

Not to put too fine a point on this, but the awareness, participation, and cooperation of this front-line hospital staff is vital. How

these hospital employees present payment options to a patient can

mean the difference between having a bill covered by a charity program or placing the full amount on a high-interest credit card.

As a further illustration, one system with us today, in a customer

service training manual produced to the subcommittee, made an

explicit statement of ‘‘four main priorities when securing payment

on a self-pay account. Priority 1, obtain any insurance information;

priority 2, attempt to obtain payment in full or settle the account;

priority 3, negotiate a payment arrangement; priority 4, determine

fund eligibility.’’

The manual goes on to say that billing agents should use their

discretion in applying these principles, but if an agent followed

these priorities, as written, a needy patient might never learn

about charity care before paying by a credit card or agreeing to an

unmanageable and unreasonable payment plan with the hospital.

How the billing process is executed and practiced by the hospital

staff is more important than any new written policy or any promises or pledges from management.

At the outset of this investigation, hospitals generally acknowledged many of these concerns with billing and collection practices,

but claimed Medicare rules, in some instances, tied their hands

with respect to what they could do for uninsured and self-pay patients.

In December 2003, 5 months after the start of this committee’s

investigation, the American Hospital Association sought guidance

from the Department of Health and Human Services on these

rules. Two months later, both Secretary Thompson and the HHS

Office of Inspector General responded, largely rebuking the industry’s positions. The final panel of this hearing will feature two representatives of HHS, and will explore further with them this guidance.

4

In this regard, I will seek from HHS and the hospitals, an answer to the question of why steps to address the situation have not

been taken until now. If hospitals believed that Medicare rules created roadblocks to doing the right thing for the uninsured, why did

they not raise it with HHS earlier?

Cost-to-charge ratios are reported to HHS in Medicare costs that

the Agency must have seen this growing divergence between cost

and charges. Is no one at HHS watching to see whether their rules

and regulations are causing harm?

In December 2002, Trevor Fetter, CEO of Tenet Healthcare, who

is here with us today, made some very interesting remarks in an

investor conference call shortly after joining Tenet. This was almost 11⁄2 years ago, and in many ways he framed precisely the

issues for which we come here today. Quoting Mr. Fetter: ‘‘I would

like to turn to an issue that has bothered me for years. I mentioned

earlier that Medicare requires hospitals to set charges the same for

everyone. This means that the uninsured or underinsured patient

receives a bill at gross charges. In other words, the entire hospital

industry renders its highest bills to the customers who are least

able or likely to pay. The problems that this creates are obvious.

The bills are tremendous and incomprehensible to most people. The

patient leaves the hospital, presumably after some traumatic event,

and the hospital bill adds to the trauma. As a result, they don’t

pay. Thirty percent of the patients account for nearly 100 percent

of the collections from this group, 70 percent of the patients pay

virtually nothing, but Medicare requires that the hospitals make a

bona fide effort to collect. The administrative costs are huge. The

ill will that is generated among the patients is huge. And the whole

situation is far from ideal, from a social or economic perspective.

Tenet employs more than 5,000 people to render bills and attempt

to collect from these patients. It is ridiculous.’’

Mr. Fetter could not have put more clearly into words what this

committee’s investigation is about. It is not unreasonable to assume that Mr. Fetter was not the only member of the hospital industry to recognize this problem. If so, why is there action only

now? Were lawsuits and a congressional investigation necessary for

the industry to address this?

Finally, we will likely hear today testimony and comments about

the role of universal health coverage in the issues we are addressing in this hearing. In anticipation, let me say this: In Congress,

we have debated, and will continue to debate, the critical matter

of health care coverage. But since this committee started this investigation almost 1 year ago, we have seen concrete action improving the condition of uninsured and self-pay patients facing medical

debts. Our focus on billing and collection issues has yielded specific

and immediate results. I look forward to continuing and building

this direct approach to these problems that is helping real people

right now.

We welcome today representatives from the Department of

Health and Human Services, and the Chief Executives of Ascension

Health, Catholic Health Initiatives, HCA, New York Presbyterian,

and Tenet Healthcare.

We also welcome our panel of experts and advocates, Dr. Anderson, Ms. Jacoby, Mr. Rukavina, and Dr. Collins. Thank you all for

5

joining us here today, and I look forward to your testimony. The

Chair recognizes the gentlelady from Colorado for an opening statement.

Ms. DEGETTE. Thank you, Mr. Chairman. I agree with the chairman, this is a very important hearing on the hospital billing of the

uninsured and underinsured. In particular, I want to extend a welcome to Kevin Lofton, who is the President and CEO of Catholic

Health Initiatives in Denver, who is on the second panel today.

Each year, thousands of Americans without health insurance receive hospital care because of urgent and emergency situations.

Through no fault of their own, though, these patients are unable

to pay their bills. This puts both hospitals and patients in a quandary. The hospitals have spent money and manpower providing

critical medical care, but they have no way to recover the cost. The

patients have incurred catastrophic debts. The amount could be

$1,000, $10,000, or even $100,000, and have no ability to get the

amount of money necessary to pay off these bills in a proper period

of time.

The problem stems from the inevitable collision of uninsured patients needing health care and hospitals needing to be paid for

health care. Now, there are anywhere from 43 to 81 million Americans who go without health insurance for at least part of a year.

This is a burden that neither our health care system or our patients can continue to bear. And as a result of this system, both patients and hospitals are facing severe financial pressures.

There is no question that some hospitals took collection efforts

too far. Everyone here is aware of reports of body attachments and

other types of financial penalties. The stories frankly are horrifying, and we must look into steps to protect patients from overzealous bill collectors. This hearing, though, must keep the problem

of hospital billing in context. Too many Americans are unable to

pay for health care because they do not have health insurance.

This subcommittee’s investigation reinforces the reality that the

entire health care system is extremely ill. Some hospitals seem to

view uninsured patients as revenue enhancers. Studies uncovered

that hospitals charge insured patients only 46 percent of the rack

rate for services. This pricing reveals that it is essential that patients have an advocate in the discounting process. In the current

system, the uninsured are the only ones who have no advocate.

Like any other type of debt collection, hospital billing and collection

practices can have a devastating effect on patients without the ability to pay. These patients, many of them still recovering from illness or surgery, may see their credit rating ruined and their financial lives destroyed.

As Professor Jacoby will describe, this could even mean denial of

housing or employment. This can spiral into a vicious trap. How

can these patients pay their hospitals without new income? And if

the patients have left the hospital still recovering from their illness, how easy is it for them to negotiate with a billing department?

Now, one Wall Street Journal article I read talked about a man

who was billed $22,000 for a 3-day hospitalization following emergency appendectomy surgery. He couldn’t pay the $22,000. But the

problem we have, I will bet he couldn’t pay it even if under a fee

6

reduction program his bill was cut in half, to $11,000. And that is

the problem we have.

Our second panel, comprised of hospital CEOs, will provide more

information on this price system and the collection practices. They

will also describe the steps that they are taking to improve their

billing systems. I am looking forward to hearing the details of these

plans for the uninsured because, up to this point, it has been unclear how robust these needed discount programs are.

The investigation of this subcommittee has been extremely comprehensive and valuable. Examination of this problem has brought

to light some specific examples of egregious billing practices, but I

hope that these stories do not overshadow the fact that both patients and hospitals are caught in the same vicious cycle. Hospitals

cannot be expected to absorb all the cost of serving the growing

number of uninsured and underinsured, and I am sure the chairman did not mean to imply that in his opening statement. What

this country needs is a system in which everyone has access to and

can pay for essential health care services, both emergency and preventive. Every American should have basic health insurance that

is affordable.

As this hearing will show, the financial burdens that our uninsured patients and our hospitals struggle with every day make this

an issue that can no longer be delayed and, frankly, it is a problem

that is getting worse and worse, both for the un- and underinsured,

and for the hospitals which are trying to bear an increasing burden

of this.

Now, it would be easy for us to simply blame hospitals for overaggressive bill collection and too high rates, but it would miss the

larger point. Too many Americans are unable to pay for health care

services because they do not have health insurance. I hope this

hearing serves as the impetus for us to address this larger issue

that is at the root of the problem. And, Mr. Chairman, I would ask

unanimous consent to put Mr. Dingell’s opening statement in the

record, and also any other member of the full committee who wishes to insert an opening statement in the record.

Mr. GREENWOOD. Without objection, that will be the order.

Thanks to the gentlelady. Recognize the gentleman from Oregon,

Mr. Walden, for an opening statement.

Mr. WALDEN. Thank you very much, Mr. Chairman. I appreciate

the fact of the work of the staff on this issue, and certainly your

leadership on this issue, and recognize the problem that is before

us.

I spent several years on a community hospital board, a nonprofit

hospital board, before coming to the Congress, and every month we

would go through our billing, and every month we would write off

a goodly share for charity care. And I recall that the biggest shifter

of cost—if that is the right word—in the system was both Medicaid

and then Medicare that often had reimbursement rates that, frankly, didn’t necessarily cover even the cost of care. And, so, those are

issues I think we need to look at. Clearly the billing issue, though,

is the legitimate one that needs to be examined, and I know many

of the hospitals have begun to do that, many are in the process of

doing that, and certainly the light that has been shed on this practice has moved that effort forward.

7

It is interesting to note, however, that when it comes to the uninsured, there are some folks that probably do have the ability to

pay, and I got the census data. And it is kind of interesting to note

that of those who went without health insurance for an entire year,

8.2 percent had household income in excess of $75,000, and 20 percent had household income over $50,000.

Interesting, too, as we look at how do you get health care coverage, especially insurance, for folks who are these folks—and, in

some cases, obviously 20 percent have income over $50,000—43.3

percent are noncitizens of the United States, according to the census population study; 33.4 percent are foreign-born. So, you have

76, 77 percent are either foreign-born or not citizens of the United

States, who are uninsured.

So, as we look at how do we reach out to provide affordable

health care, there is clearly a target group there that stands out

in certain need. And I know we work with those folks in many different ways.

I think this hearing is important. I think looking at the charge

master and what people are being billed, and whether or not those

are reasonable charges is very important for this subcommittee.

And so I look forward to the testimony of the folks from the various

panels, and hopefully together we can find a more equitable way

to make all this work and still allow hospitals to be able to keep

their doors open and provide care, including the enormous charity

care that is already given.

Mr. Chairman, thank you for your leadership, and I look forward

to the witnesses.

Mr. GREENWOOD. The Chair thanks the gentleman. Recognize

the gentleman from California, Mr. Waxman, for an opening statement.

Mr. WAXMAN. Thank you very much, Mr. Chairman. This hearing before the subcommittee today is a critical one. It is resultant

from an investigation which focused on a number of billing practices by hospitals which have resulted in unconscionable practices

in going after uninsured persons who owe debts far beyond their

ability to pay.

Turning bills over to collection agencies who engage in practice

of harassing individuals, garnishing their wages, going after their

homes, freezing their bank accounts, these activities have no place

in this country when the debt is occurred because of a person’s critical need for health care. Uninsured people who facing bills of tens

and even hundreds of thousands of dollars and no possible way to

pay need help, not harassment. The fact that medical bills and the

debt from those bills is the second leading cause of bankruptcy in

this country is, simply put, unacceptable.

I want to make a couple of critical points. First, we all need to

acknowledge that in the face of these revelations, the hospital industry has, by and large, responded with concern and a commitment to stop the more abusive practices.

We will hear today of the adoption of policies designed to address

the more egregious abuses. And while I commend them for that,

the real test, of course, will not be in the signing of pledges to do

better, but in actually carrying them out and stopping these troubling practices.

8

The second point is, the clear and critical point here is that all

these problems occur because we have so many uninsured people

in this country. We know that over a 2-year period, over 80 million

people find themselves without insurance for some period of time.

This is completely unacceptable. We will never solve the problem

we are discussing today until that situation changes.

Third point, we know that the practice of uninsured people facing

the very highest charges is not just a problem for people getting

hospital care. While the bills might be the most overwhelming, the

fact is that uninsured Americans without drug coverage every day

face the problem of paying the highest prices when they can least

afford it. They pay more than people with insurance. They pay

more than citizens of Canada and other countries. And this is also

unacceptable, and I hope this subcommittee will show equal interest in the problem in this area. After all, they have no one negotiating for them to get lower drug prices, either.

Finally, I have to note that the policies now in vogue with the

Republican Majority of pushing health savings accounts and high

deductible insurance plans runs directly contrary to what is needed

to give people the assurance of coverage and access to favorably negotiated prices. It is unfair to our hospitals to ask them to provide

their most favorable discounted rates to insurers who have deliberately designed policies where people will face a long period of essentially being uninsured because the deductible is so high. Hospitals give discounts to insurers because they are assured of payment for essentially all of the services they provide, less a small

deductible amount. Asking them to provide the same discount to a

truly uninsured person is sensible and humane, but requiring

them, in essence, to do the same for uninsurers with deliberately

designed high deductible plans is another matter entirely. Asking

hospitals to bear the brunt of the unmet cost in the long period before insurance kicks in, asking them to protect the profits of insurers is not a sensible policy and will ultimately hurt the very institutions that are on the front line of delivering care.

I look forward to hearing from our witnesses today and exploring

this issue further with the members of the subcommittee.

Mr. GREENWOOD. The Chair thanks the gentleman, and recognizes the gentleman from New Hampshire, Mr. Bass, for an opening statement.

Mr. BASS. Thank you, Mr. Chairman. This is indeed a very interesting hearing. It is not simple. There are many different parties

involved. There is, if you will, problems and issues to be shared by

all. On the part of the hospitals, there are allegations of inflated

billing to the uninsured, unethical collection practices, but yet, on

the other hand, hospitals—most, if not in fact all hospitals, engage

in significant and important charity programs that provide essentially deeply discounted services to the poor, and the reality is that

hospitals are not great profit centers nationwide anyway, we know

that. We just went through a debate on possible reimbursement

from the Federal Government, and we provided significant increases in this area, and it wasn’t because the hospitals were being

over-reimbursed.

Patients are another factor. Most patients are insured, but those

that are not are divided, as my friend from Oregon pointed out,

9

into some who can pay and some who cannot. And we do not want

to establish a situation where individuals who do not choose to buy

either managed health care or any form of health insurance can

qualify for benefits or payments under those circumstances.

And, of course, the insurance companies are another factor because they are the biggest—besides the Federal Government—reimbursement mechanism, and they negotiate and they create differences in prices because of their negotiating power, which is another part of this complicated equation.

And, last, the Federal Government and its reimbursements for

Medicare and Medicaid is, I guess, probably the biggest reimbursement single entity, and growing every day, that the relationship

that the hospitals have to determine what element of discount occurs is a difficult one, and it is at times somewhat awkward or perhaps arbitrary. So there are no clear answers here, but there might

be some interesting findings that come out of this hearing that will

help make the system more predictable, help the hospital community perhaps make their collection processes and their billing processes more predictable and fair for those who really need health

services and cannot afford to pay for them.

I would also point out that I think that—I appreciate my friend

from California’s comments relative to health savings accounts—

but there are also other scenarios that could work out that would

be very beneficial to the process, if consumers really have a voice

in the process of paying for hospital care, at least the first-dollar

hospital care, through health savings accounts which provide accountability and an incentive for patients to hold hospitals, doctors

and other entities accountable for the bills that are sent out, rather

than awaiting the lawyers to file suits, or interest groups, or committees of Congress to conduct investigations.

So, like all the hearings that this good subcommittee has, they

are important, but—especially in this case—there are no clear villains and there are no clear heroes in the process of investigating

this issue. And with that, I will yield back and look forward to

hearing from our witnesses.

Mr. GREENWOOD. The Chair thanks the gentleman, and recognizes the gentlelady from Chicago, Ms. Schakowsky, for the purpose of making an opening statement.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman, for holding this

hearing on hospital billing and collection practices. Many of the

issues that we will talk about today are the focus of attention in

Illinois and are being considered by the Legislature, investigated

by the State Attorney General’s Office, and debated by the hospital

community and the public.

I want to thank Mr. Greenwood, Mr. Dingell, and Ms. DeGette

for including a report on the Chicago situation called ‘‘A Failing

Mission: The Decline of Charity Care at Resurrection Hospital’’ in

the hearing record. I would like also to ask unanimous consent to

include a statement by the Service Employees International Union

that also addresses billing and collection practices in Illinois in the

hearing record.

Mr. GREENWOOD. Without objection, the material will be included

in the record.

10

Ms. SCHAKOWSKY. Thank you. In fact, several Chicagoans have

traveled here today to attend this hearing because they have been

personally and extremely seriously affected. I want to recognize

them. Zaida Perez was a hospital nurse for 21 years. Her troubles

began when her working but uninsured husband was in a car accident in January 2003, and admitted to Advocate Lutheran General

Hospital. Two days later, her father died, and she faced $13,000 in

burial expenses. She was diagnosed with breast cancer and, fortunately, was treated at Cook County Hospital, which helped arrange

payment for her bills. In March, Lutheran General sent her husband a bill for $12,000. Although she asked for help in devising a

payment plan, no help was given, and in April the threatening calls

began. After a payment plan was finally worked out and payments

were being made, she was sued. Her husband’s wages were garnished at the rate of $75 a week, until she finally got legal assistance to erase her debt.

Lesszest George is a working single mother. Her 19-year-old son

spent 2 weeks in Illinois Masonic Hospital after he was shot in a

case of mistaken identity. Asked after the surgery who would be responsible for the bill, Ms. George signed the paper that was put before her, thinking that her son was covered by her insurance but

not realizing that he had lost that coverage upon graduation from

high school. She received a bill for $52,000. The hospital did work

to help her apply under the Victims’ Assistance Fund, but she was

denied. Instead of working with her for charity care, they filed a

lawsuit. Her son is now doing well physically, but is still uninsured

because, as a part-time student and part-time worker, he doesn’t

qualify for insurance.

Their stories underscore that hospital billing and collection practices can turn a medical injury into a financial nightmare as in the

case of Lutheran General Hospital and Illinois Masonic Hospital.

Or, as in the case of Cook County Hospital, those practices can provide the necessary financial assistance so that the focus is on getting well, not dealing with collection agencies and lawsuits.

We need to address charity care policies, discriminatory pricing,

and abusive collection practices, but we must also recognize that

our health care system itself has failed Zaida Perez, Lesszest

George, and many other Americans. Despite working full-time, they

are uninsured and facing medical debts that will be hard to dig out

from and that make it hard to care for their families’ ongoing

needs.

As we will hear, the problems of medical debt and the lack of affordable health care are most acute for the uninsured. They are

more likely to forego care, are charged more for care in hospitals

and other settings, and are the most likely to face medical bankruptcy. But being covered by insurance isn’t a guarantee by any

means. As Sara Collins points out in her excellent testimony, more

than one in three of the continuously insured reported problems

paying medical bills. We know that access to affordable health care

benefits, cost-sharing requirements and discounts varies not just by

whether you are insured or uninsured, but on the type of insurance

coverage you have. The bigger the group, the better the coverage.

We in Congress can act to solve these problems, or we can act

to exacerbate them. High deductible plans and health savings acVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 95446.TXT HCOM1 PsN: HCOM1
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counts will shift more cost onto individuals and families, increasing

the likelihood of medical bankruptcy. Limited tax credits for the

purchase of inadequate individual policies will not guarantee that

policyholders will be able to pay their bills. Instead, it is time that

we enact universal health care that assures access to comprehensive, affordable care. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentlelady, and recognizes the gentleman from New Jersey, Mr. Ferguson, for an opening statement.

Mr. FERGUSON. Thank you, Mr. Chairman. I commend you for

your interest in the problems of the uninsured, and your leadership

in investigating how some of the Nation’s largest hospital systems

handle uninsured patients, and I have a great deal of interest in

the topic of today’s hearing.

There is much about our health care system in this country that

we take for granted. Our hospitals are the finest in the world. Our

doctors and nurses are the best trained. Our technology is the most

advanced. At the same time, I, like many, am deeply concerned

about the number of uninsured Americans.

About 1.2 million residents in my home State of New Jersey, or

about 15 percent of our population, are uninsured. Most of them

are from working families, good people who play by the rules, provide for their children, and pay their taxes.

I believe that every person should have access to quality health

care, adj that we in the Congress should be working to make

health insurance more affordable, but until that time it is imperative that our health care system treats the uninsured and the poor

with respect and with mercy and with fairness.

From the evidence uncovered by this subcommittee, it is clear

that although oftentimes that is the case, it doesn’t happen every

time.

I commend the subcommittee for its role in prompting hospitals

across the Nation to examine how they handle uninsured patients.

These examples do not take anything away from the many hospitals that, for decades, and in some cases for centuries, have provided charity care to the poor and the vulnerable. This is especially

the case of many of the nonprofit hospitals in my home State of

New Jersey and across the country that are sponsored by religious

organizations. In New Jersey, I give examples like St. Michael’s

Medical Center in Newark and St. Claire’s Hospital in Morris

County.

In this day and age of making your numbers and creating shareholder value and growing the bottomline, I am awed by their continuing tradition and commitment to care for the poor. In many respects, our Nation’s hospitals, especially those who focus exclusively on care for the indigent, are the health care providers of last

resort. People can go to the hospital when they have nowhere else

to go for care. The proof is in the numbers.

A recent study by the Kaiser Commission on Medicaid and the

Uninsured estimated that uncompensated care in 2004 will total

more than $40 billion. Hospitals will account for about 60 percent

of that total.

Mr. Chairman, I ask unanimous consent that a copy of this

study, the Kaiser Commission Study, be entered into the record.

12

Mr. GREENWOOD. Without objection, it will.

Mr. FERGUSON. Thank you. No one should feel good about these

numbers. The cost of uncompensated care at hospitals should concern everyone. This is what Stuart Altman, a health policy expert

who teaches at Brandise University recently said on NPR about

unpaid bills at hospitals, and I quote: ‘‘They are a symptom of a

much broader issue, which is whether the hospital system is financially in good shape, or not, and that affects both access to care and

quality.’’

I urge my colleagues on this subcommittee and members of the

audience here to heed those concerns. Again, I thank you, Mr.

Chairman, for holding this critically important hearing, and I certainly look forward to hearing from several panels of our witnesses

here today. I yield back.

Mr. GREENWOOD. The Chair thanks the gentleman, and recognizes the gentleman from Maine, Mr. Allen, for his statement.

Mr. ALLEN. Mr. Chairman, thank you for calling this hearing

today. It is an important subject matter, and I welcome all of our

witnesses.

Medical data is a serious problem faced by a growing number of

Americans who are uninsured or underinsured, and the process by

which hospitals charge and obtain payment from individuals without insurance deserves careful scrutiny, especially considering that

medical data is a leading cause of personal bankruptcy in the

United States.

Hospital bills are just one service that many uninsured are paying out-of-pocket. They also have doctors’ bills, outpatient services,

and prescription drugs. Most people accessing hospital services

have some kind of third-party coverage, but those who are not insured and have no one negotiating on their behalf for setting a

price, as happens with Medicare and Medicaid, have to pay the

charge master rate.

I am willing to guess that very few of the 44 million people who

lack health insurance today have a clue what a charge master rate

is, nor would the average uninsured person know that if they go

to the emergency room, they may be charged a good deal more than

a health plan is charged by a hospital to provide the same care,

often 2 to 3 times more. And while 120 days may seem like a reasonable time to pay a $100 or $200 bill, the average cost of an

emergency room visit is between $500 and $1,000 for an individual

without insurance. I suspect that many uninsured would have difficulty paying a bill of that amount or more within 4 months, and

if they need just one overnight stay, they can wind up with a bill

of $4,000 or so in just 24 hours.

Some things could help. Transparency in the billing process, enrolling patients who qualify in a charity care program, establishing

reasonable payment plans for those who don’t. All of that can help

alleviate the anxiety associated with a daunting medical bill.

In Maine, all of our acute care hospitals are nonprofit. On average, self-paying patients make up about 7 percent of overall hospital payments. And, currently, most of our hospitals offer free care

for patients who are between 175 percent and 200 percent below

of the Federal poverty level. And our hospital CFOs in Maine have

13

been working together to develop guidelines regarding charity care,

sliding scale fees, billing and collections.

I realize that the chairman’s intention for calling this hearing

today is to examine hospital billing and collection practices, but

given the number of uninsured in this country and the rapid

growth in health care premiums, we need to look deeper. Health

insurance premiums in the U.S. rose 13 percent in 2003, the third

consecutive year of double-digit inflation. As a result, many employers are forced to increase cost-sharing or switch to products

which put a greater financial burden on employees, including socalled ‘‘consumer-driven high-deductible health plans,’’ which I believe will only make the problem we are dealing with here today

worse than it is.

Congress, someday, must focus on how to make affordable quality health insurance available to all Americans, but today Congress

is simply stumbling along like a man shackled and bound in a

straightjacket, not limited really by physical barriers, but limited

by our ideological preconception about the role of government in

the private sector when it comes to health care. We are limited by

our own ideas in a way that is doing a great disservice to the people of this country, and if we are going to make progress on the

larger issue in front of us, we have to work through that issue.

We won’t solve all those problems today, but I do welcome the

panels, and I thank the chairman for holding this hearing. With

that, Mr. Chairman, I yield back.

Mr. GREENWOOD. The Chair thanks the gentleman, and recognizes the gentleman from Florida, Mr. Stearns, for his opening

statement.

Mr. STEARNS. Thank you, Mr. Chairman. I congratulate you on

having this hearing. I think all of us realize we are not here to be

overly critical of the hospitals, or sort of beat up on, we are just

trying to arrive at some explanation of the reality between the cost

and the charges.

America’s hospitals, urban and rural, for profit and not-for-profit,

I think do a superb job of taking care of patients of every age and

health condition. I am very proud of the charitable outreach of the

hospitals in my congressional district and, with that, Mr. Chairman, I would like to put into the record a summary of my charitable hospitals into the record, with unanimous consent.

Mr. GREENWOOD. Without objection, the document referred to

will be made a part of the record.

Mr. STEARNS. Anyone who enters their hospital is treated, without question, and I think they should seek payment for their services. They have to make a profit for their shareholders or, if they

are not-for-profit, they still have to have enough profit so they can

have capital expenses. However, Mr. Chairman, there is a great

disparity between what a procedure costs and what is charged.

This accounting creature is called a ‘‘charge master.’’ Is it based on

some realistic computation of the factors involved in the care of the

individual, or is it a fictitious number in hospital finance? And we

all remember the ‘‘average wholesale price,’’ AWP system. And the

pharmaceutical wholesale pricing system, remember the hearings

we had on that, and the concerns we had on that.

14

Dr. Anderson’s testimony says that in the 1960’s, while there was

a proliferation of uninsured Americans because they had become

tax exempt, there were no discounts, everyone paid the same rates.

The rates that insured and self-pay people paid were similar. Yet,

today, on the average, ‘‘self-pay patients are currently being

charged 2 to 4 times what people with health insurance coverage

pay for hospital services.’’ So, why are the self-pay patients paying

200 to 400 percent more? That is a legitimate question.

Also, as taxpayers have an interest in both Federal health programs and the tax benefits, I am interested to know the relationship, if any, between the charge master, the taxes and the Medicaid reimbursement.

So, the question is, after we finish this hearing, where do we go

from here? Well, there are going to be some people that are going

to call for a price control. I don’t recommend that as a solution. I

think that out of the box, we should not have price controls, but

I think the three panels we have, and all the witnesses, are to be

commended for coming here, and I look forward to an open honest

debate on this. Thank you, Mr. Chairman.

[Additional statement submitted for the record follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Let me begin by thanking Chairman Greenwood for holding this hearing today.

I share his concerns with what we have been learning about the billing and collection practices of too many hospitals with regard to uninsured/self-pay patients.

Today I look forward to learning more about these issues as well as the steps the

hospital industry is taking to address them.

Hospitals across America have long been community leaders in helping those less

fortunate. Last year alone, hospitals provided $22 billion in charity care in their respective communities. For this, hospitals should be commended.

There has been a substantial group of needy patients, however, sometimes left out

of these efforts. I am concerned that uninsured/self-pay patients are too often expected to pay far more than others for their care and then aggressively pursued for

this inflated debt. This is particularly troubling for me because my home state of

Texas, in 2002, had the highest rate of uninsured citizens at 28.5%. I am committed

to ensuring fair and reasonable treatment by hospitals in their billing and collections practices—for every patient regardless of their means or manner of payment.

All hospitals have specific charges for each service they provide and compile these

thousands of individual charges into one price-list catalog called the ‘‘charge master.’’ However, these charge master rates do not reflect the actual cost and reasonable profit of providing that service. Mark-ups have rendered these charges sometimes hundreds of percent above the actual costs to the hospital.

As health care costs continue to rise, these mark-ups also continue to increase.

A study just recently published shows that hospital prices increased 8% in 2003, the

sixth straight year of accelerating price increases and the largest one-year spike in

a decade. Managed care, commercial insurance, and the government pay hospitals

substantially less than charge master rates. But the uninsured/self-pay patient is

left with the short straw and the full charge. They are the ones often expected pay

these full mark-ups. They are the ones paying the sticker price. They are the ones

charged an arm and a leg in order to get one fixed.

The collection tactics sometimes used to pursue these inflated bills can be even

more disconcerting. There have been a number of reports and articles over the past

year describing some particularly aggressive collection practices. Collections are an

unfortunate reality of business life, but every corporation has a duty to make sure

any such policies and practices are measured and reasonable. And let me be clear,

I hold the individual corporation responsible, particularly in health care, for knowing and monitoring the practices of any collection agent acting on its behalf.

I am encouraged that the industry has seemed to have heard the message and

taken recent steps to revisit and enhance its billing and collection policies. However,

we all know policies can be little more than talk; the proof is in the results. I look

forward to hearing how your commitments have taken form in action—from the inVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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dustry, to the systems, to the hospitals, to finance departments and to the men and

women sitting across the table from an patient seeking to meet their fair obligations

in a fair and respectful manner.

I want to also say that I am pleased this Committee has been able to facilitate

communication between hospitals and the Department of Health and Human Services on these matters and I expect that dialogue to continue.

I thank Chairman Greenwood again for his efforts and I look forward to today’s

testimony.

Mr. GREENWOOD. The Chair thanks the gentleman, and would

now call forward our first panel, consisting of Dr. Gerard F. Anderson, M.D., Professor of the Department of Health Policy & Management and International Health, at the Bloomberg School of Public

Health. He is a professor in the Department of Medicine at Johns

Hopkins School of Medicine, and he is the Director of the Center

for Hospital Finance and Management, as well.

We also have with us Melissa B. Jacoby, Associate Professor,

University of North Carolina at Chapel Hill, School of Law; Mark

Rukavina, Executive Director of The Access Project in Boston; and

Sara Collins, Ph.D., Senior Program Officer, The Commonwealth

Fund, in New York. We welcome all of you this afternoon. I know

that you expected to be sitting there an hour and a half ago, but

we thank you for your indulgence.

It is the custom of this subcommittee to take testimony under

oath, and so I need to ask if any of you object to giving your testimony under oath?

[No response.]

Seeing no objection, I also need to advise you that pursuant to

the rules of the committee and the House, that you are entitled to

be represented by counsel. Do any of you wish to be represented

by counsel?

[No response.]

I didn’t think so. If you would then stand and raise your right

hands, please.

[Witnesses sworn.]

Mr. GREENWOOD. You are under oath, and we will start with you,

Dr. Anderson. You are recognized for 5 minutes for your opening

statement. Good afternoon.

TESTIMONY OF GERARD F. ANDERSON, DIRECTOR, JOHNS

HOPKINS CENTER FOR HOSPITAL FINANCE AND MANAGEMENT, PROFESSOR, DEPARTMENT OF MEDICINE, JOHNS

HOPKINS SCHOOL OF MEDICINE, PROFESSOR, DEPARTMENTS OF HEALTH POLICY AND MANAGEMENT AND INTERNATIONAL HEALTH, BLOOMBERG SCHOOL OF PUBLIC

HEALTH; MELISSA B. JACOBY, ASSOCIATE PROFESSOR, UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL, SCHOOL

OF LAW; MARK RUKAVINA, EXECUTIVE DIRECTOR, THE ACCESS PROJECT; AND SARA R. COLLINS, SENIOR PROGRAM

OFFICER, HEALTH POLICY, RESEARCH AND EVALUATION,

THE COMMONWEALTH FUND

Mr. ANDERSON. Good afternoon, Mr. Chairman. You said we had

been waiting for an hour and a half, we have been waiting for several months for this opportunity. I am glad you waited for my

birthday to give me the opportunity to testify today.

Mr. GREENWOOD. Which one is it, Dr. Anderson?

16

Mr. ANDERSON. Fifty-three.

Mr. GREENWOOD. Fifty-three. You are under oath, Dr. Anderson.

Mr. ANDERSON. I understand. I direct the Johns Hopkins Center

for Hospital Finance and Management, the only academically based

research center focusing exclusively on hospitals. My written testimony begins by explaining how we got to the current situation of

self-pay patients paying 2 to 4 times more for hospital services

than the uninsured patients. It concludes that the marketplace

does not constrain hospital charges for self-pay patients, and the

Members of Congress have done a better job than I could in explaining the reasons why.

What I would like to explain is why hospitals have these high

charges. The first one is the Medicare payments, outlier payments,

are partially based on charges. This encourages hospitals to maintain high charges.

Second of all, bad debt and charity care is typically calculated at

full charges. High charges make it appear that hospitals are being

more generous than they really are.

Third, some self-pay patients actually pay full charges. These

self-pay patients fall into three groups. The first are a very few

people with medical savings accounts. The second category are

international visitors. These are typically affluent individuals who

need a procedure that can be performed most effectively in the

United States. These individuals are willing to pay full charges

even at inflated rates. The third, and by far the largest group that

is asked to pay full charges, are the 43 million Americans who are

uninsured. The uninsured have very little bargaining power with

hospitals. My review of hospital practices suggests that less than

1 in 20 uninsured patients actually negotiate a lower rate with hospitals.

Because hospital charges for a heart attack average about $30,000 per admission, most uninsured Americans, even those

making $50,0000 or $75,000, are unable to pay full charges. Even

if they don’t pay, however, the toll on the uninsured can be substantial. People who do not pay are sent to collection agencies, and

some are driven to bankruptcy. One study found that nearly half

of all personal bankruptcies were related to medical bills.

The question, therefore, becomes what is a reasonable rate for

hospitals to charge self-pay patients, given that the marketplace

does not work? I propose four guiding principles for Congress to

consider.

The first, that the rates should be above what insurers and managed care plans are currently paying hospitals; second, self-pay patients should not be asked to pay exorbitantly high rates; third,

self-pay patients should know in advance what they are going to

be asked to pay; and, fourth, the system should be easy to administer and to monitor.

And, therefore, I have two payment options for Congress to consider. My preferred option is to mandate that the maximum a selfpay patient should pay is the Medicare rate plus 25 percent. The

rationale for allowing hospitals to charge 25 percent more than

Medicare is based upon three factors. First, self-pay insurers pay

about 14 percent more than Medicare. I then add 1 percent for

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cause the amount paid by private insurers is an average, and some

commercial insurers will pay more than the average. Adding these

three factors together results in a proposed payment rate of

Medicare+25 percent. The Medicare+25 percent rate is easily monitored and adjusts for the complexity of the patient. It would be

continually updated by Medicare as Medicare updates its own PPS

rates. The major disadvantage is that it is not market determined.

In most markets, however, it would be above what the insurers and

the managed care plans are paying, and so it wouldn’t interfere

with the marketplace.

A second option is to allow hospitals to charge the maximum

they charge any insurer or any managed care plan. The advantage

is that, in fact, it is market determined. However, I see four disadvantages with this option. First, it would require regulations and

auditing to verify that the rate is really the maximum hospitals

charge any insurer or any managed care plan. Second, in order to

make the rate transparent, it would be necessary to keep the rate

in place for an extended period of time, probably a year. Third, it

would require hospitals to tell insurers and managed care plans

who is the worst negotiator. And, finally, it requires all payments

to be done on a per-day basis. Any other payment would probably

make comparisons difficult, and all this does interfere with the

marketplace.

Balancing the pros and cons of both options, therefore, I recommend Medicare+25 percent. It satisfies all four principles. It is

above what the insurers are paying, it is a reasonable amount, it

is transparent, and it is easy to monitor and verify.

In summary, both Congress and the hospital industry should recognize that hospital charges for self-pay patients are not determined by market forces and, second of all, Medicare+25 percent is

a reasonable amount for self-pay patients to pay.

I would be happy to answer any questions.

[The prepared statement of Gerard F. Anderson follows:]

PREPARED STATEMENT OF GERARD ANDERSON

Mr. Chairman, members of the Committee; my name is Dr. Gerard Anderson. I

have been working on hospital payment issues for many years. Between 1978 and

1983, I worked in the Office of the Secretary in the US Department of Health and

Human Services. In 1983, I was one of the primary architects of the Medicare Prospective Payment legislation. Following passage of the Medicare Prospective Payment legislation, I joined the faculty at Johns Hopkins where I have been for the

past 21 years. At Johns Hopkins, I direct the Johns Hopkins Center for Hospital

Finance and Management—the only academically based research center focusing exclusively on hospitals. I am also a professor of Health Policy and Management and

professor of International Health in the Bloomberg School of Public Health and Professor of Medicine in the School of Medicine at Johns Hopkins University.

I would like to begin my testimony by highlighting several milestones in hospital

payment policy. Because of the evolution of hospital payment policy, self pay patients are currently being charged 2 to 4 times what people with health insurance

coverage pay for hospital services. These are not market rates and need to be lower.

After reviewing the milestones, I will then make a series of specific suggestions to

the committee that will make the current hospital payment system more equitable

to the self pay patients. My preferred option is that hospitals be limited to what

Medicare pays plus 25 percent.

CRITICAL MILESTONES THAT HAVE LED TO MARKET FAILURE IN HOSPITAL PAYMENT

One hundred years ago most hospital care was either free or very inexpensive.

In 1900, hospitals could provide little clinical benefit for most illnesses and were priVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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marily places for housing the poor and insane who were sick. Hospitals were primarily philanthropic organizations. They were established primarily in poor urban

areas.

Beginning in the 1920s, the ability of hospitals to improve the health status of

patients increased dramatically. For the first time, rich and poor Americans sought

out hospital care when they became seriously ill. Anesthesia expanded access to surgery and antibiotics made it easier to treat infections.

Physicians had a wider range of services to provide to hospitalized patients. New

drugs and new equipment became available and better and more highly trained personnel were required to provide these services. The cost of providing hospital care

began to accelerate. In order to recover these higher costs, hospitals began to charge

patients for services. Hospitals developed a charge master file. Initially there were

only a few items on the list. It listed specific charges for each service the hospital

provided. A hospital day had one charge, an hour in the operating room had another

charge, and x-ray had a third charge, etc. As the number of services the hospital

offered increased, so did the length of the charge master file. There are now over

10,000 items on most hospital charge master files.

Before 1929, there was no health insurance and patients paid the hospital directly. In 1929, Baylor Hospital in Dallas, Texas began a program selling health insurance to school teachers in the Dallas County School district. Baylor created this

health insurance system because many of its patients were having difficulty paying

hospital bills. It became the prototype Blue Cross Plan. As the depression worsened

in the 1930s, the ability of people to pay their hospital bills also worsened. Blue

Cross and other types of insurance programs proliferated. These insurers paid

charges based upon the charge master file.

During this period, the charges were based on the cost of providing care plus a

small allowance for reserves. The markup over costs was typically less than 10%.

Private health insurance received a major boost during World War II when Congress made health insurance tax exempt. After World War II, private insurers continued to pay the charges that hospitals had established. Over time, the ability of

hospitals to improve the health status of their patients increased, the kinds of services provided by hospitals increased and the costs of hospital care began increasing

at 2 to 3 times the rate of inflation. By 1960, the typical hospital had established

a list of prices for approximately 5,000 separate items. There were no discounts; everyone paid the same rates. The rates that insured and self pay people paid were

similar.

Hospitals set their prices for these 5,000 items on a few criteria. The most important factor was costs. Charges were typically set at a given markup over costs, usually 10 percent. The hospital would estimate how much it cost to deliver a service

and then charge 10% more. The ability of hospitals to estimate cost for individual

services, however, was extremely limited by cost accounting. No hospital really

knew how much it costs to provide a particular service because cost accounting techniques were not sufficiently detailed.

Market forces determined charges for only a few services. Child birth for example,

was one service for which patients could engage in comparative shopping. Pregnant

women had almost nine months advance warning that they would be admitted to

the hospital and their families could therefore engage in comparative shopping. In

theory, they could compare differences in the out-of-pocket costs and the perceived

quality between two hospital delivery rooms. Thus, hospitals kept delivery room

charges at or below actual costs.

For most services, however, it was often impossible for consumers to engage in

comparative shopping because either the admission was an emergency or their doctor had admitting privileges in only one hospital. For most admissions, they had no

idea what services they would use during their hospital stay. They could not engage

in comparative shopping if they did not know what services they were going to need.

In addition, for most people, insurance paid the full bill and so patients had no financial incentive to engage in comparative shopping.

MEDICARE BECOMES INVOLVED

When the Medicare program was established in 1965, Congress decided that the

Medicare program would pay hospital costs and not charges. This was the method

of payment used primarily by Blue Cross. Congress recognized that charges were

greater than costs and that the Medicare program would be able to exert little control over charges. A very detailed hospital accounting form called the Medicare Cost

Report, was created to determine Medicare’s allowable costs.

In order to allocate costs between the Medicare program and other payors, the

Medicare program required hospitals to collect uniform charge information. Uniform

19

charges were necessary in order to allocate costs to the Medicare program. The

Medicare Cost Report could determine allowable costs for the entire hospital, however, it needed a way to allocate these costs specifically to the Medicare program.

Charges are used to allocate costs to the Medicare program. If, for example, 40%

of the charges were attributed to the Medicare program, then the cost accounting

system would allocate 40% of the costs to the Medicare program.

In order to prevent fraud and abuse, the Medicare program required hospitals to

establish a uniform set of charges that would apply to everyone. Otherwise, the hospital could allocate charges in such a way that would result in more costs to the

Medicare program.

Hospitals continued to have complete discretion on how they established their

charges. The Medicare program did not interfere with how hospitals set charges for

specific services. One hospital could charge $5 for an x-ray and another hospital $25

for the same x-ray. A number of studies conducted at the time showed wide variation in hospital charges.

People with insurance generally had little reason to scrutinize their bills because

they had first dollar coverage. Insurance paid the full hospital bill. Also, patients

did not know what services they would need and so they did not know what prices

to compare. Insurance companies did little to negotiate with hospitals regarding

hospital charges in the 1960s and the Medicare and Medicaid programs did not pay

on the basis of charges.

In the 1970s, market forces still had a small impact on hospital charges. In reality, the hospital had virtual carte blanche to set the charges. The number of separate items that had a charge associated with them, doubled from 5 to 10,000 at the

typical hospital, where it is today.

Two major changes occurred in the 1980s that had a major impact on hospital

charges. First, Medicare created the Prospective Payment System which eliminated

any need for using hospital charges to allocate hospital costs. Second, most insurers

began negotiating discounts off of charges or using some other mechanism to pay

hospitals. As a result, any market forces that existed to limit what hospitals could

charge were almost completely eliminated.

In 1983, the Medicare program moved away from paying costs and instituted the

Prospective Payment System (DRGs). As the Medicare Prospective Payment System

became operational, the need for the Medicare Cost Report and therefore the need

for a uniform charge master file to allocate costs became less and less important.

Today, because nearly all of the Medicare program uses some form of prospective

payment, the requirement of a uniform charge master file by the Medicare program

is virtually unnecessary.

Managed care plans began to negotiate with hospitals in the early 1980s. They

wanted discounts off of charges in return for placing the hospital in their network.

They successfully negotiated sizeable discounts with hospitals. As insurers began to

compete with managed care plans in the mid 1980s, they also began to move away

from paying full charges and started negotiating their own deals. Some insurers decided to pay on a per day basis, others decided to pay discounted charges, or a negotiated rate. Nearly all private insurers and managed care plans stopped using full

charges as the basis of payment by 1990. They simply could not compete in the market place if they paid full charges.

COST SHIFTING AND MARKET FAILURE

As each segment of the market developed a different way to pay hospitals, this

lead to a phenomenon known as ‘‘cost shifting’’. As the Medicare program instituted

the Prospective Payment System (DRGs), the Medicare program began to limit the

amount that Medicare would spend. Faced with constraints on Medicare (and soon

thereafter Medicaid) spending, the hospitals began to engage in ‘‘cost shifting’’.

To do this the hospital industry increased prices to commercial insurers. Given

that most commercial contracts were written to reimburse hospitals based on the

hospital’s own charges, it was relatively simple matter for hospitals to raise their

prices. When commercial insurers tried to raise prices to the employers, however,

employers began to examine alternatives. Employers slowly and then rapidly embraced managed care. Managed care expanded rapidly using their market power to

negotiate discounts off of charges with hospitals. Soon commercial insurers asked

for similar discounts. Private insurers continued to pay more than Medicare however in most cases.

Without the federal government, state governments, private insurers, or managed

care plans paying full charges, the regulatory and market constraints on hospital

charges were virtually eliminated. By 1990, the only people paying full charges were

the millions of Americans without insurance, a few international visitors and the

20

few people with health savings accounts. These individuals had limited bargaining

power and were asked to pay ever increasing prices. Effectively, there was market

failure in this aspect of the hospital market.

Without any market constraints, charges began increasing much faster than costs.

In the mid 1980s charges were typically 25% above costs. Without any market constraints, it is now common for charges to be two to four times higher than costs.

Charges are also two to four times what most insurers pay. Most insurers, including

Medicaid, Medicare, and private payors, pay costs plus/minus 15 percent. Over the

past twenty years, the difference between what the hospital charges and what it

costs to provide care has grown steadily in nearly all hospitals.

Hospitals have been able to increase charges because self pay individuals have

limited bargaining power when they enter a hospital. They first must find a team

of physicians willing to treat them who also have privileges at that hospital. Then

they must negotiate with the hospital. Often they wait until they are ill before they

seek medical care. This further diminishes their bargaining power because it is now

an emergency. Often the hospital wants prepayment. Because most self pay persons

have limited resources and cannot make full payment in advance, this further diminishes their bargaining power.

Perhaps the most important constraint on their bargaining power, however, is

that they do not know what services they will ultimately need. They do not know

how long they will remain in the hospital, what x-rays or lab tests they will need,

and therefore they cannot know in advance what services they will require and

which of the 10,000 prices they should negotiate.

COSTS, AND WHAT INSURERS PAY IN PENNSYLVANIA

Using the most recent data available I compared what insurers pay and what hospitals charge in Pennsylvania. As noted earlier, charges vary considerably from hospital to hospital. Pennsylvania collects data on what hospitals charge and what insurers pay in Pennsylvania for different illnesses (www.phc4.org). For example, I

looked at the charges that Philadelphia area hospitals charged for medical management of a heart attack in 2002. The average charge was over $30,000. Most insurers

paid less than $10,000.

WHY ARE CHARGES SO MUCH HIGHER THAN WHAT INSURERS PAY?

There are three main reasons why hospitals set charges 2-4 times what they expect to collect from insurers and managed care plans. The first is that Medicare

outlier payments are partially based on charges. The second is that bad debt and

charity care is typically calculated at full charges. The third is that some self pay

patients actually pay full charges.

In the Medicare program, a small proportion of patients are much more expensive

than the average patient. These are known as outlier patients. Medicare pays for

these patients outside of the DRG system. Medicare continues to use charges as part

of the formula used to determine outlier payments.

Recent investigations have shown certain hospital systems manipulating the payment system in inappropriate ways to over charge the Medicare program for outlier

patients. One aspect of this fraud was the exceptionally high amounts these hospitals charged. Lowering the charges would diminish the over charges in the Medicare program for outlier payments and would reduce the level of fraud.

Second, hospitals routinely quantify the amount of bad debt and charity care they

provide. This helps with fund raising and is used to meet charitable obligations.

However, by valuing bad debt and charity care at full charges, these numbers vastly

over estimate the amount of bad debt and charity care the hospital actually provides.

There are three groups that still pay charges. The first are people who have

health savings accounts. Some of these individuals may be able to negotiate discounts although most pay full charges. It is extremely difficult for one person to negotiate with a hospital, especially in an emergency situation. The hospital holds all

of the cards. Lowering the charges will benefit people with health savings accounts.

The second category is international visitors. These are typically affluent individuals who need a procedure that can be performed most effectively in the United

States. These individuals are willing to pay full charges, even at inflated prices.

There are compelling arguments to charge international visitors higher prices

than Americans. Most can afford to pay and, in addition, they have not subsidized

the hospital sector in the United States through tax payments and other public subsidies. On the other hand, in most other countries Americans are usually treated

free of charges if they have an emergency. An American injured while traveling in

Canada, Australia, France, etc would be treated free of charge or receive a very

21

small bill. Although there is no data that I know of that would allow us to compare

the cost of care provided to Americans traveling abroad to the cost of care provided

to foreigners receiving care in the U.S., I expect it would be similar. In that case

it seems unfair to charge foreign visitors so much more for a service when Americans receive care free of charge overseas.

IMPACT ON THE UNINSURED

The third, and by far the largest group that is asked to pay full charges is the

uninsured. There are 43 million Americans who are uninsured. The uninsured can

theoretically negotiate with hospitals over charges, but they have little bargaining

power. My review of hospital practices suggests that less than 1 in 20 uninsured

patients actually negotiates a lower rate.

Many uninsured people are unable to pay full charges. In fact, most studies suggest that less than 1 in 10 uninsured people pay a portion of their charges and relatively few pay full charges. In fact, in most hospitals only 3 percent of total revenues comes from people who are uninsured. Self pay patients represent a very small

proportion of hospital revenues.

The toll on the uninsured, however, can be substantial. There are numerous reports that show hospitals attempting to collect payments from the uninsured. The

people who do not pay are sent to collection agencies and some are driven to bankruptcy. One study found that nearly half of all personal bankruptcies were related

to medical bills (M.B. Jacoby, T.A. Sullivan, E. Warren, ‘‘Rethinking The Debates

Over Health Care Financing: Evidence from the Bankruptcy Courts,’’ NYU Law Review 76, May 2001: 375). Another survey (D. Gurewich, R. Seifert, J Pottas, The

Consequences of Medical Debt: Evidence From Three Communities, The Access

Project, February 2003) found that hospitals were routinely requiring up front payments, refusing to provide care, or encouraging uninsured patients to seek new providers if they did not have health insurance. Many respondents found the terms the

hospitals were offering were difficult to maintain given the hospitals’ inflexible collection processes and their own financial situations.

Nearly all hospitals do this to some extent. For example, a series of stories in the

Wall Street Journal examined the collection procedures at Yale-New Haven hospital. The Wall Street Journal found that in 2002, the Yale-New Haven hospital was

lead plaintiff in 426 civil lawsuits, almost all of which concerned collections or foreclosure lawsuits against individuals, compared with 93 lawsuits at a similarly sized

local hospital. Yale-New Haven Hospital also frequently engaged in aggressive collections measures, such as wage garnishment, seizure of bank accounts, and property liens. In 2001, the hospital filed 134 new property liens in New Haven, almost

20 times the number filed by the city’s other hospital.

BENEFITS OF LOWER CHARGES

If charges were lowered there could be two beneficial outcomes. First and most

important, fewer self pay individuals would declare bankruptcy. Second, more self

pay patients would be able to pay their bills if the charges were more in line with

prevailing rates.

GUIDING PRINCIPLES FOR SETTING RATES

The question therefore becomes what is a reasonable rate for hospitals to charge

self pay patients given that neither market forces or regulations constrain hospital

charges.

I propose four guiding principles. First, the rate should not interfere with the

market place. The rate that self pay individuals should pay should be greater than

what insurers and managed care plans are currently paying hospitals. Second, the

charges should not be substantially higher than what insurers and managed care

plans are currently paying hospitals. Individuals with limited bargaining power

should not be asked to pay exorbitantly high rates because they lack market power.

Third, the rate should be transparent to patients. Patients should know the prices

they will be asked to pay when they enter the hospital. Fourth, the system should

be easy to administer and to monitor.

TWO PAYMENT ALTERNATIVES

I have two specific suggestions for the Congress to consider.

The first is to mandate that the maximum a patient can pay is the amount paid

by Medicare plus 25%. I call this DRG+25%. The rationale for allowing hospitals

to charge 25 percent more than Medicare is based on three factors. First, private

pay insurers pay an average of 14 percent more than Medicare for a similar patient.

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I then add one percent for prompt payment. Finally, an additional amount (10%)

is added because the amount paid by private insurers is an average and some commercial insurers pay more than the average. Adding the three factors together results in a proposed payment rate of DRG + 25%.

The advantages are that the DRG + 25% rate is easily monitored and adjusts for

complexity of the patient. It would be continually updated by Medicare as Medicare

updates the PPS rates. The disadvantage is that the rate is not market determined.

In most markets, however, it would be above what insurers and managed care plans

are paying.

A second option is to allow hospitals to charge the maximum they charge any insurer or managed care plan on a per day basis. The advantage is that it is market

determined.

There are four disadvantages. First, it will require regulations and auditing to

verify the rate is the maximum they charge any insurer or managed care plan. Second, in order to make the rate transparent, it will be necessary to keep the rate

in place for an extended period of time, probably a year. This interferes with the

market place. Third, it will require hospitals to tell all insurers and managed care

plans who was the worst negotiator. This also interferes with the market place.

Fourth, it requires all negotiations to be on a per day basis. Any other payment system would be too complicated. This interferes with the market place.

Balancing the pros and cons of both options, I recommend the DRG+25% option.

It complies with all four principles—it is above what insurers are paying, it is a reasonable amount, it is transparent, and it is easy to monitor and verify.

RATE IS TOO LOW

Insurers may argue that they are entitled to more substantial discounts over self

pay individuals for two reasons—prompt payment and volume discounts. The

prompt payment argument has some validity. A two month delay in payment at a

6 percent interest rate is equivalent to a 1 percent savings. This is built into the

DRG + 25% payment.

The volume discount argument is more complicated. In my opinion it has limited

financial impact, especially on medical services. Most insurers and managed care

plans do not guarantee a certain volume of patients and certainly they do not guarantee a certain case mix of patients. Instead, they agree to put the hospital on a

preferred list of hospitals. The patient and the physician still make the final decision regarding which hospital to select. The choice, therefore is fundamentally different from a purchase in the manufacturing or retail sector where a large volume

of goods or services is actually purchased.

The second part of the volume argument, however, is probably more important.

The same medical services will be used if the patient is self pay or insured. The

patient will use the same set of laboratory tests, spend the same time on the operating table, require the same nursing hours, etc. The medical services are what is

most expensive in a hospital and this does not depend on the volume of patients

that an insurer has.

INCENTIVES TO PURCHASE HEALTH INSURANCE

Some individuals with high incomes choose to self insure. An important and difficult question is whether these individuals should be able to get the benefits from

these lower rates.

One argument is that these individuals have voluntarily chosen to go without

health insurance and they should pay a much higher rate if they get sick. A second

argument is that these individuals should be given financial incentives to purchase

health insurance and that lowering the hospital rates for them will only induce

them to go without coverage.

Although there is merit in both arguments, the question is what is a fair rate for

them to pay when they get sick? When they need hospitalization they should pay

a rate that is somewhat higher than people with health insurance coverage pay. The

DRG +25% criterion meets this objective. This group of people should not be asked

to pay for the bad debts of other self pay patients any more than the insured population. And, if the rates were reasonable they would be more likely to pay.

SIMPLIFICATION OF PAYMENT SYSTEM

The medical care system could be simplified if such a change were enacted. One

major change would be the elimination of the Medicare Cost Report. A second simplification is that it would be easier to calculate any discounts that hospitals are

offering to low income individuals.

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The Medicare Cost Report was created in 1965 with the passage of the Medicare

legislation and the decision by the Congress to pay costs. The Medicare cost report

is now a document that is over 6 inches thick and requires many hours for hospitals

to complete. However, with the passage of the Medicare Prospective Payment legislation in 1983 and subsequent adoption of additional Prospective Payment Systems

for outpatient care etc., there is no longer a compelling reason for maintaining the

Medicare Cost Report. Any information the Congress needs from hospitals to set

hospital payment rates could be summarized in a few pages. The only relevant information is the profit of hospitals and some information used to calculate graduate

medical education and disproportionate share payments.

Hospitals often give discounts to low income self pay patients. It is therefore key

to understand what is the basis for the discount. A discount from full charges is

not really a discount if it is still greater than what insurers and managed care plans

would pay. A true discount would be below what public and private payors are expected to pay. If the payment system for self pay patients were simplified

(DRG + 25%) then it would be easier for them to determine if they are really getting

a discount and how much they were expected to pay. Currently the self pay person

does not know the real extent of the discount or how much they will pay.

SUMMARY

In summary, what should be done?

Both Congress and the hospital industry should recognize that hospital charges

are not determined by market forces. The only people paying full charges are those

with limited or no bargaining power.

The maximum that self pay individuals should have to pay for hospital services

should be DRG rate plus 25%.

I would be happy to answer any questions.

Mr. WALDEN [presiding]. Thank you, Dr. Anderson, we appreciate your comments and testimony.

Ms. Jacoby, you are next. Welcome.

TESTIMONY OF MELISSA B. JACOBY

Ms. JACOBY. I thank the subcommittee for inviting me to participate today. I am a law professor, and I study contracts and bankruptcy, and specifically medical bankruptcy, which many members

of the committee have already mentioned, as has my co-panelist,

and I have been researching the impact of medical debt, illness and

injury on households of modest means, from the background of

someone who looks at contracts and bankruptcy.

The main observation I want to offer you today is this: Uninsured patients of modest means actually may be paying a steep

price for what hospitals and others characterize as ‘‘uncompensated

care.’’ In other words, charging uninsured patients the highest

prices coupled with assertive debt collection affects patients and

their families, even if the hospital ultimately writes off the entire

bill. And I think that government, industry, and individual hospital

policy should be evaluated with this in mind.

Millions of American families are in debtor/creditor relationships

on account of medical care, and this certainly may not be problematic for those with generous incomes, high quality insurance and,

frankly, those with good luck. Modest income families, on the other

hand, struggle when they are personally liable for unexpected and

undiscounted hospital bills. A bill of even $500 or $1,000, as many

others have noted, can derail the budget of a working family, let

alone bills of $5,000, $10,000, or more. And certainly it is evident

that a lump sum often is infeasible. But even paying installments

with accruing interest has the potential to leave a patient in a

state of perpetual indebtedness.

24

Debtor/creditor laws are not self-executing and do not require

that creditors call, pressure, threaten, sue, garnish, or record liens

on patients’ homes in an effort to get paid, and hospitals may believe no harm comes from trying to collect before they write off the

bills as bad debts or before they consider charity care eligibility,

and the complex way of the laws and regulations seem to make

this the easier course, but there is harm to patients and their families even if the hospital never collects a dime.

We are finding a lot of medical related financial trouble in the

bankruptcy system, and we do estimate that half of all personal

bankruptcy filings are medical-related. In a study still underway,

uninsured medical bankruptcy filers have reported an average of

nearly $11,000 in medical bills since illness onset. And bankruptcy

filers with most medical diagnoses identify hospital bills as their

largest uncovered expense, or their largest medical expense.

Now, bankruptcy offers some benefits, some help to indebtedness

patients. For example, it stops debt collection attempts, it removes

liens that hospitals may impose on homes under some circumstances, and discharges some debts, although not all, but we

all know that bankruptcy has a lot of consequences. Among other

things, it ruins credit for 10 years, and may affect the ability to access nonemergency health care in the future. No one sees bankruptcy as a solution to the problems that we are talking about

today. And of course bankruptcy filers really are the tip of the iceberg. The financial impact of hospital billing and collection extends

to many households with similar problems, who never do file for

bankruptcy. For these households, like their bankrupt counterparts, defaulting on a hospital bill sent to collection results in negative credit report notations. Medical debt collectors actively do report to credit bureaus.

Federal Reserve researchers who studied credit reports in 1999

estimated that medical bills accounted for more than half of collection agency actions listed on credit reports. Credit reports also may

list hospital lawsuits, judgments and liens. Notations related to

payment history and legal action reduce one’s credit score, and a

borrower with a low credit score, assuming she can get credit at all,

may be expected to pay as much as several hundred dollars more

every month for credit. This affects home buying, refinancing, and

sending kids to college, among other things. And, when employers

or potential employers or landlords also access these credit reports,

the ramifications can multiply.

Beyond the financial impact, hospital billing and collection practices may have a health impact. First, debt and collection may induce stress, and a large body of interdisciplinary research suggests

that stress adversely affects health. Second, hospital debt may affect future access to care. Half of medical bankruptcy filers report

chronic health conditions. They need more care in the future like

even those who do not have chronic conditions. Yet, health providers may turn away indebted or bankrupt patients, or patients

may be too embarrassed or fearful to seek care after being subject

to debt collection efforts.

So, I will conclude where I started. Uninsured patients of modest

means pay a steep price for what so often is characterized or even

touted as uncompensated care. This is an important piece of the

25

1See generally Melissa B. Jacoby, The Debtor-Patient; In Search of Non-Debt Alternatives, 69

BROOKLYN L. REV. (forthcoming 2004). Courts routinely characterize patients and providers as

debtors and creditors. See, e.g., Trevino v. HHL Financial Services, 945 P.2d 1345, 1348-1349

(Colo. 1997) (describing hospital as patient’s creditor, as patient received medical care for which

he agreed to pay); Porter v. McPherson, 479 S.E.2d 668, 673, 675 (W. Va. 1996); Bashara v.

Baptist Mem. Hosp. Syst., 685 S.W. 2d 307, 310-311 (Tex. 1985) (describing hospital patient relationship as debtor-creditor relationship). 2Those tools include informal communications and threats, along with more formal approaches invoking the power of the state, such as filing lawsuits and instructing the sheriff to

levy on property. 3For a striking study showing low incomes of patients written off as bad debt after failed collection, see Joel S. Weissman, Paul Dryfoos, & Katharine London, Income Levels of Bad-Debt

and Free-Care Patients in Massachusetts Hospitals; Does uncompensated care serve the truly

needy, 18 HEALTH AFFAIRS 156, 161 (1999). Yet, even uninsured and underinsured families better described as middle class have trouble paying hospital bills. Middle income households already have committed their incomes to important fixed costs such as housing, transportation,

and child care, leaving little or no cushion. See ELIZABETH WARREN AND AMELIA WARREN TYAGI, THE TWO-INCOME TRAP: WHY MIDDLE-CLASS MOTHERS & FATHERS ARE GOING BROKE (2003). 4See, e.g., Melissa B. Jacoby, Collecting Debts from the Ill and Injured; The Rhetorical Significance, but Practical Irrelevance, of Culpability and Ability to Pay, 51 AM. U. L. REV. 229, 238

(2001) (overlap in debtors reporting job problems and medical problems in chapter 13 bankruptcy); Melissa B. Jacoby, Teresa A. Sullivan & Elizabeth Warren, Rethinking the Debates Over

Health Care Financing: Evidence From the Bankruptcy Courts, 76 N.Y.U. L. REV. 375, 408

(2001) (overlap in debtors reporting job problems and medical problems). 5See, e.g., Ray B. Lefton, Developing Organizational Charity-Care Policies and Procedures,

HEALTH CARE FINANCIAL MANAGEMENT 52, 54-55 (April 2002) (describing hospital policies that

permit collection attempts to proceed against charity care accounts); Health Care Financial

Management Association, Principles and Practices Board Statement Number 15, Valuation and

Financial Statement Presentation of Charity Service and Bad Debts By Institutional Healthcare

Providers, available at www.hfma.org/resource/PlandlPlboard/Statementl15.htm (last

accessed June 1, 2004) (describing debt collection activity as part of ‘‘information gathering process’’ to determine charity care eligibility). 6See, e.g., Universal Health Care Action Network of Ohio, A Well Kept-Secret: The Challenge

of Finding Out About Hospital Free Care in Cleveland Ohio (Oct. 2003). They also may have

been eligible but not enrolled in other programs that would have covered part or all of the costs

of their care. See generally General Accounting Office, Means Tested Programs: Determining Financial Eligibility is Cumbersome and Can Be Simplified, GAO-02-58 (November 2001); Barents

Group LLC, Final Report On ‘‘Review of the Literature On Evaluations of Outreach for Public

Continued

puzzle, as lawmakers, regulators, and health care providers work

through the issues underlying this investigation.

I thank the subcommittee.

[The prepared statement of Melissa B. Jacoby follows:]

PREPARED STATEMENT OF MELISSA B. JACOBY, ASSOCIATE PROFESSOR, UNIVERSITY

OF NORTH CAROLINA AT CHAPEL HILL

Thank you for the opportunity to participate in this important hearing. I approach

this issue from the perspective of a law professor who studies and teaches bankruptcy, contracts, and related subjects. While as a member of the Temple University

faculty in Philadelphia, and now as I join the faculty of the University of North

Carolina at Chapel Hill, I have been studying the impact of indebtedness and debt

collection on individuals and families with illness or injury.

In the current health care environment, patients often are debtors of their medical providers.1 Characterizing medical providers as creditors means little independently; the law gives creditors a set of tools to coax or require their debtors to repay,2

but does not require that creditors use them. Creditors generally exercise their discretion in using, or refraining from using, their debt collection toolbox depending on

the circumstances. Thus, for example, credit unions on the whole take a different

approach to debt collection than retailers.

A confluence of circumstances makes the hospital billing and collection situation

particularly troubling. Hospitals have zealously used their debt collection toolbox

even against patients who did not expect this liability (at all, or of this magnitude),

are of modest means,3 and may be suffering income loss alongside their illness or

injury.4 Hospitals engage in debt collection activities amidst allegations that these

practices conflict with their missions, and despite arguments that they already receive significant governmental support to subsidize their care of modest income patients. To the extent that hospitals pursue collection before dispositively determining charity care eligibility,5 some patients subject to collection for undiscounted

bills never should have been considered debtors in the first place.6

26

Health Insurance and Selected Other Programs’’ (Mar. 31, 2002), available at www.cms.hhs.gov/

schip/outreach/rpt33100.pdf; Jennifer P. Stuber, Kathleen A. Maloy, Sara Rosenbaum & Karen

C. Jones, Beyond Stigma: What Barriers Actually Affect the Decisions of Low-Income Families

to Enroll in Medicaid? (The George Washington University Medical Center, Issue Brief, July

2000); Dahlia K. Remler, Jason E. Rachlin & Sherry A. Glied, What Can the Take-Up of Other

Programs Teach Us About How To Improve Take-Up of Health Insurance Programs? (National

Bureau of Economic Research, Working Paper No. 8185, Mar. 2001); Michael J. Perry, Evan

Stark & R. Burciaga Valdez, The Henry J. Kaiser Family Foundation, Barriers To Medi-Cal Enrollment and Ideas for Improving Enrollment: Findings From Eight Focus Groups In California

With Parents of Potentially Eligible Children (Sept. 1998), available at www.kff.org/medicaid/

1436-index.cfm; Michael Perry, Susan Kannel, R. Burciaga Valdez & Chrstina Chang, The

Henry J. Kaiser Family Foundation, Medicaid and Children Overcoming Barriers to Enrollment:

Findings from a National Survey (Jan. 2000), available at www.kff.org/medicaid/2174-index.cfm. 7 Valley Hospital v. Kroll, 2003 WL 23416577 (N.J. Super. 2003) (‘‘terms contained in the form

were non-negotiable. The hospital clearly exercised a decisive advantage in bargaining. Prior to

any treatment, a patient—or in this case someone acting on his behalf—was compelled to sign

it. The patient was in no position to reject the proffered agreement, to bargain with the hospital,

or, in lieu of agreement, to find another hospital’’). 8For example, a mother rushed her son to the hospital after an accident left him unconscious

and bleeding. After the hospital sued her for payment, she explained that ‘‘I signed where she

told me to sign, so they would give him medical treatment because he needed it because he was

bleeding out of his ears, out of his mouth, the bone out of his elbow was sticking out through

the skin.’’ Heartland Health Systems v. Chamberlin, 871 S.W.2d 8, 11 (Mo. App. W.D. 1993)

(holding patient’s mother liable under terms of admission agreement based on her signature).

See also Bethesda Hospital v. Kessnick, 174 B.R. 481 (S.D. Ohio 1994) (hospital acknowledging

that father signed form during very stressful time upon daughter’s admittance to hospital). 9 But see, e.g., Doe v. HCA Health Services of Tennessee, Inc, 46 S.W.3d 191 (Tenn. 2001) (refusing to enforce hospital debt on basis of agreement due to indefinite price term, but considering value of services for purposes of holding patient liable on quantum meruit/unjust enrichment theory). 10 Robert B. Avery, Paul S. Calem, Glenn B. Canner & Raphael W. Bostic, An Overview of

Consumer Data and Credit Reporting, FEDERAL RESERVE BULLETIN 47, 60-61 (Feb. 2003) (emphasis added); My FICO (a division of Fair Isaac), www.myfico.com (reporting on credit history

components, including judgments and liens). 11 Robert B. Avery, Paul S. Calem, Glenn B. Canner & Raphael W. Bostic, An Overview of

Consumer Data and Credit Reporting, FEDERAL RESERVE BULLETIN 47, 67, 69 (Feb. 2003). See

also Sara R. Collins et. al, The Affordability Crisis in U.S. Healthcare: Findings from the Commonwealth Fund Biennial Health Insurance Survey, The Commonwealth Fund Issue Brief #723

17-19 (March 2004); S. Felt-List, M. McHugh, & E. Howell, Monitoring Local Safety-Net Providers: Do They Have Adequate Capacity? 21 HEALTH AFFAIRS 277 (Sept/Oct. 2002) (reporting

on collection agency contacting the uninsured).

The patient-hospital debtor-creditor relationship is different from many others in

its origin. If a consumer does not like the terms a store offers for the purchase of

a television, we expect that the consumer should be able to walk away. As one court

put it, however, when a loved one legitimately needs medical care, ‘‘the option of

walking away from the deal [is] simply unrealistic.’’ 7 Patients or family members

often seek hospital care and sign various hospital documents and agreements under

trying circumstances.8 These documents—frequently the basis of the hospital’s creditor status 9—may require that the patient or loved one promise to pay the fullcharge rate, and sometimes have required payment of attorneys’ fees, costs, interest,

or even penalties, if the bill goes to collection.

Hospital decision-makers may believe there is little harm in charging full price

and trying to collect before writing off these accounts as bad debt. Hospitals also

may be responding to incentives built into the complex regulatory environment;

even if current law and regulations do not expressly preclude discounts and more

lenient collection practices, it likely is easier to ensure compliance with the regulatory scheme by imposing full charges and engaging in assertive collection.

Given this situation, it is important to set the record straight: hospital billing and

collection practices can adversely affect patients and their families whether or not

those practices produce payment or ultimately are written off as bad debt.

1. Hospital collection activity has credit report implications

Medical bill collection activity hurts patients’ credit rating whether or not the activity produces payment for the hospital. In the words of Federal Reserve researchers, ‘‘[p]erhaps the most important factors considered in credit evaluation are a consumer’s history of repaying loans and any evidence of money-related public actions

or non-credit-related collections.’’ 10 These researchers estimated that medical bills

accounted for nearly one fifth (18.2%) of court judgments recorded on credit reports,

and more than half (52.2%) of collection agency actions reported to credit bureaus,

many for rather small amounts of money.11 When a collection agency action, lawVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
27

12 Accounts placed for collection, civil suits, and judgments can be reported for seven years for

most purposes, but the seven-year period starts and ends at different times for each notation.

Fair Credit Reporting Act § 605, 15 U.S.C. § 1681c. Information about failure to pay medical

debts will affect credit nothwithstanding the fact that recent amendments to the Fair Credit

Reporting Act impose additional conditions on the handling of medical information. 13 Regularly updated charts on the ‘‘My Fico’’ website show that a borrower can pay several

hundred dollars more on a loan each month because of a low credit score. www.myfico.com (last

accessed June 4, 2004). 14See, e.g., Fair Credit Reporting Act § 604, 15 U.S.C. § 1681b (listing permissible purposes

of furnishing consumer report, including employment purposes, and specifying conditions); id at

§ 1681k (procedures relating to reporting of public record information for employment-related inquiries). 15See Melissa B. Jacoby, Teresa A. Sullivan, & Elizabeth Warren, Rethinking the Debates Over

Health Care Financing: Evidence From the Bankruptcy Courts, 76 N.Y.U. L. REV. 375 (2001)

(46.2% medical-related filings); Bruce Jancin, Medical Bills Cited in 55% of U.S. Bankruptcy

Cases, SKIN AND ALLERGY NEWS (Aug 2003). 16See, e.g., Hugh F. Daly III, Leslie M. Oblak, Robert W. Seifert & Kimberly Shellenberger,

Into the Red To Stay in the Pink: The Hidden Cost of Being Uninsured, 12 HEALTH MATRIX 39,

56 (2002) (47% with medical debt among Legal Aid Society of Greater Cincinnati clients who

sought assistance with bankruptcy filings in 2000-2001); Ed Flynn & Gordon Bermant, The

Class of 2000, AM. BANKR. INST. J., Oct. 2001 (56.2% of chapter 7 no-asset bankruptcy filers

with medical debt on bankruptcy schedules); Melissa B. Jacoby, Teresa A. Sullivan & Elizabeth

Warren, Rethinking the Debates Over Health Care Financing: Evidence From the Bankruptcy

Courts, 76 N.Y.U. L. REV. 375, 387 (2001) (31.2% reported owing money to ‘‘health care providers, services, supplies’’ at time of filing bankruptcy); Champaign County Health Care Consumers Medical Billing Task Force, How Medical Debt Affects Champaign County Consumers;

A Community Report on Medical Debt-Related Bankruptcies and Small Claims Lawsuits (July

11, 2002) (58% of cases in Central District of Illinois in December 2001 involved debts owed

to medical providers). For a less recent study finding a high incidence of medical debt, see Susan

D. Kovac, Judgment-Proof Debtors in Bankruptcy, 65 AM. BANKR. L. J. 675 (1991) (80% of judgment proof chapter 7 debtors in Tennessee district had medical debt, with mean amount of over

$7,800 in mid-1980s). In a recent study, one couple owed $200,000 of medical bills not covered

by insurance, while another debtor accrued $20,000 debt a year for care of her husband who

had been in a coma for five years. See Melissa B. Jacoby, Collecting Debts from the Ill and Injured; The Rhetorical Significance, but Practical Irrelevance, of Culpability and Ability to Pay,

51 AM. U. L. REV. 229, 248-249 (2001). 17See Melissa B. Jacoby, Teresa A. Sullivan, & Elizabeth Warren, Rethinking the Debates Over

Health Care Financing: Evidence From the Bankruptcy Courts, 76 N.Y.U. L. REV. 375, 397-398

(2001). 18See, e.g., Fair Credit Reporting Act, § 605, 15 U.S.C. § 1681c (permitting bankruptcy cases

to be listed for ten years ‘‘from the date of the entry of the order for relief or the date of adjudication). 19See Melissa B. Jacoby, Teresa A. Sullivan, & Elizabeth Warren, Rethinking the Debates over

Health Care Financing: Evidence from the Bankruptcy Courts, 76 N.Y.U. L. REV. 375, 399-400

(2001). Whether they experienced gaps in insurance, however, is an important question that

warrants further study. See generally Congressional Budget Office, How Many People Lack

Health Insurance and For How Long? (May 2003) (nearly 60 million people were uninsured at

any point within 1998); Hearing on the Uninsured, Committee on Ways and Means Subcommittee on Health (March 9, 2004) (statement of Douglas Holtz-Eakin, Director of the Congressional Budget Office, figure 1).

suit, judgment, and lien all are listed on a patient’s credit report, the adverse effects

of one default not only multiply, but linger.12

As suggested above, the credit report and credit score are key determinants of

whether a patient will receive credit and, if so, what the terms will be.13 In addition,

the Fair Credit Reporting Act permits credit reports to be used for a variety of other

purposes, such as employment-related inquiries.14 Thus, one expensive trip to a hospital, followed by zealous collection and reporting, can bring about a host of unexpected negative effects.

2. Large medical debts and collection activity contribute to bankruptcy

Bankruptcy researchers have discovered that almost half of personal bankruptcy

filers have significant medical debts and/or say that illness or injury was a reason

for their bankruptcies.15 A variety of studies find between one third to more than

half of bankruptcy filers owed debts directly to medical providers at the time of filing,16 and these understate the problem because they do not include medical bills

charged to credit cards or rolled into home mortgage loans. Bankruptcy filers sixtyfive or older had the highest rate of reporting that illness or injury was a reason

for filing bankruptcy.17

Even insured patients may see their credit ruined through medical-related bankruptcy.18 The majority of those in medical-related bankruptcy say they have some

insurance at the time of filing.19 Among married joint bankruptcy filers who were

28

20See Melissa B. Jacoby, The Debtor-Patient; In Search of Non-Debt Alternatives, 69 BROOKLYN L. REV. table 1 (forthcoming 2004). 21See generally Melissa B. Jacoby, Does Indebtedness Influence Health? A Preliminary Inquiry,

30 J. L. MED. & ETHICS 560 (2002). 22See generally M. Katz, Stress, Control, and Psychological Interventions, in STRESS AND

HEALTH AMONG THE ELDERLY (M.L. Kykle et. al, eds., 1992); W.R. LOVALLO, STRESS AND

HEALTH; BIOLOGICAL AND PSYCHOLOGICAL INTERACTIONS (1997); A. O’Leary et. al, Stress and

Immune Function, in CLINICAL DISORDERS AND STRESSFUL LIFE EVENTS (T.W. Miller ed., 1997);

Steven C. Ames, Glenn N. Jones, & Phillip J. Brantley, A Prospective Study of the Impact of

Stress on Quality of Life: An Investigation of Low-Income Individuals with Hypertension, 23

ANN. BEHAV. MED. 112 (2001); P.A. Barnett, J.D. Spence, & J.R. Jennings, Psychological Stress

and the Progression of Carotid Artery Disease, 15 J. HYPERTENS. 49 (1997). 23See, e.g., Patricia Drentea and Paul J. Lavrakas, Over the Limit: The Association Among

Health, Race and Debt, 50 SOCIAL SCIENCE AND MED. 517 (2000); Simon Hatcher, Debt and Deliberate Self Poisoning, 164 BRITISH J. PSYCHIATRY 111 (1994); Richard Reading & Shirley Reynolds, Debt, Social Disadvantage and Maternal Depression, 53 SOCIAL SCIENCE & MED. 441

(2001); Steven Hope, Chris Power, & Bryan Rodgers, Does Financial Hardship Account for Elevated Psychological Distress in Lone Mothers?, 49 SOCIAL SCIENCE & MED. 1637 (1999); G.W.

Brown & P.M. Moran, Single Mothers, Poverty and Depression, 27 PSYCHOLOGICAL MED. 21

(1997); Robert J. Havlik, Allexander P. Vukasin, & Stephan Ariyan, The Impact of Stress on

the Clinical Presentation of Melanoma, 90 PLASTIC AND RECONSTRUCTIVE SURGERY 57 (1992);

Hilary Graham & Clare Blackburn, The Socio-Economic Patterning of Health and Smoking Behavior Among Mothers With Young Children on Income Support, 20 SOCIOLOGY OF HEALTH &

ILLNESS 215 (1998); H.G. Morgan et. al, Deliberate Self-Harm: Clinical and Socio-economic characteristics of 368 Patients, 127 BRITISH J. PSYCHIATRY 564 (1975); J.H.J Bankroft et al, The Reasons People Give for Taking Overdoses, 128 BRITISH J. PSYCHIATRY 538 (1968). See also GILLIAN

PARKER, GETTING AND SPENDING: CREDIT AND DEBT IN BRITAIN (1990); DAVID CAPLOVITZ, CONSUMERS IN TROUBLE: A STUDY OF DEBTORS IN DEFAULT (1974); M. RYAN, SOCIAL WORK AND

DEBT PROBLEMS (1996); E. KEMPSON ET AL, HARD TIMES? HOW POOR FAMILIES MAKE ENDS

MEET (1994). 24See Rhonda L. Rundle & Paul Davies, Hospitals Start to Seek Payment Upfront, WALL. ST.

J., June 2, 2004, at D1; Patrick Reilly, Extracting Payment; Hospitals try collecting before patients leave ER, MODERN HEALTHCARE, Nov. 17, 2003, at 8. 25 Healthcare collection is its own segment of the collection industry. See, e.g., ACA International, The Association of Credit and Collection Professionals, Collections Information, available at www.acainternational.org (last updated 2/16/04); ACA International, The Association of

Credit and Collection Professionals, Healthcare Collections (last updated 3/1/04). Hospitals mostly pay their collectors on contingency. See id.; Tom Jajny, The What, Why and When of Collecting Patient Balances, MEDICAL PRACTICE MANAGEMENT, July/Aug/2003, at 33. Debt collectors

of course are expected to act within the limits permitted by the Fair Debt Collection Practices

Act and related laws. See, e.g., Federal Trade Commission Bureau of Consumer Protection Opinion Letter to J. Russell Gibson, III (February 21, 1990) available at www.ftc.gov/os/statutes/

fdcpa/letters/gibson90.htm (opinion letter on whether ‘‘day 1’’ ‘‘pre-collection’’ services for hospital fall within FDCPA); Federal Trade Commission Bureau of Consumer Protection Opinion

Letter to Thomas Isgrigg (November 10, 1992) available at www.ftc.gov/os/statutes/fdcpa/letters/

isgrigg1.htm (opinion letter on whether activities of agency with respect to delinquent medical

accounts fall within FDCPA). 26 Robert M. Frohlich, Effective reassignment of accounts can decrease bad debt, HEALTHCARE

FINANCIAL MANAGEMENT 36, 37 (1994) (describing use of subsequent collection agency placements, lawsuits, and credit bureau reporting). 27See, e.g., Champaign County Health Care Consumers Medical Billing Task Force, How Medical Debt Affects Champaign County Consumers; A Community Report on Medical Debt-Related

Bankruptcies and Small Claims Lawsuits (July 11, 2002) (in study of small claims court records,

finding 20% of plaintiffs were not-for-profit health providers).

insured at the time of their bankruptcy filings, almost 40% reported owing debt to

a provider of medical services or supplies.20

3. Large hospital debts and collection activities adversely affect patient

health

In addition to financial costs, patients suffer health-related costs from hospital

bills.21 The first relates to the health impact of stress.22 Some researchers are concerned specifically about the negative impact of indebtedness and related financial

trouble on certain diseases or conditions.23

Owing a significant debt can be stressful on its own. The stress is exacerbated,

however, by a zealously pursued debt collection process. While still in a hospital

bed, a patient may receive a visit from a hospital representative to discuss payment.24 Once home, the patient may start to receive letters and phone calls proposing ways of taking care of the bill. The calls will get pressing when the first debt

collector takes over,25 and get even more assertive if the hospital enlists the services

of a secondary debt collector.26 Debt collectors will threaten to report the patient’s

delinquency to credit bureaus and/or threaten to file a lawsuit. If they follow

through on the latter,27 the litigation process itself can be intimidating. Although

29

28See, e.g., County of Santa Clara v. Vargas, 139 Cal. Rptr. 537 (Cal. App. 1977) (medical care

given in 1969, payments made until 1974, and this case report published in 1977); Mercy Hospital, Inc. v. Carr, 297 So.2d 598 (Fla. App. 1974) (published appeal in 1974 for debt incurred

in 1968); Orthopedic & Reconstructive Surgery, S.C. v. Kezelis, 496 N.E.2d 1112 (Ill. App.1986)

(reported decision in 1986 for dispute over medical bill for services in 1978). 29See, e.g., Sholkoff v. Boca Raton Community Hospital, Inc., 693 So.2d 1114 (Fla. App. 1997)

(interpreting and upholding patient authorization agreement imposing collection costs, attorneys’ fees, and interest at the ‘‘highest rate permitted by law’’ if patient does not pay in full

within 45 days). See generally William J. Woodward Jr., Enforcements of Money Judgments: Objectives and Restrictions, in 9 DEBTOR-CREDITOR LAW 37-24 (Theodore Eisenberg, ed. 1990) (discussing allocation of costs). 30 Even among the lowest income quintile, 40.6% of families owned houses and 56.8% owned

cars according to the 2001 Survey of Consumer Finance. Arthur B. Kennickell et. al, Recent

Changes in U.S. Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finance, FEDERAL RESERVE BULLETIN 1, 19 (Jan. 2003). 31D. Andrulus et. al, Paying for Health Care When You’re Uninsured: How Much Support Does

the Safety Net Offer?, The Access Project (Jan. 2003); Bruce Jancin, Medical Bills Cited in 55%

of U.S. Bankruptcy Cases, SKIN AND ALLERGY NEWS (Aug 2003); ELIZABETH WARREN & AMELIA

WARREN TYAGI, THE TWO-INCOME TRAP; WHY MIDDLE-CLASS MOTHERS AND FATHERS ARE GOING

BROKE (2003); D. Gurewich, R. Seifert, & J. Prottas, The Consequences of Medical Debt: Evidence from Three Communities, The Access Project (Feb. 2003); Carol Pryor & Deborah

Gurewich, Getting Care But Paying the Price; How Medical Debt Leaves Many in Massachusetts

Facing Tough Choices, The Access Project (Feb. 2004). 32See, e.g., U.S. Census Bureau, Supplemental Measures of Material Well-Being: Expenditures,

Consumption, and Poverty 1998 and 2001, P23-201, 10 (Sept. 2003) (reporting on percentage of

families who needed to visit doctor or hospital but did not go); John Z. Ayanian et. al, Unmet

Health Needs of Uninsured Adults in the United States, 284 J. AM. MED. ASS’N 2061 (2000)

(nearly 2⁄5 of long term uninsured adults and 1/3 of short term uninsured adults reported not

being able to see physician when needed in the past year due to cost). 33See generally Sara R. Collins et. al, The Affordability Crisis in U.S. Healthcare: Findings

from the Commonwealth Fund Biennial Health Insurance Survey, The Commonwealth Fund

Issue Brief #723 (March 2004); Carol Pryor & Deborah Gurewich, Getting Care But Paying the

Price; How Medical Debt Leaves Many in Massachusetts Facing Tough Choices, The Access

Project (Feb. 2004). See also U.S. Census Bureau, Supplemental Measures of Material WellBeing: Expenditures, Consumption, and Poverty 1998 and 2001, P23-201 (Sept. 2003) (reporting

on households living with inadequate food, in homes with leaky roofs, and in neighborhoods with

abandoned buildings, smoke or fumes, and where they are afraid to walk at night). 34See Valley Hospital v. Kroll, 2003 WL 23416577 (N.J. Super. April 17, 2003). Medicare and

Medigap had paid the hospital hundreds of thousands of dollars, but the hospital argued it could

balance bill the patient’s widow for its full charge once Medicare Part A benefits had been exhausted. Nearly three years later, the court granted partial summary judgment in favor of the

patient’s widow on the balance billing issue. 35 According to courts and commentators, hospitals have been the principal users of the doctrine of necessaries, leading to the conclusion that this doctrine is more of a hospital debt collecContinued

liability is determined quickly in many cases, other cases—and the associated stress

and uncertainty—linger for years after the original hospitalization.28

Whether or not the lawsuit results in a court judgment, concerns about the magnitude of the hospital bill may increase if the patient’s liability includes court costs,

execution costs, and perhaps even the hospital’s attorneys’ fees. 29 Patients also understandably fear what comes after a court judgment: a judgment entitles a creditor

to garnish wages, attach bank accounts, or direct a sheriff to levy on property within

limits imposed by state and federal exemption laws. Even if a patient has property

of little value, the prospects of loss can be frightening and devastating.30

Aside from the health impact of stress, large medical debts can dampen a patient’s likelihood of receiving future medical care. Medical providers may refuse to

give non-emergency care, or patients indebted for prior care may fear to seek

more.31 This is especially troubling for patients with chronic problems. Debt, therefore, may exacerbate the health care access problems experienced by the uninsured

and underinsured.32 Large hospital debts and related financial distress also make

it harder to afford adequate food, safe housing and other basic necessities.33

4. Large hospital debts and collection activity directly affect patients’ families

The financial and health effects of hospital bills and debt collection are not limited

to patients. They apply to their loved ones as well. This is particularly true when

hospitals seek to hold family members liable for patients’ care. As noted previously,

hospitals sometimes do so on the basis of signatures on admission forms. For example, in one case, an eighty-year-old widow was mourning the death of her husband,

who had suffered several debilitating illnesses, when the hospital sued her for more

than $257,000 for his hospital bills based on her signature.34 Other times, hospitals

seek to hold spouses liable on other grounds, such as the doctrine of necessaries.35

30

tion device than a spousal support device. See Medical Center Hospital of Vermont v. Lorrain,

675 A.2d 1326, 1329 (Vt 1996) (‘‘virtually all necessaries cases are hospitals seeking payment,

often due to last illness’’); Shawn M. Willson, Comment, Abrogating the Doctrine of Necessaries

in Florida: The Future of Spousal Liablity for Necessary Expenses After Connor v. Southwest

Florida Regional Medical Center, Inc., 24 FLA. ST. U. L. REV. 1031, 1043 (1997) (‘‘In the last

fifty years, all of the Florida cases in which a party invoked the doctrine involved unpaid medical expenses. In case after case, hospitals sought to trap an unwilling spouse into making payment on a debt for which he or she did not contract’’). However, some state courts abolished

the doctrine of necessaries on constitutional grounds, leaving to the legislatures whether to

enact a gender-neutral statute. See, e.g., North Ottawa Community Hospital v. Kieft, 578

N.W.2d 267, 273 (Mich. 1998) (holding doctrine of necessaries no longer is part of Michigan’s

common law, and thus ‘‘neither husband nor a wife is liable, absent express agreement, for necessaries supplied to the other’’). 36See, e.g., Sara R. Collins et. al, The Affordability Crisis in U.S. Healthcare: Findings from

the Commonwealth Fund Biennial Health Insurance Survey, The Commonwealth Fund Issue

Brief #723 (March 2004) (among those with medical debt, approximately one fifth ran up credit

card debt or incurred debt secured by home); Glenn B. Canner et. al., Recent Developments In

Home Equity Lending, 84 FEDERAL RESERVE BULLETIN 241, 248 tbl.8 (1998) (increase in borrowers indicating medical expenses as use for home equity lines of credit and loans); Peter J.

Brady et. al, The Effects of Recent Mortgage Refinancing, FEDERAL RESERVE BULLETIN 441, 446

(July 2000) (39% of 1998 and early 1999 refinancings used for consumer expenditures, which

includes medical expenses among a list of other things). This is not an entirely new phenomenon, however. Even a study in the 1970s found medical costs a major reason for consumers

taking out personal loans. Thomas A. Durkin & Gregory E. Eliehausen, 1977 Consumer Credit

Survey, 80, table 15.1 (Washington DC Federal Reserve Board, 1978). 37See, e.g., Julie A. Jacob, Credit to your practice: Letting patients pay with plastic, AMERICAN

MEDICAL NEWS, July 29, 2002. 38See, e.g., Tyler Chin, In the cards: Getting Paid with Plastic; Innovations in the credit and

debit card industry are giving physicians new options for collecting bills, AMERICAN MEDICAL

NEWS, Jan. 12, 2004; Mike Stobbe, Credit card agency cuts hospitals’ losses, THE CHARLOTTE

OBSERVER, July 11, 2003; www.accessonemedcard.com; Michael Unger, Just What the Doctor Ordered; Schein’s One-Stop Service Ranges from Equipment to Personal Finance, NEWSDAY, Dec.

30, 1996, at C7 (discussing MedCash credit cards, with interest rates eventually rising to 19%);

News Release, PracticeXpert Launches Pxpert Medical Credit Card Program (Sept. 4, 2003) (acquiring delinquent accounts from physician and transferring balance to credit card, which can

be used for other purchases as patient re-pays); News Release, King Thomason Group Enters

into Agreement With Medical Capital Corporation to Market KTG’s TotalCare Medical Accounts

Receivable Credit Card Program (April 23,2004); www.kgth.com/main/totalrecovery.htm (citing

95% approval rate for private pay patients); Citibank Health Card Program, www.citibank.com/

us/cards/cardserv/healthcrd/cons—benefits.htm (card for family health needs, offering 3 month

interest free period with rate of nearly 22% thereafter, and default interest rate of over 25%);

HELPCard, www.helpcard.com (interest rate of prime plus 11.9%); www.healthEZ.com (encouraging employers to offer to employees as supplement to health plans); DeeDee DePass, How

HealthEZ Got Fit, STAR TRIBUNE, www.carecredit.com. 39Tyler Chin, In the cards: Getting Paid with Plastic; Innovations in the credit and debit card

industry are giving physicians new options for collecting bills, AMERICAN MEDICAL NEWS, Jan.

12, 2004.

Even if the spouse is ultimately is not held liable, he or she has been placed through

an additional ordeal at a time of great emotional distress.

5. Medical-related financial products are not necessarily the solution

Various studies have observed the use of third party credit for medical bills.36

This shifts the burden of collection and risk of non-payment away from the medical

provider. Providers understandably find this prospect attractive even though they

incur costs associated with processing credit card charges.37

Some health care providers and third parties are taking this to the next level:

they are joining forces to offer medical-specific credit products to patients.38 Many

of these products do not shift the risk of non-payment entirely away from providers,

but the risks and burdens on the whole seem far lower for providers than those associated with the traditional billing and collection process.

These products have received little systematic attention at this point and they

raise a host of issues. According to a quote in the American Medical News, the director of the American Medical Association Institute for Ethics worries that these

products may result in ‘‘further commercialization of the patient-physician relationship,’’ and that cards targeted toward those with poor credit histories ‘‘are in essence endorsing the idea that impoverished patients who have the worst credit history should sign up for another credit card, which by the way will pay [medical providers] off first.’’ 39

For purposes of this hearing, however, it suffices to say that these products do not seem to address the needs of uninsured hospital patients. A $40,000 credit card

bill is not much better than a $40,000 hospital bill, and may be worse. Some medical

credit products offer interest free installments for limited periods, but the interest

rates jump to 20% or higher thereafter. Even at a lower interest rate, the patient

31

40This essentially was the problem experienced by Quinton White with respect to his hospital

bill payment plan. See Lucette Lagnado, Twenty Years and Still Paying; Jeanette White is Long

Dead But Her Hospital Bill Lives On; Interest Charges, Legal Fees, WALL ST. J., March 13, 2003,

at B1; Lucette Lagnado, Twenty Years—and He Isn’t Paying Any More, WALL ST. J., April 1,

2003, at B1. 41See, e.g., Federal Trade Commission, Facts for Consumers, cNeed a Loan? Think Twice

About Using Your Home as Collateral, available at www.ftc.gov/bcp/conline/pubs/hoepa.htm (last

accessed June 4, 2004).

may face a perpetual oppressive obligation.40 To the extent lenders and providers

encourage medical-specific home equity products, it is worth noting that

undiscounted hospital bills rolled into home mortgage loans raise the stakes further;

home equity loans for large medical bills reduce retirement security through the loss

of equity, and may lead to home loss altogether.41

In addition, one again needs to consider the credit report implications. Credit

cards and loans are trade accounts that have a wider range of credit-rating effects

than medical debts. Thus, in addition to all of the previously discussed effects of

medical debt, the mere existence of a trade account can affect the patient’s credit

score, particularly if the liability is large or if the patient recently opened other accounts. In addition, the lender is likely to regularly report any lateness in repayment, further affecting the patient’s credit rating. Given these risks, medical-specific

credit products are not likely to offer the solution to the problems being discussed

today.

Thank you again for the opportunity to participate in this important hearing. I

would be glad to help the Subcommittee however I can.

Mr. WALDEN. Thank you for your testimony, we appreciate it.

Mr. Rukavina, we appreciate your being here today, and look forward to your comments.

TESTIMONY OF MARK RUKAVINA

Mr. RUKAVINA. Thank you, and I would like to thank the subcommittee for this opportunity today. I am the Executive Director

of The Access Project. We are a national resource center working

with local groups that are trying to expand access to health care,

and over the past few years we have produced a number of reports

on medical debt.

Medical debt is an enormous problem in this country. The Commonwealth Fund recent survey identified that half of Americans

with no health insurance had problems related to medical bills or

accrued medical debt. And maybe surprising to some here today,

more than half of the uninsured experiencing these problems used

all or most of their savings to pay medical bills.

I would like to make three main points, then offer some recommendations. First, the uninsured are charged the highest fees

for care. They are given a raw deal when it comes to hospital billing. Though many uninsured patients get the necessary medical

treatment that they need from hospitals, they are charged the

highest fees for that care. Paying for medical care is a burden, it

is crushing for the uninsured. People with insurance pay a discounted rate, but uninsured patients pay full charges.

The Wall Street Journal reported on a 25-year-old uninsured

woman from New York City, who was billed $14,000, not including

doctor’s fee, for a 2-day appendectomy stay. Medicaid would have

paid about $5,000 for this procedure, and Medicare just under

$8,000. She was ineligible for either program and was charged the

full rate. This is wrong, and it is not isolated to New York State.

For years, as we have heard, hospitals have blamed this unfair

practice on Federal Medicare rules and regulations. We were

pleased when earlier this year Secretary Thompson clarified that

32

hospitals could offer discounts to uninsured patients. Hopefully this

will bring an end to the practice of price gouging uninsured patients, but discounting fees will not be enough.

My second point is that the uninsured need help to pay for their

medical care, and to enroll in existing financial assistance programs. Most uninsured patients are not able to pay for their care

in full. Fortunately, for some of the uninsured, programs exist to

help them, programs like Medicaid, children’s health insurance programs, and the hospital’s own charity care policies. But many uninsured patients are simply unaware of these programs, and they

need help in applying for them. Too few hospitals provide such assistance, but it doesn’t have to be this way.

We found a very effective program at Cooley Dickinson Hospital

in Northampton, Massachusetts. Hospital case managers visit each

uninsured patient and review their individual health care needs.

They help patients complete program applications, they refer them

to a local network of physicians offering care on a sliding fee scale,

and they help them apply for hospital charity care. They have enrolled hundreds of patients in Medicaid and other programs. The

hospitals gain needed revenues, the patients avoid crushing debt,

both are better off.

The crucial point here is that case managers review payment alternatives with patients at the front-end of the process, not when

bill collectors are pounding on their doors. Without such help,

many patients would be reluctant to go back to the hospital.

My final point is that the uninsured are intimidated and harmed

by overly aggressive collection practices. Some collection tactics

used by hospitals are simply deplorable. Aggressive practices have

been well documented, we have heard of some of them already

today. Patients have been hounded by collection agencies, sued and

subsequently charged high interest rates, have wages garnished,

liens slapped on homes, some have even been arrested and imprisoned for the bills that they have incurred. In Illinois, a woman who incurred just under $1700 in bills due

to a miscarriage, was briefly jailed after she missed two court hearings on hospital bills.

I have five recommendations for American hospitals. One, lower

the fees charged to uninsured patients. Secretary Thompson clarified this can be done, just do it and do it now.

No. 2, help the uninsured pay for care. Hospitals must assist uninsured patients in applying for existing programs. This would provide hospitals with reimbursement for services, and help patients

avoid this debt—the Cooley Dickinson example is but one—we believe other hospitals could and should implement such programs.

No. 3, stop the aggressive collection actions taken against uninsured patients. American hospitals are the finest institutions in the

world. Unfortunately, the hospital billing departments and collection agencies used by some hospitals do harm patients, hauling

low-income uninsured patients to court is senseless. Hospitals

spend money to do this, with little financial gain, and such actions

ruin the credit of uninsured patients.

No. 4, we challenge the American Hospital Association to demonstrate bold leadership and establish a financial assistance initiative for uninsured patients. An essential component of this proVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
33

gram would be to work in partnership with consumer and community advocacy organizations to ensure that these policies are sensible and understood by the uninsured patients in their community.

It should be guided by one basic principle, and that is ‘‘do no

harm.’’ Hospitals must begin to treat patients who owe them

money with respect and dignity, and hospitals should not ask Congress or the Administration for additional resources until doing so.

My final point, we urge all hospitals to join uninsured consumers

in advocating for a comprehensive system of affordable health care

for all.

Thank you for the opportunity to speak before you today.

[The prepared statement of Mark Rukavina follow:]

PREPARED STATEMENT OF MARK RUKAVINA, THE ACCESS PROJECT

Thank you for inviting me to speak before this panel on the important issue of

hospital billing and collection practices with respect to uninsured patients.

My name is Mark Rukavina, and I am the executive director of The Access

Project. The Access Project is a national resource center providing support to local

organizations seeking to improve access to health care. The Access Project works in

partnership with the Heller School for Social Policy and Management at Brandeis

University in Massachusetts. In our work with local groups since 1998, we have undertaken numerous research and policy analysis projects and produced a series of

reports on subjects relating to health care access barriers. Over the last four years,

our work has increasingly focused on the problem of medical debt and its consequences. Through our research, and that of others, we have learned that the problem is widespread and its causes diverse. Hospitals practices around pricing, billing

and collections are prominent among the causes of medical debt. The existence of

medical debt on a large scale, and the consequences of this debt, belies many prevalent misconceptions about the uninsured and their ability to access health care. In

my remarks, I would like to clarify some of these basic misunderstandings.

(1) The first misconception is that uninsured patients can get the care

they need from safety-net institutions for free or at affordable prices.

The Access Project documented the actual experiences of the uninsured through

a survey it conducted in 2000 of uninsured people who had received care in local

safety-net institutions. In the 24-site survey of nearly 7,000 uninsured respondents,

60 percent said they needed help paying for their medical care, and nearly half (46%)

said they owed money to the facility where they received care. For those who received

care in hospital emergency rooms, the percentages were even higher.

These findings are reinforced by other national research. For example, the Commonwealth Fund’s recent report, The Affordability Crisis in U.S. Health Care: Findings from the Commonwealth Fund Biennial Health Insurance Survey (March 2004),

found that two out of five adults in 2003, and 6 out of 10 among those who lacked

insurance, had problems related to medical bills or accrued medical debt.

Moreover, medical debt has a direct effect on people’s ability to access health care.

In our 24-site survey, among the respondents with unpaid bills, almost a quarter

said the debt would deter them from seeking care at the facility in the future. In

another Access Project study, we interviewed low-income consumers with medical

debts in three communities. More than half said their medical debts made it harder

for them to get medical care. They reported that providers discouraged them from

seeking additional services by requiring cash payment upfront, flatly refusing care,

or encouraging them to seek new providers.

A 2000 study done by the National Association of Public Hospitals and Health

Systems found that even safety-net providers do not automatically provide free care

to uninsured patients. More than 80 percent of the public hospitals surveyed had

implemented cost-sharing plans and an increasing number implemented pharmacy

co-payment plans.

Medical debt can erode not only individuals’ access to care, but also their overall

financial security and that of their family. One survey found that more than a quarter of families in which one or more members were uninsured reported having to

‘‘change their way of life significantly’’ to pay medical bills, a figure that rose to

nearly 40 percent when all family members were uninsured. In the recent Commonwealth Fund survey, among the uninsured respondents who had medical bill problems or medical debt, almost 4 in 10 said they were unable to pay for basic necessities such as food, heat or rent; over half said they used all or most of their savings

34

to pay medical bills; and more than 2 in 10 said they had taken on large credit card

debt or loans against their homes to pay medical bills.

(2) Another misconception is that uninsured people expect to get their

care for free, or are simply unwilling to pay for it.

In fact, the uninsured do pay a significant portion of their bills. As the Commonwealth Fund survey indicates, many exhaust their savings, take out loans, or assume large credit card debt to pay their medical bills. A recent report by the Kaiser

Commission on Medicaid and the Uninsured, The Cost of Care for the Uninsured:

What Do We Spend, Who Pays, and What Would Full Coverage Add to Medical

Spending? (2004), estimates that people who are uninsured for an entire year pay

over a third (35%) of their health care costs out-of-pocket, considerably more than

the 20 percent share paid by those with insurance. According to the report, the uninsured can be expected to pay 32.6 billion dollars for their care in 2004.

Our interviews with low-income people with medical debt found that many respondents had a strong desire to pay off their debt and tried to negotiate payment

plans, but found that the terms of the plans hospitals offered were difficult to maintain, given inflexible hospital collection practices and their own tenuous financial

circumstances. Here are what some of our survey respondents told us.

‘‘. . . they demanded I pay a certain amount bi-weekly. I couldn’t afford it. They

didn’t want to help. I was willing to pay some money, as much as I could.’’ ‘‘I (said) I couldn’t pay $500, that I could pay $100, but the person answered no, that it had to be $500.’’

Moreover, not being able to pay their medical bills in full caused many people tremendous anxiety and stress. Again, here is what some of our respondents told us.

‘‘I am constantly worrying about my medical debt . . . I feel hopeless. I am a

single mom and think that in the future I will not be able to better my life.’’

‘‘Owing money affects every part of your life. You don’t stop worrying about

it anytime.’’

‘‘I couldn’t sleep . . . I just slept a few hours and it (the debt) even took my appetite away.’’

One factor that makes it especially difficult for uninsured people to cover the entire cost of their care is that they are often expected to pay more for the same services than other payers. Uninsured patients don’t have access to the discounts negotiated by insurers or set by the government. Uninsured patients are expected to pay

full charges or ‘‘the rack rate.’’ A Wall Street Journal article in March of 2003 told

the story of Rebekah Nix, a 25-year old uninsured woman in New York who was

billed $14,000—not including doctor’s fees—for a two-day stay for an appendectomy.

The state’s Medicaid program would have paid about $5,000 for the procedure, and

Medicare about $7,800.

In testimony before the House Ways and Means Committee this past March, University of Southern California Professor Glenn Melnick showed that nationally, hospitals increased their mark-ups—the amount charged over and above the cost of

care—from 159% in 1993 to 211% in 2003. Average mark-ups across states ranged

from 135% to 300%. Given this, it’s no surprise that the uninsured can’t cover these

costs.

Adding insult to injury, many hospitals enforce these payments through aggressive billing and collections practices, a situation that has been documented in the

press and by various community groups. Reports of hospital billing and collections

practices in Connecticut, New York and Illinois led to a series of articles in the Wall

Street Journal. The Journal articles, as well as articles in other newspapers across

the country, have detailed cases of the devastating effects of harsh collections practices in which people were hounded by collection agencies, charged high interest,

had wages garnisheed and property attached, had liens put on homes, and were

even arrested as they struggled to pay their bills. For example the Journal documented the case of Quentin White, who had been paying Yale-New Haven Hospital

for over 20 years for the debt from his late wife’s medical care. The hospital charged

10 percent interest, placed a lien on the White’s home, and in 1996 nearly cleaned

out Mr. White’s bank account. Over the years, Mr. White paid nearly $16,000 on

what was originally a bill of just less than $19,000. However, his outstanding balance had ballooned to about $39,000 in 2003 because of the interest charges. In another case in Champaign, Illinois, Marlin Bushman was arrested and jailed after

missing a court hearing on a $579 hospital bill. Kara Atteberry was briefly jailed

because she missed two court hearings on a $1,678 hospital bill incurred for a miscarriage.

Hospitals have used other tactics to improve their collection rate. Some have arrangements with commercial banks to facilitate the initiation of loans to cover medical expenses. Others have created open-ended credit accounts that are marketed as

Trouble-Free Payment Plans but fail to disclose interest rates or other fees at the

35

time of application. We even know of a hospital that is issuing its own credit card

to patients.

Some hospitals take drastic measures through their collection agents. Earlier this

month, the Wall Street Journal reported on a practice in New York where hospital

collection agencies attach the bank accounts of patients with hospital bills going

back as far as 15 years. Some hospitals had even written off some of these bills and

had received partial reimbursement from a state-run bad-debt pool.

There should be no place for such high-pressure tactics used against low-income

people who have the misfortune of getting sick.

Given recent attention on this issue, the financial community is beginning to scrutinize hospital billing and collection practices. The Health Capital Group provides

an illustration. The Health Capital Group offers services to hospitals and other medical providers relating to mergers, acquisitions and investment banking, as well as

an array of other related ‘‘transactional’’ services including sophisticated valuation

services. They recently expressed concern that hospitals failing to inform certain patients who might reasonably qualify for financial assistance or ‘‘charity care’’ would

be exposed to class action lawsuits as well as the possibility of direct intervention

from state attorneys general. They fear that this could create enormous contingent

liabilities that could, in turn, significantly impair their access to capital.

As a result The Health Capital Group announced that they will cease issuing

valuation opinions, validating bond ratings, rendering creditworthiness opinions,

certifying debt capacity, making recommendations to bond funds or issuing compliance comfort letters and related analyses unless a hospital or hospital system demonstrates that it has written policies and procedures to inform patients of financial

assistance, pricing and collection policies and publicizes these policies and procedures.

Just last week it was reported that a federal class action lawsuit was filed in federal courts in eight states against nearly one dozen non-profit hospital systems challenging whether tax exempt status should be granted to these institutions. Clearly

the billing and collection practices of hospitals that have created problems for uninsured patients are now creating problems for the entire hospital industry.

(3) A third misconception is that the ‘‘truly needy’’ are not billed or subject to aggressive collection actions because they qualify either for public

programs or for hospitals’ indigent care programs.

While most hospitals do claim to have financial assistance programs to assist people without the means to pay for their medical care, research indicates that many

who might qualify for these programs never learn about them. In our 2000 survey

of the uninsured, almost half (48%) of those needing help paying for care said they

were never offered financial assistance, such as being informed about the facilities’

own charity care programs. Among those who received care in urban or suburban

hospital emergency rooms, 70 percent said they were never offered assistance. This

lack of information about available financial assistance is consistent with findings

from subsequent research that The Access Project and others have done, and is a

wholly avoidable cause of medical debt. Again, here is a comment from one of our

survey respondents:

‘‘I would like the hospital to make the help office, the one that helps you pay

the bill, more accessible to the people. Because I have a lot of bills that could

have been paid, had they told me about that office sooner. Instead, my bills are

now in a collector’s office when I qualified for financial assistance, because they

did not give me the necessary information . . .’’

In this regard, I would like to share with you The Access Project’s own experience

trying to obtain hospitals’ financial assistance policies. Last December, the American Hospital Association issued guidelines for its members recommending that all

hospitals have written financial assistance policies that they disseminate widely in

their communities. In 2003, both Tenet and HCA healthcare systems announced

with fanfare programs to help the uninsured with discounts and sliding scales.

Learning about the HCA program in the third quarter of 2003, and unable to find

information on their website, I contacted the company to request a copy of the policy. I received no response. I made another request a month later. Finally, in December, I was told that while the policy had been implemented, HCA didn’t want

to post it until they saw if it ‘‘worked as intended’’, probably around the beginning

of the new year. In February of this year, we invited HCA, along with Tenet and

other area hospitals, to meet with community leaders in Florida to provide information about their financial assistance policies. Unfortunately, both HCA and Tenet

declined to attend.

Only in late April, more than six months after we first requested information, did

the hospitals provide us with their policies. The Access Project is hopeful that working with these systems will be far easier in the future. However, I share this story

36

to point out that if it takes the professional staff at a national health care resource

center over half a year to find out about the hospitals’ financial assistance program,

one can imagine the difficulties faced by uninsured people who try to do so, especially while they are ill and vulnerable.

It is possible for hospitals to inform uninsured patients of the financial assistance

programs that are available to them. However, providing information is often not

enough. Hospital can and must do more than that. We recently identified a program

at The Cooley Dickinson Hospital in Northampton, Massachusetts. Cooley Dickinson

case managers visit each uninsured patient and review their individual health care

needs. They help patients complete program applications, they refer them to a local

network of physicians offering care on a sliding fee scale and assist them in applying for hospital charity care. By providing this assistance, they have enrolled hundreds of patients in Medicaid and other programs. The hospital gains needed revenues and the patients avoid crushing debt. The hospital and the patient are both

better off. The crucial point is that case managers review payment alternatives with

patients at the front end of the process, not after the bills have been sent to collection. Without such help, many patients would be reluctant to go back to the hospital.

(4) A final misconception is that hospitals and other healthcare providers

bear the full burden of providing care for the uninsured.

I have already discussed that the uninsured themselves in fact pay a significant

portion of the costs of their care. In addition, while hospitals definitely do bear a

portion of this burden, they also receive funding from a variety of sources to help

defray these costs. As Secretary of Health and Human Services Tommy Thompson

pointed out in a letter to the American Hospital Association, ‘‘Medicare and Medicaid have a long history of doing their part to help the uninsured that includes paying hospitals $22 billion each year through the disproportionate share hospitals provisions to help hospitals bear the cost of caring for the poor and uninsured.’’ In addition, most states and many counties and local communities have programs that help

fund care for the indigent and uninsured.

A word is warranted here about the ‘‘uncompensated care’’ that hospitals provide.

Most hospitals report their uncompensated care as a combination of bad debt and

charity care, without disaggregating the two. While both types of uncompensated

care similarly affect a hospital’s bottom line, their effects on patients are starkly different. ‘‘Bad debt,’’ even after a hospital has written it off, still burdens the patient.

Collection efforts by outside collection agents may continue indefinitely, and the

debt may be a blot on a consumer’s credit record for years; it may hinder people

from buying homes, getting loans, or even affect their employment. So while from

the hospital’s perspective the services are uncompensated (at least that portion of

the bill a patient is unable to pay), from the patient’s perspective the bad debt

write-off is by no means ‘‘charitable’’ and should not be confused with the legitimate

benefits of a hospital’s charity care program.

Recommendations

The widespread problem of medical debt is clearly a symptom of much that is

wrong with our fragmented health care system that leaves so many people exposed

to lack of access to care and to financial ruin. While this situation cries out for systemic solutions, some steps can be taken in the interim to reduce the burdens of

unaffordable health care costs on low-income uninsured people.

(1) Offer uninsured hospital patients discounts equivalent to those extended to people with insurance.

The current situation reflects the lack of clout that uninsured consumers have in

the healthcare marketplace compared to all of the other players—employers, insurers, and providers. Charging the highest rates to those least able to pay is simply

unfair, especially when it comes to necessary medical care.

By itself, however, this is not sufficient. From the standpoint of the low- or even

middle-income consumer struggling to pay his medical bills, the salient issue is not

only the prices a hospital charges but also the availability of financial assistance

programs. Even with changes in hospital pricing practices—the immediate concern

of the subcommittee—problems of medical debt will remain for those who require

medical treatment but are unable to pay the (albeit reduced) fees for which they

are responsible. For low-income people, or those with very high bills relative to their

income, even discounted prices may not prevent devastating medical debt. For a

family earning slightly more than the federal poverty level, reducing a bill from

$50,000 to $25,000 does not provide enough help. For people at this income level,

a bill of a few thousand dollars, or even less, may simply be beyond their means

to pay.

37

(2) Screen uninsured hospital patients and provide assistance to all patients who are eligible for public programs to ensure that they are enrolled

in them.

This is a win-win situation for the hospital and the uninsured patient; it provides

hospitals with some reimbursement for services rendered, and it helps prevent people from being saddled with unmanageable debt. We know of hospitals that have

adopted very proactive programs to ensure that all of their uninsured patients know

where to get help in applying for these programs. And they have continued to fund

these programs because they have found them to be financially beneficial to the hospital as well as the patient.

(3) Have consistent and well publicized charity care policies for hospital

patients who are not eligible for public programs and stop aggressive collection actions as an integral part of a hospital’s service to their communities.

In this regard, we are hopeful that the recent HHS guidance on billing and collections practices, as well new guidelines from the AHA and a number of state hospital

associations, will help to reduce the role hospitals play in imposing medical debt and

its harsher consequences. Hospitals must take a proactive role in informing their

patients of charity care and they must stop aggressive collection actions against uninsured patients. Such actions cost hospitals money and provide little financial return while ruining the credit of uninsured patients.

(4) Establish clear rules of accountability for funds that hospitals receive

through the Medicaid DSH program and other sources to help defray the

costs of uncompensated care.

Disproportionate Share Hospital payments provide vital funding for America’s

healthcare safety net. Hospital receiving DSH payments should be required to provide details on how this funding is used to support services to poor and uninsured

patients.

(5) Build on the American Hospital Associations Guidelines and Principles for Hospital Billing and Collection Practices by establishing a Financial Assistance Initiative for Uninsured Patients.

We call on the AHA to create an initiative with the purpose of providing financial

assistance to patients with no insurance. An essential part of this effort would be

for hospitals to work in partnership with community and consumer advocacy organizations that work with, and represent, people with no health insurance. These community and consumer advocacy organizations could assure that hospitals have

transparent policies that are understood and supported by their uninsured patients.

Hospitals participating in this initiative would have clear, written policies governing

their practice for screening uninsured patients for financial assistance, as well as

for billing, charity care, and debt collection practices related to uninsured patients.

The AHA should enroll hospitals in this initiative to bring clarity and decency to

billing and collection practices. One basic principle could drive the initiative—Do No

Harm. Hospitals must start treating their patients of limited resources with dignity,

respect and justice. If hospitals are unwilling to comply, legislation might well be

in order.

It is only after hospitals improve their billing and collection systems, that they

should seek additional funds to support the cost of providing health care to uninsured patients.

(6) Create a system of affordable health care for all.

We recognize that hospital bills are only one component of medical debt. As health

care costs rise and employers and insurers shift more of the costs on to consumers,

medical debt from all sources is likely to grow. While improved hospital financial

assistance programs are an important step in alleviating this problem, systemic efforts that include all types of healthcare providers and significantly expand coverage

will ultimately be needed to address the underlying factors that leave many patients—both uninsured and insured—with unmanageable medical debt.

On behalf of the more than 43 million American with no health insurance, thank

you for the opportunity to testify today.

Mr. GREENWOOD. Thank you.

Dr. Collins.

TESTIMONY OF SARA R. COLLINS

Ms. COLLINS. Thank you, Mr. Chairman, for this invitation to

testify today. I am a Senior Program Officer of The Commonwealth

Fund. The recent reports of uninsured patients struggling to pay

38

exorbitant hospital bills have lent a human face to a health care

system under enormous strain. Growing numbers of Americans are

experiencing gaps in their insurance coverage, gaps that expose

them to the routine cost of preventive care, as well as the catastrophic cost associated with serious accidents and illnesses. The

number of people without health insurance climbed to 43.6 million

in 2002, nearly 4 million more than 2 years before. At the same

time, national health care spending grew at a rate of 9.3 percent,

the highest annual increase in a decade. Health insurance premiums rose even more rapidly, increasing by 13.9 percent in 2003,

the third consecutive year of double-digit inflation. Employers are

responding to rising premiums by sharing more of their cost with

employees and offering new insurance products that shift more financial risk to their workers.

The Commonwealth Fund Biennial Health Insurance Survey, a

nationally representative survey of more than 4,000 adults, interviewed people about the extent and quality of their health insurance coverage in late 2003. The survey reveals growing instability

in insurance coverage, particularly among people with low incomes

and among minorities. More than half of adults under age 65 in

households earning less than $20,000 per year were uninsured for

some time during 2003. Nearly half of all Hispanics experienced a

time uninsured, and coverage for African Americans has worsened

considerably over the last 2 years.

The survey also found evidence of an erosion in the quality of

benefits received by people who have health insurance. Nearly half

of those who are insured all year through private coverage said

that they had experienced either an increase in the amount that

they pay for premiums, an increase in their share of medical bills,

or cutbacks or new limits in their health benefits. Erosion in coverage appears to be impeding Americans’ ability to get health care.

The share of people with and without insurance coverage who reported problems getting the health care that they needed because

of cost climbed to 37 percent in 2003. Those problems included not

filling a prescription because of cost, and not going to a doctor

when they were sick.

In addition, the survey found high rates of medical bill problems

among the insured and uninsured alike. More than 70 million

adults said that they had problems with their medical bills in the

last 12 months, or were paying off medical debt accrued over the

last 3 years. Problems included having difficult paying or being unable to pay bills, being contacted by a collection agency, or being

forced to make significant life changes. Medical bills are creating

financial hardship among many families. Among those who said

they had a medical bill problem, more than one-quarter reported

that they had been unable to pay for basic necessities like food,

heat, or rent because of their bills. More than two in five said that

they had used up all or most of their savings.

The recent conflict between uninsured patients and hospitals

over payment is a symptom of two underlying trends in the U.S.

health care system, growing instability in insurance coverage and

rapid growth in health care cost. The practice of hospitals billing

uninsured patients more than negotiated rates with insurers is

troublesome and will only increase access and medical debt probVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
39

1 R. Abelson and J.D. Glater, ‘‘Nonprofit Hospitals Said to Overcharge Uninsured,’’ New York

Times, June 17, 2004; L. Lagnado, ‘‘Dunned for Old Bills, Poor Find Some Hospitals Never Forget,’’ The Wall Street Journal, June 8, 2004; C. Pryor et al., Unintended Consequences: How Federal Regulations and Hospital Policies Can Leave Patients in Debt (New York: The Commonwealth Fund, June 2003); C. Pryor and B. Seifert, Unintended Consequences: An Update on Consumer Medical Debt (New York: The Commonwealth Fund, June 2004). 2 R.J. Mills and S. Bandhari, Health Insurance Coverage in the United States: 2002, Current

Population Reports (Washington, D.C.: U.S. Census Bureau, September 2003). 3K. Levit et al., ‘‘Health Spending Rebound Continues in 2002,’’ Health Affairs 23 (January/

February 2004): 147-59; K. Davis, Making Health Care Affordable for All Americans, Invited testimony before the Senate Committee on Health, Education, Labor, and Pensions hearing on

‘‘What’s Driving Health Care Costs and the Uninsured?’’ January 28, 2004. 4 J. Gabel et al., ‘‘Health Benefits in 2003: Premiums Reach Thirteen-Year High as Employers

Adopt New Forms of Cost Sharing,’’ Health Affairs 22 (September/October 2003): 117-26. 5 J. Gabel et al.; S.R. Collins, C. Schoen, M.M.Doty, and A.L. Holmgren, Job-Based Health Insurance in the Balance: Employer Views of Coverage in the Workplace (New York: The Commonwealth Fund, March 2004). 6M. Nathansan and L.Ku, Proposed State Medicaid Cuts Would Jeopardize Health Insurance

Coverage for 1.7 Million People: An Update (Washington, D.C.: Center on Budget and Policy Priorities, March 21, 2003). 7 J. Hadley and J. Holahan, ‘‘How Much Medical Care Do the Uninsured Use, and Who Pays

for It?’’ Health Affairs Web Exclusive (12 February 2003): W3-66-W3-81. 8S.R. Collins et al., The Affordability Crisis in U.S. Health Care: Findings from the Commonwealth Fund Biennial Health Insurance Survey (New York: The Commonwealth Fund, March

2004).

lems for uninsured families, and some hospitals’ methods to attempt to recover medical debt from patients, charging high interest

rates, having collection agencies harass them, and placing liens on

their homes are simply deplorable. Developing policies that would

discourage hospitals from either practice is necessary but, in the

meantime, the pressures that gave rise to this conflict will continue

to grow apace. In the end, small policy changes will need to be accompanied by broad policy solutions that address the root cause of

the affordability crisis in U.S. health care, policies that would expand access to affordable health insurance and reduce the rate of

health care cost inflation. Thank you very much.

[The prepared statement of Sara R. Collins follows:]

PREPARED STATEMENT OF SARA R. COLLINS, SENIOR PROGRAM OFFICER, THE

COMMONWEALTH FUND

Thank you, Mr. Chairman, for this invitation to testify today on the growing affordability crisis in the U.S. health care system. The recent reports of uninsured patients struggling to pay exorbitant hospital bills have lent a human face to a health

care system under enormous strain.1 Growing numbers of Americans are experiencing gaps in their insurance coverage—gaps that expose them to the routine costs

of preventive care as well as the catastrophic costs of serious accidents and illnesses.

The number of people without health insurance climbed to 43.6 million in 2002,

nearly 4 million more than were uninsured two years before (Chart 1).2 At the same

time, national health care spending grew at a rate of 9.3 percent in 2002, the highest annual increase in a decade (Chart 2).3 Health insurance premiums rose even

more rapidly, increasing by 13.9 percent in 2003, the third consecutive year of double-digit inflation (Chart 3).4 Employers are responding to rising premiums by sharing more of their costs with employees and offering new insurance products that

shift more financial risk to workers (Chart 4).5 A severe fiscal crisis has led many

state governments to restrict eligibility in public programs such as Medicaid and the

Children’s Health Insurance Program (CHIP)—a development that is likely to increase the number of people without coverage.6

The state of our nation’s health care system is creating profound conflicts between

providers, whose mission it is to care for patients, and patients, whose access to and

trust in the health care system is crucial to the maintenance of a vital and productive society. Private and public health care providers spend an estimated $35 billion

a year on care for uninsured patients that goes uncompensated.7 At the same time,

evidence from the recent Commonwealth Fund Biennial Health Insurance Survey

shows that being uninsured or having gaps in insurance coverage interferes with

people’s ability to get the health care they need.8 The Institute of Medicine warns

40

9 Institute of Medicine, Hidden Costs, Value Lost: Uninsurance in America (Washington, D.C:

National Academy Press, 2003). 10K. Davis, Making Health Care Affordable for All Americans, Invited testimony before the

Senate Committee on Health, Education, Labor, and Pensions hearing on ‘‘What’s Driving

Health Care Costs and the Uninsured?, January 28, 2004. 11S. Trude, Patient Cost-Sharing: How Much Is Too Much? Issue Brief No. 72 (Washington,

D.C.: Center for Studying Health System Change, December 2003). 12 Increase statistically significant at p < .05. 13 Increase statistically significant at p < .05. 14 Increase statistically significant at p < .05. 15 Increase statistically significant at p < .05. 16P.F. Short and D.R. Graefe, ‘‘Battery-Powered Health Insurance? Stability in Coverage of

the Uninsured,’’ Health Affairs 22 (November/December 2003): 244-55; P.F. Short, D.R. Graefe,

and C. Schoen, Churn, Churn, Churn: How Instability of Health Insurance Shapes America’s Uninsured Problem (New York: The Commonwealth Fund, November 2003).

that leaving more than 40 million people without insurance coverage costs the U.S.

economy an estimated $65 billion to $130 billion annually in lost productivity.9

Rising health care costs are also creating conflicts in the workplace, as U.S. companies, for lack of other options, shift more health care risk to employees in the

form of increased deductibles, greater premium sharing, and higher copayments.

Yet, Americans already pay more out-of-pocket for their medical care than people

in any other industrialized country.10 Higher cost-sharing thus raises concerns that

even people who have insurance coverage will forgo needed medical care, face outof-pocket costs that might consume substantial shares of their income, or drop their

coverage altogether.11

The Commonwealth Fund Biennial Health Insurance Survey, a nationally representative survey of more than 4,000 adults, interviewed people about the extent

and quality of their health insurance coverage in late 2003. The survey revealed

growing instability in insurance coverage, particularly among people with low incomes and minorities. In addition, the survey found evidence of erosion in the quality of benefits among people who have health insurance. Gaps in insurance coverage

and rising health care costs are preventing large shares of both uninsured and insured Americans from getting the health care they need. The survey also found high

rates of medical bill problems among uninsured and insured alike. Many families

with medical debt face stark trade-offs between life necessities like food and rent

and paying down their debt. Key findings from the survey and other recent reports

are discussed below.

INSURANCE COVERAGE IS BECOMING INCREASINGLY UNSTABLE

The Commonwealth Fund Biennial Health Insurance Survey shows that health

insurance coverage is becoming increasingly unstable. In the survey, respondents

were asked whether they were insured at the time of the survey and whether they

had lacked insurance at any time during the previous 12 months. Twenty-six percent of adults ages 19 to 64 had experienced at least some time uninsured in 2003:

17 percent were uninsured at the time of the survey, and 9 percent had been uninsured during part of the previous 12 months (Chart 5). In 2001, the last year that

the Commonwealth Fund survey was conducted, 24 percent of respondents were uninsured for at least part of the year.12

Insurance instability is particularly acute among people with low incomes. More than half (52%) of adults ages 19 to 64 in households earning less than $20,000 per

year were uninsured for some time during 2003, up slightly from 49 percent in

2001.13 The erosion of health insurance was most marked for families with incomes

between $20,000 and $35,000—35 percent were without coverage during the year,

up from 28 percent in 2001.14 Sixteen percent of adults in households with incomes between $35,000 and $60,000 experienced a time without health insurance in 2003.

Minorities experience similarly high rates of instability in coverage. Nearly onehalf (47%) of Hispanics were without health insurance at some point during the

year in 2003, with more than one-third reporting that they were uninsured at the

time of the survey (Chart 6). African Americans experienced a significant loss of coverage in the 2001-03 period: the share without coverage jumped from 27 percent in

2001 to 38 percent in 2003, with most of the increase attributable to an increase

in those who were uninsured at the time of the survey (14% to 23%).15

Other recent analyses of surveys that track people over time shows that many

low-income workers and minorities remain without coverage for years at a time. Research by Pamela Farley Short and colleagues found that from 1996 to 2000, 42 percent of children and adults under age 65 with incomes less than 200 percent of poverty had been uninsured for more than one year, and nearly 3 of 10 (28%) were uninsured more than two years.16 Michelle Doty and Alyssa Holmgren of The ComVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00048 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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17M.M. Doty and A.L. Holmgren, Unequal Access: Insurance Instability Among Low-Income

Workers and Minorities (New York: The Commonwealth Fund, April 2004). 18S.R. Collins, C. Schoen, M.M. Doty, and A.L. Holmgren, Job-Based Health Insurance in the

Balance: Employer Views of Coverage in the Workplace (New York: The Commonwealth Fund,

March 2004). 19S.R. Collins, C. Schoen, K. Tenney, M.M. Doty, and A. Ho, Rite of Passage? Why Young

Adults Become Uninsured and How New Policies Can Help (New York: The Commonwealth

Fund, May 2004). 20 J. Gabel and J.D. Pickreign, Risky Business: When Mom and Pop Buy Health Insurance for

Their Employees (New York: The Commonwealth Fund, April 2004). 21S. Glied, J.M. Lambrew, and S. Little, The Growing Share of Uninsured Workers Employed

by Large Firms (New York: The Commonwealth Fund, October 2003).

monwealth Fund found that 37 percent of Hispanic workers with incomes under 200

percent of poverty who had been employed full-time in the 1996-2000 period were

uninsured for the full four years.17

Insurance instability is also a serious problem among young adults ages 19 to 29.

In the Commonwealth Fund survey, 40 percent of young adults said that they were

without coverage at some point during the year. This is nearly twice the rate found

for those ages 30 to 64 who experienced a time without coverage in 2003. Age 19

is a critical turning point in insurance eligibility among both privately and publicly

insured young adults. Nearly 60 percent of employers who offer health benefits stop

covering dependent children at age 18 or 19 if they do not go on to college.18 The

Medicaid and CHIP programs reclassify all children as adults at age 19, meaning

that most low-income young adults become ineligible for public coverage, since eligibility for adults generally is restricted to very low income parents or disabled adults.

Jobs available to young adults are usually low wage or temporary—the type that

generally do not come with health benefits. A recent Commonwealth Fund report

found that more than half of high school graduates who do not go on to college experience a time uninsured in the year following graduation (Chart 7).19 Among those

who do go on to college, graduation also marks a break in coverage—nearly two of

five college graduates experience a time uninsured in the year following graduation.

Workers without insurance coverage are concentrated in small firms, which face

greater costs for coverage than do large employers and higher financial risks from

providing benefits to only a small pool of workers.20 But the long-term shift away

from manufacturing in the U.S. economy, coupled with declines in the rate of unionization in the workforce, has led to an increase in the share of uninsured workers

employed in large firms. A recent Commonwealth Fund report by researchers Sherry Glied, Jeanne Lambrew, and Sarah Little found that from 1987 to 2001, the proportion of uninsured workers who were employed by firms with more that 500 employees grew from 25 percent to 32 percent (Chart 8).21

THE QUALITY OF HEALTH BENEFITS IS ERODING

In addition to declining insurance coverage, the Commonwealth Fund Biennial

Health Insurance Survey also finds evidence of erosion in the quality of coverage

among those with health insurance. Working-age Americans reported that they were

now paying more for their insurance coverage and more for their medical care than

they were one year ago. Two of five (43%) adults under age 65 with private coverage

who contribute to their premiums said that the amount they pay for premiums had

increased by a moderate amount or a lot in the past year, with nearly one of five

(19%) saying the amount had increased a lot (Chart 9, Table 1). More than half

(58%) of those with coverage in the individual insurance market said that their premiums had risen by a moderate amount or a lot, with a third (34%) saying that

their premiums had gone up a lot. More than a quarter (28%) of people with employer or individual coverage said that their share of medical bills had risen by a

moderate amount or a lot.

In addition to paying more for their care, many privately insured adults also reported that their health plans are cutting back or placing new limits on covered benefits. The survey asked whether people had experienced reductions in the benefits

covered by their insurance plans. Reductions could dropping coverage for prescription drugs, dental care, vision care, or mental health, or placing limits on benefits.

About one-fifth (21%) of people with private coverage said that their benefits had

been curtailed.

Taken together, increased premium shares, increased cost-sharing, and limits on

benefits affected large percentages of the privately insured. Nearly half of those

(49%) insured all year with private coverage said that they had experienced at least

one of these erosions in the quality of benefits. People with coverage through the

individual market were particularly hard-hit—61 percent reported a decrease in the

quality of their benefits (Table 1). Among adults with employer coverage, erosion of

42

health insurance benefits appeared to be most common among those in the highest

income category, with 56 percent of those earning $60,000 or more reporting a decline in the quality of their coverage.

MANY AMERICANS SPEND SUBSTANTIAL SHARES OF THEIR EARNINGS ON HEALTH CARE

Depending on their insurance status or the particular provisions of their health

plans, Americans pay different amounts for their health care and their insurance

coverage. Most people with private insurance (employer-sponsored or individual)

contribute to their health insurance premiums. According to the Commonwealth

Fund survey, more than 75 percent of those with employer-sponsored coverage pay

part of their premiums, with 10 percent of single policy holders and a quarter (26%)

with family plans paying $2,500 or more annually (Table 2). Without an employer

to shoulder part of their premium costs, and without the benefit of risk pooling in

group plans, people with individual coverage pay much more for their premiums.

One-third (34%) of single policy holders in the individual market pay $2,500 or more

a year in premiums, and 15 percent have annual premiums of $5,000 or more. More

than half (52%) of single policy holders in the individual market spend 5 percent

or more of their income on premiums, and a quarter (26%) spend more than 10 percent.

Most (66%) adults with private insurance coverage have a deductible. Of those with employer-sponsored coverage, 15 percent have deductibles of $500 or more per

year and 5 percent have deductibles of $1,000 or more (Table 2). Three-quarters of

adults with coverage in the individual market pay a deductible: 44 percent have

deductibles of $500 or more and 30 percent have deductibles of $1,000 or more.

Nearly everyone with private coverage pays something out-of-pocket when they

obtain health care services. The Commonwealth Fund survey asks adults how much

they had to pay out-of-pocket over the last 12 months, excluding premiums, for their

own personal prescription medicines, dental and vision care, and all other medical

services, including doctors, hospitals, and tests. Two of five (41%) adults with employer-sponsored coverage pay less than $500 annually in out-of-pocket costs, a third

(36%) pay between $500 and $2,000 per year, 13 percent pay $2,000 or more per

year, and 10 percent did not respond or did not know (Table 3). People with coverage in the individual market pay more than those with employer-sponsored coverage—23 percent have annual out-of-pocket costs of $2,000 or more.

Adults with low or moderate incomes spend the greatest share of their earnings

on out-of-pocket health care costs. Of those with private coverage who had annual

incomes of less than $20,000, 29 percent spent 5 percent or more of their income

on out-of-pocket costs and 17 percent spent 10 percent or more (Chart 10). More

than one-fifth (23%) of those in the next income bracket ($20,000 to $34,999) spent

5 percent or more of their income on out-of-pocket costs. Among those with annual

incomes of $60,000 or more, just 2 percent spent that much on out-of-pocket costs.

The out-of-pocket costs of those who experienced a time uninsured are very different from those who were continuously insured by an employer. Nearly a quarter

(23%) of those who were uninsured at the time of the survey had no out-of-pocket

costs, while only 6 percent of those with employer coverage had no out-of-pocket

costs (Table 3). This indicates that many of those without coverage did not access

the health system, or received care that was partly or wholly subsidized. Still, for

many of the uninsured, out-of-pocket payments account for a large share of their

income: a third had annual out-of-pocket costs comprising 5 percent or more of their

income, and 18 percent had costs of 10 percent or more. Those who were insured

at the time of the survey but had experienced a time uninsured in the past year

also spent large shares of their incomes on out-of-pocket costs. Nearly a quarter

(23%) spent 5 percent or more of their income on out-of-pocket costs.

People who are insured by public insurance programs incur much lower out-ofpocket costs than do those in private plans. A third (31%) of those insured continuously by public insurance programs said they had no out-of-pocket costs. Another

third (34%) had costs amounting to less than $500 per year. Yet, even low health

care costs can figure prominently as a share of a tight household budget. One-fifth

(19%) of those with public insurance coverage and household incomes under 200 percent of poverty spent 5 percent or more of their incomes on out-of-pocket costs.

Those with employer-sponsored coverage in that income range fared somewhat

worse: a quarter (26%) spent that much of their income on out-of-pocket costs.

INCREASING SHARES OF PEOPLE WITH AND WITHOUT INSURANCE REPORT PROBLEMS

GETTING NEEDED HEALTH CARE BECAUSE OF COST

The decline in the quality of private health benefits and the increasing instability

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22 Increase statistically significant at p < .05.

wealth Fund survey asked respondents whether, in the last 12 months, they had

not pursued medical care because of cost. Respondents were asked if they had not

filled a prescription; had a medical problem but did not go to a doctor or clinic;

skipped a medical test, treatment, or follow-up visit recommended by a doctor; or

did not see a specialist when a doctor or the respondent thought it was needed. The

share of people who reported any one of these problems increased from 29 percent

in 2001 to 37 percent in 2003 (Chart 11). Those who were uninsured or who reported a gap in coverage were most at risk of encountering these access problems

(Chart 12). Around 60 percent of this group reported that they did not get the care

they needed because of cost. But those with insurance coverage also reported deteriorating access to care. Nearly three of 10 (29%) of those who were insured all year

reported that they did not get the care they needed because of cost, up from 21 percent in 2001.22

Problems accessing the health care system also are related to income, even among

those with health coverage. Nearly two of five (39%) adults who were insured all

year with household incomes less than $35,000 said that they did not get the care

they needed over the last 12 months because of cost. Obtaining prescription drugs

appeared to be a particular problem in this income group (Table 4). But even a

quarter (24%) of people with coverage in higher income brackets reported that they

did not get needed health care because of cost.

MEDICAL BILLS AND LINGERING MEDICAL DEBT ARE UNDERMINING THE FINANCIAL

SECURITY OF AMERICAN FAMILIES

Out-of-pocket costs for health care are negatively affecting the finances of those

who have gaps in coverage as well as those who are continuously insured. The Commonwealth Fund survey asked people about their ability to pay their medical bills

in the last 12 months, including whether there were times when they had difficulty

or were unable to pay their bills, whether they had been contacted by a collection

agency concerning outstanding medical bills, or whether they had to change their

lives significantly in order to meet their obligations. People who reported no medical

bill problems in the last 12 months were asked if they were currently paying off

medical debt that they had incurred in the last three years.

The survey found that 41 percent of adults under age 65 either had medical bill

problems in the last 12 months or were paying off accrued medical debt (Chart 13).

The problem was most severe among those who were uninsured at the time of the

survey or had experienced a time uninsured in the past year (Chart 14). Women

were more likely to say that they were coping with medical bills or debt than men—

70 percent of uninsured women reported medical bill problems or accrued debt

(Chart 15).

But even those adults who were insured continuously over the last 12 months

cited problems. More than a third (35%) reported that they had experienced problems with medical bills or were paying off accrued debt (Table 4). Moreover, among

those with bill problems or past debt, three of five (62%) said the bills were incurred

for themselves or a family member who had been insured at the time.

Among those who had medical bill problems or outstanding debt, 27 percent reported that they had been unable to pay for basic necessities, including food, heat,

or rent because of medical bills (Chart 16). Two of five (44%) said that they used

all or most of their savings in order to meet their obligations. One-fifth reported

that they had run up large debts on their credit cards or had taken out loans

against their homes in order to pay their bills. People who were uninsured for a

time and/or had low incomes were the most severely affected (Table 4). More than

half (51%) of those earning less than $35,000 a year—regardless of insurance status—said that they had used all or most of their savings to pay their bills. Fortyfive percent of those who were uninsured in that income category had been unable

to pay for basic living necessities.

CONCLUSION

The recent conflict between uninsured patients and hospitals over payment is a

symptom of two underlying trends in the U.S. health care system: growing instability in health insurance coverage and rapid growth in health care costs. Health

insurance has become both less available and more expensive to workers and their

families, and health care itself continues to become more expensive. Indeed, health

44

care cost growth is expected to outpace the growth rate in the economy by a wide

margin for the foreseeable future.23 Against this backdrop, patients, providers, employers, workers, labor unions, and federal, state and local governments are struggling to solve serious problems that stem from a far greater crisis. The practice of

hospitals billing uninsured patients more than negotiated rates with insurers is

troublesome and will only increase access and medical debt problems experienced

by uninsured families.24 And some hospitals’ methods to attempt to recover medical

debt from patients—charging high interest rates, having collection agencies harass

them, and placing liens on their homes—are simply deplorable. Developing policies

that would discourage hospitals from either practice is necessary. But in the meantime, the pressures that gave rise to this conflict will continue to grow apace. In

the end, small policy changes will need to be accompanied by broad policy solutions

that address the root cause of the affordability crisis in U.S. health care—policies

that would expand access to affordable health insurance and reduce the rate of

health care cost inflation. Thank you for the opportunity to be here today.

———23 B.C. Strunk and P.B. Ginsburg, ‘‘Tracking Health Care Costs: Trends Turn Downward in

2003,’’ Health Affairs Web Exclusive (9 June 2004): W4-354—W4-362. 24 R. Abelson and J.D. Glater, ‘‘Nonprofit Hospitals Said to Overcharge Uninsured,’’ New York

Times, June 17, 2004; L. Lagnado, ‘‘Dunned for Old Bills, Poor Find Some Hospitals Never Forget,’’ The Wall Street Journal, June 8, 2004; C. Pryor et al., Unintended Consequences: How Federal Regulations and Hospital Policies Can Leave Patients in Debt (New York: The Commonwealth Fund, June 2003); C. Pryor and B. Seifert, Unintended Consequences: An Update on Consumer Medical Debt (New York: The Commonwealth Fund, June 2004).

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59

Mr. GREENWOOD. Thank you, Dr. Collins.

The Chair would notify the subcommittee that we will do one

round with 10 minutes each for the members, and recognizes himself for 10 minutes. And let me begin by making my own personal

stipulations about this issue.

No. 1, I believe that most hospitals treat most of the uninsured

fairly most of the time. I believe that many hospitals treat many

patients very unfairly many times. I would stipulate that people

who have financial obligations that they can reasonably manage

should be expected to meet those obligations, and I would stipulate

that we haven’t solved the issue of universal health coverage yet.

We are not going to do that today. No one in this Congress has figured out how to develop an approach to that for which he or she

can gain consensus among the stakeholders. That is why we

haven’t solved that problem yet.

Now, having said that, I have a question that I would like to

pose to each of the panels, and that is, is there any reason for any

hospital to charge any uninsured or self-pay patient its charges,

ever? Dr. Anderson.

Mr. ANDERSON. No, I don’t think so. I think when you are talking

about the full-charge master file, which is anywhere from two to

four times what everybody else pays, I don’t think there is a reason

to charge more than that.

Mr. GREENWOOD. More than——

Mr. ANDERSON. More than what the Medicare program, what the

highest amount that a commercial insurer pays. I think that—and

maybe just a little bit more than that.

Mr. GREENWOOD. Which seems to me to be a no-brainer.

Mr. ANDERSON. Exactly.

Mr. GREENWOOD. Seems to be obvious. Someone is already—unless Donald Trump decides to go bare and walk into a hospital and

say, ‘‘I can just cover the charges,’’ fine, that is not what we are

talking about. We are talking about people who don’t have insurance because either they have never had it, they can’t afford it,

they have lost it, that is what we are talking about for the most

part—or the young people who don’t think they need it, whatever

the issue may be. But the fact of the matter is, it seems to be quite

obvious to me that those people, they either go into the charity care

portion, or the hospital should give them a bill that reflects something like what insurance companies pay.

Mr. ANDERSON. So, somebody who makes $50,000, $75,000, and

has a heart attack in Pennsylvania, is going to have a $30,000 bill,

and I think Medicare would have a $10,000 bill, Medicaid would

have a $9,000 bill, Aetna might have an $11,000 bill. That seems

like a reasonable amount that person who makes $50,000 or

$75,000 should pay, not $30,000.

Mr. GREENWOOD. And to me, that is the whole point of this investigation and this hearing, and it isn’t rocket science. Ms.

Jacoby?

Ms. JACOBY. I have heard no such reason, but I do want to state

the limitation that I come to this from a very different perspective

from studying debt and bankruptcy, and therefore will defer to my

colleagues on that.

60

Mr. GREENWOOD. That is okay. You agree with me, so you are

probably right. Mr. Rukavina?

Mr. RUKAVINA. Well, we have concerns for uninsured, low-income

uninsured patients, and believe that the fees should be set that

they enjoy the benefits that insured patients do, also.

Mr. GREENWOOD. Right. So you are agreeing with the proposition

that the uninsured shouldn’t be charged significantly more than

the insured.

Mr. RUKAVINA. Absolutely.

Mr. GREENWOOD. Okay. Dr. Collins?

Ms. COLLINS. I definitely agree that the uninsured shouldn’t be

charged more than the insured.

Mr. GREENWOOD. Next series of questions for everyone. How

widespread do you think, if we know—and I think this is a difficult

thing to get a handle on—is the practice by which hospitals, in fact,

do charge uninsured patients their full charges?

Mr. ANDERSON. Well, I think they start out trying to get full

charges from everybody.

Mr. GREENWOOD. Now, let us put a point on this. When you say

‘‘they,’’ you mean you think that is the widespread in most hospitals?

Mr. ANDERSON. I think they, first of all, start out trying to get

full charges. Then what they do is they have a series of discounts

that they do if you are below a certain level of income.

Mr. GREENWOOD. And this is very important because this is our

concern—and I don’t know the answer to this question—and that

is, if an uninsured person is about to be discharged, and in comes

the billing clerk, I don’t know whether most hospitals say, ‘‘Okay,

you are uninsured, let us begin by seeing if you fit into our charity

category, or let us begin by taking a look at what your earnings

and assets are,’’ or whether they usually begin by saying, ‘‘Do you

have a VISA card?’’

Mr. ANDERSON. I think it depends on the extent of the bill. If it is $1,000, I think they will go for the VISA card. I think if it is

$30,000, they recognize that most people don’t have $30,000, except

for Donald Trump and a few others, and then they will start the

negotiation process. But it is not over their charges, it is over a discount that they will do for charity care. But they will start with

the charges, which are very high.

Mr. GREENWOOD. And you said, I think, is that based on some

statistical evidence?

Mr. ANDERSON. We have looked at the hospital industry—and,

again, every hospital is different and every system is different—but

only about 1 in 20 people that walk out of the hospital have negotiated a charge that is lower than the full rack rate when they

leave the hospital.

Mr. GREENWOOD. Does that include those that need to negotiate

because they weren’t asked to pay it all?

Mr. ANDERSON. That would not include those individuals. So, it

is just the people that actually went through a negotiation process.

Mr. GREENWOOD. So you are already excluding the charity care.

Mr. ANDERSON. I am already excluding the people——

Mr. GREENWOOD. You are already excluding Medicaid/Medicare

insurance.

61

Mr. ANDERSON. Certainly I am doing that.

Mr. GREENWOOD. You are saying that the uninsured who actually end up with some obligation because they are not charity care,

only 5 percent of those folks ever really have an opportunity to negotiate.

Mr. ANDERSON. Only do negotiate.

Mr. GREENWOOD. Only do negotiate. Ms. Jacoby, do you feel competent to respond to the question of how widespread this problem

is?

Ms. JACOBY. Well, I am under oath, so I should qualify that the

limited data or evidence that I have seen makes me very concerned

about the efforts to get money first and ask for eligibility information later. The prophecies that I am familiar with do seem to encourage charity care eligibility considerations to come way later in

the process, or at least have the possibility of coming way later in

the process, and allowing collection to go forward on presumably

the full charge before considering that eligibility or having those

two prophesies wound up with each other, and of course that is a

very big concern to me.

Other data that I have seen suggests that most patients do not

even think to negotiate their bills with their health care providers

and especially at hospitals.

Mr. GREENWOOD. Mr. Rukavina?

Mr. RUKAVINA. Well, I would defer to the hospital panel in terms

of how widespread the issue is.

Mr. GREENWOOD. You will take their word for it, will you?

Mr. RUKAVINA. Well, I would hope that——

Mr. GREENWOOD. They will be under oath as well.

Mr. RUKAVINA. [continuing] they will be under oath as well. But

we do know, in working with groups across the country, that this

problem is experienced by individuals in communities in many

States across the country, and that hospitals appear to acknowledge that they are charging higher rates, and oftentimes stating—

prior to Secretary Thompson’s clarification, certainly—stating that

they need to do that because of Federal Medicare rules and regulations.

Mr. GREENWOOD. Dr. Collins?

Ms. COLLINS. I can actually only point to anecdotal evidence, too.

I don’t know how widespread the problem is.

Mr. GREENWOOD. Fair enough. Dr. Anderson, I think it was in

your opening statement that you made reference to—you were describing why the charge masters exist to begin with, and you

talked about the Medicare formula, or formulae, that looked to

outliers, saw the outlier issue, and that it is advantageous for them

to have these higher charges when that calculation is occurring.

Mr. ANDERSON. Correct.

Mr. GREENWOOD. That leads me to think that if that is the only

reason they have them—well, let me rephrase that. That leads me

to think that the outlier issue should be resolved using a different

number.

Mr. ANDERSON. I think it should, in fact, be, and it is only——

Mr. GREENWOOD. And using a different number for the charge.

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pensation rates. You could change the formula in a second way so

that they could still wind up with the same number of dollars.

Mr. ANDERSON. You could do it that way, but it is one reason

why the reasons are so high, because the Medicare program calculates outliers based upon full charges.

Mr. GREENWOOD. So, it would seem prudent to me to change that

situation so you would give the hospitals at least one less reason

to—so we wouldn’t be skewing the system creating an incentive,

having the Federal Government and the Medicare program create

an incentive for hospitals to make up mythological charges.

Mr. ANDERSON. I agree.

Mr. GREENWOOD. Anyone else want to comment on that point?

[No response.]

Final question for each of you. The time can now be sort of

demarked by as that before our investigation and before the communication with the Hospital Association and the Secretary, when

there was this question about whether they were required to do

that, and then the point at which the hospitals have taken, I think,

some commendable steps to solving this problem. Have you noticed

or had the opportunity to observe any difference?

Mr. ANDERSON. I have not.

Mr. GREENWOOD. Because it doesn’t exist, or you just haven’t had

the chance?

Mr. ANDERSON. I just have not had the opportunity. It is just too

recent to have a chance.

Mr. GREENWOOD. Anyone else want to comment on whether you

think the world has changed in this regard since the hospitals have

initiated their voluntary efforts?

Mr. RUKAVINA. I would like to comment, Mr. Chairman. I think

that there is an openness on the part of the Association and many

of the hospitals to try and address this problem. Many of the

groups that we work with unfortunately have expressed some frustration with the lack of actual written policies that do explain the

discount, that do explain the collection procedures used by the hospitals and, very importantly, a lack of information on the process

for informing patients of these programs, the steps used to ask

questions.

Mr. GREENWOOD. Do you think Congress should require that patients be given some kind of information, that the hospital give

them some information upon admission, as to what their options

are for payment?

Mr. RUKAVINA. We would hope that that information would be

supplied to all self-pay patients, that the hospitals would in fact

work with those patients to ensure that the information is given

to them about existing programs, and assistance also provided to

them to enroll in those programs. Again, we think it would be financially beneficial to the institutions, and helpful to these patients.

Mr. GREENWOOD. Dr. Collins, anything to add on this subject?

Ms. COLLINS. No. I do think that transparency would be very

helpful in terms of people having access to information.

Mr. GREENWOOD. Thank you. My time has expired. The

gentlelady from Colorado.

63

Ms. DEGETTE. Thank you, Mr. Chairman. First of all, let me say

that I agree with the chairman that charging the uninsured exorbitant rates compared to, say, the insurance companies, I disagree

with that, too. But I want to explore with you how much reducing

these fees would really help solve the problem.

I believe, Dr. Anderson, you testified there are a range of reasons

why people are uninsured, but the primary reason people are uninsured or underinsured is because they can’t afford to pay for insurance, correct?

Mr. ANDERSON. Correct.

Ms. DEGETTE. And most of those people tend to be lower-income

individuals, that is all the anecdotal evidence we have read and

testimony we have seen, is that correct?

Mr. ANDERSON. That is correct.

Ms. DEGETTE. Does anybody disagree with that?

[No response.]

So, here is my question. Let us say—and I don’t believe that the

chairman or anyone in the Majority would pass legislation like

this, but let us say we passed a law that required hospitals to

charge only a certain amount above Medicare or above their highest insurance rate, so we capped it. Would that really solve the

problem of the uninsured being able to pay their hospital bill?

Mr. ANDERSON. I don’t believe it would solve the problem, but it

would mean that the collections would go down because instead of

being responsible for a $30,000 bill, you would be responsible for

a $10,000 bill.

Ms. DEGETTE. Okay, I understand that, but for most of these

people—and I agree it should go down, but for most of these individuals, some I read about in the excellent series in the Wall Street

Journal and other places, they can’t even pay a $1,000 bill, correct?

So that is not going to help them, is it?

Mr. ANDERSON. No, but if you are getting a 50 percent discount

on $30,000, it is still $15,000. If you are getting a 50 percent discount on $10,000, now it is $5,000. We are starting to get to a

range where at least some of the more affluent uninsured individuals can, in fact, pay.

Ms. DEGETTE. Do you have any statistics about how many more

would be able to pay in that circumstance?

Mr. ANDERSON. I do not, but I think somebody making $50,000 or $75,000 might be able to pay a $5,000——

Ms. DEGETTE. What percentage of the uninsured are making

$50,000, because you had just testified that most of the uninsured

are lower income individuals. So, how many of the uninsured are

the people that are making $50-75,000?

Mr. ANDERSON. About 10 percent.

Ms. DEGETTE. Ten percent. So the rest of them are making a lot

less, aren’t they? Mr. Rukavina, what do you think about that? I

mean, again, I agree people shouldn’t be charged these exorbitant

rates, but I am not sure that most uninsured could even pay reduced rates.

Mr. RUKAVINA. I think that the discounts—we believe they are

necessary, though not sufficient. It is a fairness issue in terms of

the discounts being offered.

Ms. DEGETTE. Exactly right.

64

Mr. RUKAVINA. Many of the uninsured that we have interviewed—SEIU is here today, and they have interviewed a number

of uninsured individuals, a lot of the groups we work with across

the country—the uninsured are actually interested in paying something for their care. And it isn’t until they actually receive the bills,

that are oftentimes quite eyepopping, that they kind of throw their

arms up in despair.

Ms. DEGETTE. And that is where we get back to the other component, that the hospitals should really work with folks from the

front end to establish payment plans and to explain, so that some

poor person is not sitting there recovering in their home and they

get a $30,000 bill.

Mr. RUKAVINA. We believe that would be the fiscally prudent approach for both the hospital and the uninsured patient.

Ms. DEGETTE. Now, Edith just told me that half of the uninsured

are below 200 percent of the poverty rate, does anybody disagree

with that?

[No response.]

Okay. And my second question is that a lot of people think that

the solution to this problem are the health savings accounts, that

if we let people have a health savings accounts which would have

high deductibles, that might solve the problem. What do you think

about that, Dr. Anderson?

Mr. ANDERSON. I am not a fan of health savings accounts because I don’t think that the American public—two things: One can

frequently negotiate with doctors, with hospitals, whatever, one-onone. You have got Aetna and everybody else negotiating hundreds

on one, thousands on one, why should an individual be able to negotiate?

The second thing is, I think patients don’t have the clinical information to make decisions as well, quite often. And so they are not

the best informed, especially the Medicaid and Medicare recipient

are not the best informed individuals to make a lot of their decisions.

Ms. DEGETTE. Anyone else have an opinion on the health savings

accounts? Mr. Rukavina?

Mr. RUKAVINA. Well, we think that more exposure will not help

the problem, that if people are more financially exposed——

Ms. DEGETTE. You mean if they have to pay, say, $1,000?

Mr. RUKAVINA. $1,000, $2500, that, in fact, it will be harmful to

the individual, and also to the hospital.

Ms. DEGETTE. It will be much harder to collect and it makes the

problem a lot bigger because you are not just trying to collect from

a small percentage of uninsured.

Mr. RUKAVINA. Again, I was asked the question earlier about the

hospitals and changes since earlier this year when some of this has

come to the fore. We hope to work with some of the hospitals to

better understand this problem as it affects insured patients, and

actually are looking at the increase in these high deductible policies and whether they do contribute to the medical debt problem,

and the uncompensated care problems of the hospitals in the country.

Ms. DEGETTE. Dr. Collins, what do you think about that?

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Ms. COLLINS. I just wanted to cite some research by the Center

for Study in Health System Change that found if all Americans

had a $1,000 deductible health plan, a third would spend more

than 10 percent of their income on their health care in the event

that they were hospitalized. So, you are still looking at charges

that could exceed large shares of people’s income, particularly at

the lower level income ladder.

Ms. DEGETTE. Even for some of those people, it might send them

into bankruptcy and cause other severe financial problems just trying to pay their deductible, correct?

Ms. COLLINS. Yes.

Ms. DEGETTE. I didn’t get to you with my last question. I am

wondering if you think that the solutions which we all can agree

are important short-term bandaid type fixes—charity care and discounting for the uninsured—are going to solve the financial problems with health care of the uninsured in America.

Ms. COLLINS. I think that they are short-term solves to this problem. They certainly will not solve the problem in the long-run, and

there is no question that with the growing cost in health care, that

employers are going to continue to have to shift more of their burden to their workers, raising the concerns that workers will become

more underinsured or drop their coverage all together. So, now I

think that there really needs to be a broader policy solution to increase coverage of the uninsured.

Ms. DEGETTE. Now, in your study, in fact, that you cited today,

it seemed to me like everything is getting worse. There is more uninsured. Insurance is more expensive, it covers less. Public health

care systems are being cut back, and people can’t pay their medical

bills. Do you see anything reversing those trends in the next 5

years?

Ms. COLLINS. Improving economy will certainly help, but research by Paul Ginsberg just recently on health care costs predicts

that health care costs will continue to outpace the growth rate in

the economy for the foreseeable future.

Ms. DEGETTE. One of the things I noticed also in your study was

that the largest companies, the ones that employ 500 people or

more, the ones who should be providing excellent insurance, now

have 32 percent of their workers uninsured. This compares to the

medium size companies which actually had a small decrease in the

number of uninsured. What is happening with those larger employers, are they following sort of the Wal-Mart method of having temporary or part-time employees, or what is going on?

Ms. COLLINS. What really reflects broader changes in the economy away from manufacturing and toward the service industry is

the larger firms are now firms that are like Wal-Mart that tend not

to offer insurance coverage to all of their employees, or not any of

their employees, so looking more like small employers. Small employers certainly—workers in small firms currently make up the

largest share of the uninsured, but it certainly is growing in the

large firm sector.

Ms. DEGETTE. Ms. Jacoby, getting to you with the questions I

was asking, do you think that instituting this charity care and discounting are really going to help the uninsured that you looked at

in your research?

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Ms. JACOBY. I think that—do you mean in terms of discounts to

a lower amount——

Ms. DEGETTE. Because of the population we are talking about

here, is it really practically going to make them not have to take

bankruptcy if they have the lower bills, and can you quantify how

many people?

Ms. JACOBY. I am concerned that even smaller bills can be a big

problem for the families that we are talking about. I think if we

look at the bankruptcy data, credit report data, and even the published case law of hospital lawsuits against patients, we are finding

a real range of bills.

Ms. DEGETTE. What are some of the average medical bills in

these bankruptcies?

Ms. JACOBY. Well, in the average medical bills in bankruptcies,

some of the latest data would suggest that they are well over

$10,000, on average, since illness onset, at the time of filing. We

need to be careful because that may not include amounts that are

included on credit cards. I know that The Access Project has done

other work on this finding that nearly half of all bankruptcy filers

have medical debt in their bankruptcy files, and that is in addition

to people who may have mortgages on their homes already from

medical debt, who may have used credit cards and have higher interest payments on those as well. So, I do think there is a range

of bill sizes, but the average is actually fairly high for families with

the incomes that we are talking about.

Ms. DEGETTE. Thank you.

Mr. GREENWOOD. The time of the gentlelady has expired. The

gentleman from Oregon, Mr. Walden, is recognized for 10 minutes.

Mr. WALDEN. Thank you very much, Mr. Chairman. I want to go

to a comment you made, Dr. Collins, regarding insurance and the

$1,000 deductible portion because I will tell you what I hear, having been a small employer for 18 years now, and we provide insurance for our employees, health insurance. As I talk to small employers in my district and around, it is the price of the premium

that is driving them away from providing insurance. The annual

increase is sometimes 30 or 40 percent. And they are having to

make some really difficult and unwanted choices. And with the advent of the health savings accounts, I am finding a renewed interest and a new availability of policies where you could actually insure a family for catastrophic care at, say, $300 a month. Now, albeit the deductible can be high, but the employer can contribute to

that, which then goes into the HSA. And they are saying, ‘‘Gee,

maybe I can continue to provide health insurance for a while

longer.’’ Some are adding it for the first time.

And I am wondering in terms of your studies and others on the

panel, do you look at that and what that means because, if I am

a moderate to low-income person and my small employer—which is

where most of us work and get our insurance—if they are able to

continue to insure, they are preventing a catastrophic loss—because when you have a heart attack and you are on a gurney, you

are not negotiating price at the door of the hospital, and it may be

the only hospital within 20 miles. So, do you look at those data as

well? Would the loss be higher if you are uninsured than if you

have a catastrophic stop-loss?

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Ms. COLLINS. Well, certainly, if you had a catastrophic stop-loss,

your losses would be less if you had a catastrophic event. The problem is that you are going to be so underinsured for first-dollar

event, so the preventive care. And so people are going to have similar access to care that the uninsured have simply because those

dollars, preventive care dollars, are not available to them.

Mr. WALDEN. Right. But it seems to me that if I have got, let us say, a $1,000 deductible HSA policy, health savings account policy,

I am out $1,000 up front, certainly. I may be out some form of copayment—and I don’t know what that would be, 80-20, 90, whatever, to a stop-loss period—but once I am out that, then I am covered, right? So my heart attack that may be $11,000, I am paying

$1,000. Without any insurance, I am getting hit for not $11,000,

but $30,000, according to Dr. Anderson, which is outrageous.

So, I am looking at this—and I have worked on this issues as an

employer, on a small community hospital board, in the State Legislature, I chaired the committees after my first session that implemented the Oregon Health Plan and expanded the high-risk pool,

and did all these things. I haven’t found a silver bullet yet that

solves this problem, but what I find is there are a bunch of little

things you can do that fit different pieces, and we try and get more

people covered.

And so I look at HSAs and say, maybe this is one piece that

works for a certain segment that can insure the uninsured that

otherwise would be walking away from the table today, and are.

Ms. COLLINS. Yes. The concern, of course, is whether or not people have a comprehensive benefit package that leaves them covered

when they need it. It gives them good access to the health care system and not underinsured. And whether or not there are other options for small employers buying into large group pools, for example, that might provide more affordable care for their employees.

Mr. WALDEN. Right.

Mr. ANDERSON. When people have first-dollar coverage, the

things that they don’t do are preventive services, so the women do

not get mammograms, they do not get pap smears because they can

defer those things until the next year and the year after that.

Those are the things, when we have this lack of first-dollar coverage, are the things that we go without. I mean, that is just——

Mr. WALDEN. Right, but if your alternative is you have no coverage, how are you any better?

Mr. ANDERSON. You are clearly better off having coverage than

no coverage, but the whole idea behind managed care, the whole

idea behind——

Mr. WALDEN. Prevention.

Mr. ANDERSON. [continuing] is prevention.

Mr. WALDEN. Sure, and that was the whole idea behind the Oregon Health Plan, which for the Medicaid population said ‘‘we can

immunize for preventive work for thousands where we can do one

high-risk procedure for an 80, 90-year-old that wanted a liver

transplant, is an alcoholic, diabetic, whatever.

Mr. ANDERSON. And that is what the health savings accounts

will still pay for.

Mr. WALDEN. I understand that, but there is a certain amount

of personal responsibility when it comes to health care, and people

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do make decisions about whether or not they have satellite TV and

a new car. I mean, there are other financial decisions. I am sure

you see it in your bankruptcy work, don’t you? Half of it is medical,

certainly, and those are those out-of-the-blue charges like you are

saying, $30,000 that shouldn’t be $30,000, but there are other—and

I guess that is what I wrestled with on the hospital board because

we looked at the list of people who owed us money, and as community leaders we knew some of them. And you would say, ‘‘Wait a

minute, I just saw them buying a new whatever, and they are driving in town, or they are in a business or something,’’ and they

should pay and they should be held accountable.

Mr. ANDERSON. But if they are being asked to pay $30,000 for

something you know everybody else is buying for $10,000——

Mr. WALDEN. I don’t disagree with that. But the issue, too, is,

don’t those who are insured—don’t the insurance companies bring

some efficiencies to the hospital? I mean, just like—well, in theory,

Medicare does, but I think it just brings more regulation and cost,

frankly—but, in theory, there is an advantage to having a thirdparty payer handle that, whether you are a doctor or a hospital.

So, I can see a reason to be able to negotiate—have to have some

room to negotiate some reductions for that opportunity, right?

Mr. ANDERSON. Sure. And the savings occur mostly in the billing

and administrative side, they don’t—once you get on the surgical

table, it doesn’t matter who is insuring you.

Mr. WALDEN. And it seems to me that part of the problem with

this market is—I look again at my district, I have got 20 counties,

three of whom don’t have doctors or hospitals, and you drive 100

or 150 miles to the first one, literally. And so if you walk in with

chest pains, you are not going to say, ‘‘Well, I am going to go to

the Dow, it is 19 miles away, and I can get it for 100 bucks less.’’

So, it isn’t really a market process where you can negotiate that

kind of price.

Mr. ANDERSON. Certainly if you just had a heart attack.

Mr. WALDEN. Right. Now, if you are doing cosmetic surgery or

something—our colleague, Greg Ganske, used to talk about people

got three prices before they came and made their decision. You look

at lasik eye surgery and things, it is advertised based on price, and

I am not sure I want the cheapest one, but—but it is a voluntary

choice in that case. And what you are looking at is emergency care

and others.

Mr. ANDERSON. Correct.

Mr. WALDEN. But does it make sense to, in effect, get into a price

setting, say, 25 percent above Medicare. Does that work everywhere, and is that—what are they collecting now off the charge

master?

Mr. ANDERSON. Most of them are collecting very little off the

charge master.

Mr. WALDEN. So it raises the issue, why do we have a charge

master?

Mr. ANDERSON. Exactly. Well, we had a charge master from 1900

on because people originally paid charges, and in 1960, 1965, and

1990, the charge master meant something. After about 1990, the

charge master has no market forces to determine it at all, it is just

raised two, three times faster than health care costs have risen.

69

Mr. WALDEN. How much of that is because of cost shift from

lower, like Medicare and Medicaid, that don’t always pay the full

freight, and how much of that is just that those final folks left have

no negotiator?

Mr. ANDERSON. I would say that it is mostly that those final

folks have no negotiator.

Mr. WALDEN. And it seems to me, too, on debt—and maybe, Ms.

Jacoby, you can address this—as a small business owner, when I

have a client that is behind 30, 60, 90 days, I am much better off

to sit down and cut a deal because I am never going to see anything—even if I go through bankruptcy, the opportunity to collect

is pretty slim.

Ms. JACOBY. I think that is what has struck some of us on the

debtor/creditor side about the situation about attempts to collect

through the formal process, that it is a little unusual as compared

to what institutional lenders are doing and how they are handling

the situation.

Mr. WALDEN. It is not very effective. Okay. Then where in the

process do you make this work? I am in the radio business, so I

can negotiate a sales price when we go in the door and out the

other side and all that. But if I am a patient coming into the hospital in need of emergency care, I don’t want to wait around, I

want somebody to look at me. Where do you make this thing work?

Where should these hospitals make it fit?

Ms. JACOBY. Well, this is a big concern, as I tell my contract students, this is very different from even the other standard form contracts that patients and consumers enter into every day, that there

really is no opportunity for negotiation when they need the care,

and often their family members are signing agreements that have

terms in them that they barely are reading because they have very

important things on their mind and would sign them in any event.

It is a very difficult situation to find the right time when people

aren’t involved in regular care. If they are involved in more regular

and preventive care, they might have a better——

Mr. WALDEN. That is a different issue. One final point, because

the census data I have here somewhere indicated that I think the

figure was 43.3 percent of those who have no insurance for an entire year are not citizens of the United States. That means—and

we saw it in our hospital, we have a very high Hispanic population.

A lot of them are not legal citizens of the United States. How do

we cope with that because they are not going to want to give data,

and you know why. I mean, they don’t want a free ride back to

their country where they are citizens.

Ms. JACOBY. Even those who are citizens may not have the data

that are necessary in order to process their charitable care eligibility in terms of pay stubs and the like, if that is what you are

referring to.

Mr. WALDEN. Well, but when you are talking about signing up

for charity care in this environment, some of them won’t. Well, that

means they are probably not paying taxes because you could always turn in a copy of your tax return, I would think. So, where

do you help the hospitals here who are saying, ‘‘Okay, I do have

a charity program, but you have got to work with me. You have

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got to give me some data here‘‘. How do we address—what do you

recommend? You are the certified smart lawyer here, I am not.

Ms. JACOBY. Well, I will wear that hat then today. I don’t see a

magic bullet to the situation, and I hope I was clear that I don’t

see the hospitals as being fully responsible for the situation. I think

at every level of our legal system, from the county level to the

State to the level to the Federal level, we do have a system where

the charges are not known to the patient often until afterwards,

and that we treat patients as debtors through our whole legal system and our whole health care system. And I think just as that has

developed over a very long period of time, I don’t think it can be

solved overnight.

Mr. WALDEN. Okay. I have overrun my time here. Your comments have been very helpful, thank you very much.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes the gentlelady from Chicago, Ms. Schakowsky, for 10 minutes.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman, and thank you,

panel. This has been a very interesting conversation that we have

been having. As someone who supports some kind of universal

health care plan, I would like to see a national health care plan.

One consensus that seems to be here is that the market doesn’t

work. People are talking about whether the uninsured should get

the same rate as people who are insured, so we start talking about

price setting and that kind of thing. The market in health care and

in hospital care seems to have absolutely failed us.

I want to talk a little bit about people with insurance because

I am looking at something from one of the hospitals, Quality

Health Care For Those in Need, and the guidelines that they have.

It begins with the charity care program, and basically it deals with

people who are uninsured.

So I want to ask the witnesses to talk a little bit more about people who have insurance with very high deductibles, about what is

happening to them in terms of their financial fragility.

Ms. JACOBY. Well, many medical bankruptcy filers have some insurers in their families at least at some point. One study that I

was involved with originally found that 80 percent of bankruptcy

filers with medical problems had some insurance at the time of filing.

Ms. SCHAKOWSKY. I want to underscore that because I think it

is really important. When we think of these problems with medical

bills, very often we talk about people who find themselves uninsured. But you are saying that bankruptcies due to medical bills

involve people, 80 percent of whom are at least partially insured.

That is a serious problem.

Ms. JACOBY. I agree. Follow-up research is trying to dig a little

bit deeper and see what those numbers mean, and I think what we

are finding is that many of those people have had gaps in coverage

in the past, so they may have incurred some of these debts while

they are insured at least for some family members. It also could

go the other way, they are insured at the onset of their illness and

later become uninsured, and then are facing some of these problems. So, I think it is more complex than just the label of insured

71

or not insured, it is the quality of their coverage, but also the continuity of their coverage that is showing up in bankruptcy.

Ms. SCHAKOWSKY. I wonder, Dr. Collins, if you could comment on

that as well?

Ms. COLLINS. Yes. The survey conducted The Commonwealth

Fund asked people about their medical debt, and 35 percent of people who were continuously insured said that they had had a medical bill problem or had accrued medical debt. Forty-five percent of

those who were continuously insured, who earned less than

$35,000 a year, said that they had had a medical bill problem or

accrued medical debt. So, we are clearly seeing that people who are

insured continuously are having problems paying their bills. In

fact, when we asked people whether when the bill was incurred, if

they had a medical bill problem or debt problem, if they were insured at the time of the bill problem or the time of the event, 60

percent said that they had been insured at the time. So, we are

clearly seeing this is a problem of underinsurance as well as

uninsurance.

Ms. SCHAKOWSKY. I don’t know if anyone else——

Mr. RUKAVINA. I would like to comment on this as well. We

worked with a nonprofit consumer credit counseling service and

found similar figures. About 40 percent of the people seeking the

services of this consumer credit counseling service were there because of a medical incident, and nearly I think it was 70 percent

of those people that were there because of a medical incident were

insured at the time of the medical incident.

Mr. ANDERSON. We also know the characteristics of these individuals, generally. A few of them have a catastrophic thing that was

unexpected, but most of these people that have these debts are people with chronic conditions, with multiple chronic conditions. They

are somebody who is going to the doctor repeatedly. They are going

to the hospital repeatedly, year in and year out, and they are the

ones that find—and the health system and the health insurance

system doesn’t cover them adequately. If you have got an acute

care problem, the insurance takes care of it, generally. If you have

a chronic problem, the health care system doesn’t cover you as well,

and you are the ones having most of the expenditures.

Ms. SCHAKOWSKY. The other thing about that is that it may be

an accumulated debt over a period of time where the individual

charges may seem manageable but, in fact, over time, are not.

Mr. ANDERSON. If you have diabetes and congestive heart failure

and three other things wrong with you, you are seeing a lot of different doctors and you are incurring a lot of bills, and you are

doing that not just 1 year, but year in and year out. And so those

medical bills pile up. And a lot of times, with co-insurance and

other things, you are paying 20 percent of the doctor bill, a portion

of the hospital bill, and with 30 doctor visits and 50 prescriptions

and all sorts of things that you fill in a year, that is a lot of money.

Ms. SCHAKOWSKY. I think it is important for us to paint a picture

of the people who are facing this problem as most often having

jobs, working, and in many, many cases, also have insurance. In

fact, it sounds like in some cases having a job can be—I am looking

at a document, ‘‘Collection Practices Prohibit Legal Action Against

Unemployed Individuals.’’ Well, if you are employed and still can’t

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pay, then that doesn’t apply to you. It prohibits liens on a patient’s

residence if it is the sole real asset. Well, what if you don’t have

a house and you are a renter? So, you are employed, you have insurance, and you are a renter, then your wages could still be garnished and you can’t pay your rent. It seems to me that there are

just so many, many holes in here.

I am concerned about the women who traveled here from Chicago

to talk about their situation. We hear about charity care being offered. The hospital did work to help her apply under the Victims

Assistance Fund, but she was denied, and then she was sued.

If charity care doesn’t work, do they then just turn these over to

collection agencies? When do they start suing?

Ms. JACOBY. I guess we should let the next panel answer that in

some measure, but my belief is that turning medical accounts over

to collection is quite a routine matter, and it is happening earlier

and earlier, perhaps earlier than it would happen with other types

of debts that consumers and patients face.

Ms. SCHAKOWSKY. Then do the hospitals claim to no longer

have—I guess we could ask the next panel.

Ms. JACOBY. Again, I stand to be corrected, but my understanding is that they are mostly not selling the debt outright, but

assigning it to a primary and then perhaps a secondary collector,

and therefore are taking the responsibility for overseeing that process.

Ms. SCHAKOWSKY. Is the rate of lawsuits increasing?

Ms. JACOBY. I don’t have a way to measure that.

Ms. SCHAKOWSKY. Does anybody know if there are more lawsuits? Both of these instances ended up in a lawsuit. Even in the

case of Ms. Perez working out a payment plan and with payments

being made on time, she was sued. So my concern is that, after all

is said and done, if you can’t even work out a payment plan without getting sued, this sounds like an intractable problem. I don’t

know if anyone wants to comment on where we need to go with

this.

Ms. JACOBY. Just looking at the trends in the health care system

right now, rising costs, rising numbers of uninsured, there is no

question that this problem will continue to grow. We probably will

continue to see lawsuits and growing numbers of lawsuits, just because of the drivers in the system right now.

Ms. SCHAKOWSKY. My concern is the problem that the uninsured

pay this premium price. It is also true, by the way, in the cost of

prescription drugs where those who have a prescription drug plan

that has been negotiated by their HMO or their insurance company

pay less, and the people who can’t afford it end up paying the premium price. Mr. Waxman’s studies have shown that. So, that is one

problem that the hospitals are charging premium prices. Nonetheless, hospitals need to recover some costs as well. We are not asking them to do complete charity care.

At some point, Mr. Chairman, it just seems to me that we need

to get to the core issue. You said we are not going to solve the issue

of universal health care today, but I just feel that we keep marching around the edges here. At some point we are going to have to

jump right into the middle and deal with the core problem. I thank

the witnesses.

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Mr. GREENWOOD. The Chair thanks the gentlelady. The gentleman from New Hampshire, Mr. Bass, is recognized for 10 minutes.

Mr. BASS. I am going to pass, Mr. Chairman.

Mr. GREENWOOD. The gentleman from Michigan, Mr. Ferguson.

Mr. ROGERS. Rogers.

Mr. GREENWOOD. Rogers—I am sorry.

Mr. ROGERS. Wow. Has it been that long since I have been in

committee, Mr. Chairman?

I do appreciate it. Thank you, Mr. Chairman, and I appreciate

the panelists today, and I am adamantly opposed to national health

care. We see it just north of our border. They ration, they have

very few choices on prescriptions, and many places in the system

they stop people from getting care determined by age and illness

and other things that I just think is un-American.

I was curious, Dr. Anderson, something struck me that you said

about the lack of first-dollar coverage would stop people from getting preventative care. Have you done any study on any of the new

folks who have embraced HSAs—and I know it is a relatively new

phenomenon, people are just getting into the system and getting

started—but do you have any studies on the folks who have actually signed up within the last few months and are participating in

these programs?

Mr. ANDERSON. I do not, but if you look at programs like the

Rand Health Insurance experiment that ran in the 1970’s and

early 1980’s. they in fact did have something very similar to the

HSA type of thing. The services that people chose not to get were

the preventive services. So we have a large national experiment

that was done in the 1970’s and 1980’s, and maybe people are different now, but I don’t think so.

Mr. ROGERS. You don’t think people may be more price sensitive

today than in the 1970’s? Let me tell you why I ask you this. There

was a group—and I am just trying to figure out if you are right

or they are right—but there was a group of about 18 to 20 small

businesses, under 500, who had gone to HSAs, and we assembled

them in a room and said, ‘‘Tell us the good and the bad and the

ugly about these things, are they working or are they not?’’

And they had some interesting percentages on the people that

were involved in those programs—and they could have been an

anomaly, I suppose—but 45 percent of the membership in these

agencies were brand new. They had never had health care before,

which I thought was pretty staggering. And what they found is

that they were 30 percent more likely to go into preventative care

than the folks in the old system that had first-dollar coverage. And

they were certainly more price sensitive, and most of them—and I

forget the percentage—had engaged in negotiations for things like

annual physicals where they went into the doctor and said, ‘‘I don’t

care what you are charging, this is what I am going to pay. Do you

still want me as a patient?’’

And to some degree I thought that was very encouraging news.

That may have reverse in the trend, and if there is finally—and

one of the things I think is broken about our health care system

is the consumer is really never in charge. I am told what to do by

everybody else—third-party administrators, your employers, the

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hospital gets their say. At the end of the day, I end up with a collection agency, and I am not really sure what in the heck happened.

My theory is that if we had this sense of price sensitivity, maybe the $9 aspirin would have gone away a long time ago. Somebody

would have said, ‘‘Hey, wait a minute, I am not paying nine bucks

for this.’’ I am encouraged by it, and I was just curious.

Mr. ANDERSON. Well, I think what you have got to look at is the

43 million uninsured who do have an incentive to negotiate with

their hospital, negotiate with their physician, negotiate with anybody they can negotiate with over price, and very few of them are

able to do it, and certainly cannot negotiate rates that are comparable to what Aetna can do, or what anybody else can do when

they walk into a hospital.

Mr. ROGERS. Of course, under an HSA, you have leverage. If I

have absolutely no insurance and nowhere to go, I have no leverage. At least I know I have got some money to pay, No. 1, and I

have catastrophic coverage, No. 2, so I have got some leverage. You

and I can work together because I have got some money to give

you.

Mr. ANDERSON. Right. And the other thing is that many of the

HSAs—not all of them, but many of the HSAs, in fact, negotiate

for you, so that if the HSA is run by Aetna or is run by somebody

else, they are actually negotiating the rates on your behalf, and you

are essentially piggybacking on those rates.

Now, maybe you can even negotiate a better rate than Aetna is

going to do for you, but I doubt it.

Mr. ROGERS. Interesting. I am actually fairly hopeful for it, so I

hope you will get involved in some of those studies in the future

with actual participants, and maybe we can see where those numbers—I was encouraged by that first batch of folks coming in.

This is a very difficult issue, in some cases very difficult to understand about what care is compensated and isn’t, and I have a

feeling at the end of the day we are going to find that there are

several people that at fault for the problems that we found in the

system, and one of those problem-makers is policymakers. The way

we develop policy for uncompensated care creates some kind of

really anomalies in the system that makes very compassionate,

kindhearted people do some kind of things we all look at and

scratch our head and say, ‘‘Why would we do that?’’

So, I hope that through this that we can fix those kind of things.

And I guess, Mr. Rukavina, I would ask, there are five systems

joining us today, and they said—at least have told us—that they

have taken steps to enhance and revisit their billing system. Have

you found that to be true and, if so, what has that done for the patients?

Mr. RUKAVINA. Well, we are talking to several of those systems.

They are, in fact, taking steps to address some of the problems that

have been highlighted, and I think that frankly it is too early to

tell.

I received a call from an attorney recently that had a patient in

one of these systems that will be here today. We have addressed

it with the system directly. A patient was identified as possibly

having another source of payment, an uninsured patient possibly

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having a source of payment. There were some problems, probably

problems resulting from actions the hospital took and actions the

patient took, but the end result was that the bill was sent to collection after 30 days, and the first call that this patient received after

being released from the hospital was from a collection agent that

she felt was fairly intimidating. And, again, we are hopeful. I think

it is too early to tell. And I think that it has been raised earlier

by others asking the question, the details of how these programs

are implemented will be of utmost importance. How people are informed of the program, the kind of information that is actually

shared with patients, when it is shared, and the whole series of

questions that get asked regarding patients and their ability to pay

will be very crucial, and we hope that these systems and others

and the American Hospital Association and State associations will

work hand-in-hand with community and consumer groups that we

believe are resources that could help the hospitals and patients

solve some of these problems.

Mr. ANDERSON. One of the problems is the charge master file. A

charge master file has about 10,000 different items on it. You walk

into the hospital, even in a nonemergency situation, you don’t know

which of these 10,000 items you should negotiate on the basis of.

So, you can negotiate afterwards and try to lower your rates on a

certain set of things, but you don’t know a priori when you walk

in what services you are going to need. Are you going to need an

x-ray? How many x-rays are you going to need? What type? Are

you going to need an MRI? What type are you going to need? Ten

thousand items, you can’t negotiate on that. You have got to have

something for somebody that you can, in fact, negotiate on, and

that is probably what is your day rate, what is your DRG rate,

what is something simple that somebody can negotiate on, not

10,000 items, of which probably 9,950 of them you will never use.

Mr. ROGERS. Interesting. I know this problem is complex. I appreciate all you being involved in it. I hope we don’t give up on

probably one of the better health systems in the world—and it is

not perfect. It has got bumps and bruises and warts and it is ugly,

but if we want to remove compassion and care from a system, nationalize it. Ask the Canadians, ask the British, they are all having

problems with the weight of these large, unmanageable, uncaring—

intentions are great, the outcomes are awful, and I just don’t think

we ought to really hinder the innovation of our health care system

that does miraculously well for a pretty unhealthy population,

quite frankly, and that is America as a whole. Thank you, Mr.

Chairman, I yield back.

Mr. GREENWOOD. The Chair thanks the gentleman. The gentleman from Maine is recognized.

Mr. ALLEN. Thank you, Mr. Chairman. Dr. Anderson, I would

like to pursue some of this. I have a different view than my friend

from Michigan, about how the Canadian health care system works.

I think every country has its own unique system, and we are not

going to adopt any other country’s system, but whenever elections

are held in Canada, it is pretty clear how the Canadians feel about

their health care system. They know it has problems, but substantial majorities are very positive about it. In fact, all the polling

76

shows the Canadians like their health care system better than

Americans like ours.

I was intrigued by one of your comments, and you were just pursuing it with Mr. Rogers. This notion of bargaining for your health

care makes some sense to me when you are part of a very large

group, which is essentially what happens with our insurance companies. They negotiate rates on behalf of their members, their

beneficiaries, and then, without even knowing it, the beneficiaries

get the benefit of that negotiated rate for a whole range of services,

but they can do it simply because they are pooled in a large group.

But I was struck by your testimony, your written testimony, about

the constraints on the bargaining power of the uninsured.

You say perhaps the most important constraint on their bargaining power, however, is that they do not know what services

they will ultimately need. They do not know how long they will remain in the hospital, what x-rays or lab tests they will need, and

therefore they cannot know in advance what services they will require and which of the 10,000 prices they should negotiate. And if

they could negotiate those prices, you would still have an individual trying to negotiate with a hospital, which doesn’t work very

well, except it works, as the testimony has shown, after the services have been rendered in terms of how much you are going to pay

on a bill that has been rendered.

And so that point seems to me to be particularly compelling in

terms of our expectations about what we really expect here. I don’t

know if you want to elaborate on that anymore, you already commented to the gentleman from Michigan, but do you have anything

further you would like to say on that?

Mr. ANDERSON. I think to allow the marketplace to work, people

have to have good information. And one of the key things you have

got to know is what services are you going to need.

Mr. ALLEN. You touched on how to move ahead, and I was struck

by your DRG+25 percent. Probably doesn’t stand much of a chance

in Congress because we prefer complexity to simplicity here, at

least that is the trend. Give us as much complexity as we possibly

can have, and I offer the Medicare law as the prime example. But

it does seem to me that it highlights the tradeoff that we have

here. If you are going to have stability and predictability and equity, and you come to this particular problem—and I take the testimony of the panel as a whole to be saying essentially we are really

going to operate in the margins here. We are not going to fix the

problem of the uninsured, we are trying to deal with what started

out being the subject of this hearing, which is the fact that some

people are charged way more—way more—than others, and that

looks unfair. That looks abusive. But if you have—I guess this is

probably for the other panelists.

You could say Medicare+25 percent, you could say Medicare+35

percent, you could say Medicare+10 percent. You could say almost

anything. But if you did that system, it would be a simple system.

You wouldn’t be trying to figure out what insurers for a particular

hospital get reimbursed or are charged for their beneficiaries.

So, if we remove—for all the other panelists—if you remove the

element of how much above Medicare the reimbursement is—and

Medicare is often under-reimbursed—how would you react to, say,

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DRG-10 percent as opposed to DRG+—do you catch my drift—

DRG+10 instead of DRG+25 percent? Is the concept of having a

simpler system one that makes sense to the rest of you? I know it

does to you, Dr. Anderson.

Ms. JACOBY. Well, I think simplicity would assist patients, and

that could be done in a lot of different ways. But I think that one

problem that they are experiencing is trying to figure out what

they owe, if it is owed right away, if it is owed over installments,

what their legal situation is. So, I am certainly in favor of simplicity. I don’t have an opinion on any particular way to make the

system more simplified, but from the patient’s perspective, they already aren’t—if they are not negotiating the rates in their care

very much, then that is one way to at least let them know how

they can handle their financial affairs.

Mr. RUKAVINA. I think that clearly a more simpler billing system

would be helpful. Transparency would be helpful all around. Hospitals, as Secretary Thompson pointed out, are reimbursed by the

Federal Government $22 billion per year to pay for the care of poor

and uninsured patients. I think that it is oftentimes confusing to

figure out what the gap is in terms of the services provided, the

cost of those services, and what providers, hospital and other providers, are actually reimbursed for the cost of that care, reimbursed

from the self-pay patient and from the various subsidies that come

from Federal, State, and oftentimes local governments. So, clearly

transparency would help. But, again, a system that is caring and

compassionate on the finance side we believe would benefit the providers and the patient.

Mr. ALLEN. Dr. Collins?

Ms. COLLINS. I certainly think that that would be an improvement over the current situation. In the long-term, it might be helpful if people without insurance coverage could actually buy into a

group insurance program like the Medicare program, so that could

be sort of a long-term goal and this being a step to fixing the current problem on the way to getting to that.

Mr. ALLEN. We are doing an experiment in Maine, we call it

Derigo Health. The State government is essentially contracting

with an insurance company to cover a pool of people who are essentially working for small businesses and most likely be uninsured.

That is another whole speech.

I want to ask one other question, maybe primarily for you, Dr.

Anderson. Put yourself in the position of a hospital CFO. The

change is needed. But any change that is made can easily lead to

an increased cost-shifting. Unless we do something about Medicaid

reimbursement, Medicaid and Medicare—unless we do something

about those reimbursement systems, any loss of revenue anywhere

in the system for a particular hospital can lead to more cost-shifting to the commercial side, and at least in my State, the small

business community in particular, but even large businesses are

really struggling.

Any thoughts about how to deal with that particular problem, if

we basically laid down some ground rules for what hospitals could

do with respect to the uninsured in terms of how they charge and

how they collect from the uninsured? Any thoughts on how we deal

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with the other side, the potential loss of revenue and the risk of

more cost-shifting to commercial insurers?

Mr. ANDERSON. Well, essentially, most of the uninsured have difficulty paying these bills, most of them do not pay the bills. Only

about 3, 4 percent of hospital revenue actually comes from the uninsured. So it is not a big number that we are talking about here

in terms of loss of revenue for the hospital industry because many

of these people don’t pay.

So, as a result, I don’t think that it is going to have a whopping

big impact on the bottom line, and Medicaid and Medicare could do

it more substantially by increasing the rates by 1 percent than all

the hospitals tripling the rates on the uninsured. It would have a

much bigger impact on the hospital’s bottom line.

Mr. ALLEN. Thank you. Anyone else? I have 30 seconds left.

[No response.]

Thank you, Mr. Chairman, I yield back.

Mr. GREENWOOD. The Chair thanks the gentleman, and the

Chair thanks our panel of witnesses for your help this afternoon.

Happy birthday, Dr. Anderson, go and enjoy your birthday dinner.

You are excused.

The Chair calls forward our second panel consisting of Anthony

R. Tersigni, Chief Operating Officer and Interim CEO of Ascension

Health; Kevin Lofton, President and Chief Executive Officer of

Catholic Health Initiatives; Jack O. Bovender, Jr., Chairman and

Chief Executive Officer, HCA, Nashville; Herbert Pardes, M.D.,

President and Chief Executive Officer, New York Presbyterian Hospital; and Mr. Trevor Fetter, President and Chief Executive Officer

of the Tenet Healthcare Corporation.

Gentlemen, we welcome you, and let me begin by thanking all of

you for being here. I know how difficult it was to arrange your

schedule so that you could be with us this afternoon, and that is

appreciated.

It is the practice of this committee to take testimony under oath,

and so I need to ask if any of you gentlemen have objections to giving your testimony under oath this afternoon?

[No response.]

Seeing no such objection, I would advise you that under the rules

of this committee and the House of Representatives, you are entitled to be represented by counsel. Do any of you wish to be represented by counsel this afternoon?

Mr. TERSIGNI. No.

Mr. GREENWOOD. Dr. Tersigni says no. Mr. Lofton, you are represented by counsel? Would you identify your attorney by name?

Mr. LOFTON. Mr. Paul Newman is seated directly behind me.

Mr. GREENWOOD. Mr. Bovender, are you represented by an attorney?

Mr. BOVENDER. No.

Mr. GREENWOOD. Dr. Pardes, are you represented by attorney?

Dr. PARDES. No.

Mr. GREENWOOD. Mr. Fetter?

Mr. FETTER. No.

Mr. GREENWOOD. Okay. Then I would ask if you would please

stand and raise your right hands.

[Witnesses sworn.]

79

Mr. GREENWOOD. You are under oath and, Dr. Tersigni, we will

begin with you. Again, welcome, and you are recognized for your

opening statement, sir.

TESTIMONY OF ANTHONY R. TERSIGNI, FASCHE, CHIEF OPERATING OFFICER AND INTERIM CEO, ASCENSION HEALTH;

KEVIN E. LOFTON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CATHOLIC HEALTH INITIATIVES; JACK O. BOVENDER,

JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER, HCA; HERBERT PARDES, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NEW YORK PRESBYTERIAN HOSPITAL; AND TREVOR

FETTER, PRESIDENT AND CHIEF EXECUTIVE OFFICER,

TENET HEALTHCARE CORPORATION

Mr. TERSIGNI. Thank you. Mr. Chairman and members of the

subcommittee, thank you for the opportunity to appear this afternoon. I am Anthony Tersigni, the new President and CEO of Ascension Health. This is my fourth day on the job, and I am pleased

to be here.

Mr. GREENWOOD. You are under oath, Dr. Tersigni.

Mr. TERSIGNI. Ascension Health was formed just four and a half

years ago when the Sisters of St. Joseph of Nazareth and four provinces of the Daughters of Charity united their health ministries to

continue their ministries as one. I am grateful that three of our

sponsors have joined me here today, and I ask that they stand to

be recognized—Sister Bernice Corell, Sister Maureen McGuire, and

Sister Mary Kate Terrell.

They are here today because we are as concerned as the subcommittee about the issues brought forth today. Ascension Health

carries on our sponsors’ strong commitment, which has been in

place for over 400 years, to the healing ministry of Jesus. It is central to our mission to serve those who are poor and vulnerable. In

2003 alone, Ascension Health provided more than $500 million dollars in charity care and community benefits. In other words, for

every dollar we made from our operations, we spent nearly $4 on

charity care and community benefits.

Each day our hospitals—or as we call them, our health ministries—save the lives and relieve the suffering of hundreds of people without insurance. We receive letters every day from patients,

thanking us for the care they received. I have several sample letters with me today, and there are thousands of stories just like

them that go untold. I would respectfully request that these letters

be made part of the record.

That Ascension Health gets many things right is not to say we

get everything right. We are still a young system in the process of

integrating many management and information systems. As a part

of this effort, which began in early 2003, we re-examined our billing and collection policies and identified several areas for improvement. The subcommittee’s work also prompted us to further review

our policies more carefully.

We determined that, because Ascension seeks out the poor in our

communities, we need more clarity and consistency in this area.

Last December, our System Board approved a system-wide billing

and collection policy for all uninsured patients. I call your attention

to the chart above, which is Attachment 3 of my statement, deVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00087 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
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scribing the minimum guidelines which are clear and simple, and

must be posted in our hospitals for patients to see. ‘‘We will writeoff your bill if you are at or below the poverty line; we will provide

you a sliding scale payment plan if you are financially needy; we

will give you a discount based on our best paying payers regardless

of your income if you have no insurance.’’

Under our policy, extended payment options must be offered to

all uninsured patients. Every one of our CEOs, CFOs, and BPs of

mission have committed in writing to carry out the letter and spirit

of the policy. I respectfully ask that a sample be entered into the

record.

Mr. GREENWOOD. Without objection, it will, sir.

Mr. TERSIGNI. Ascension Health will not take action to cause

bench warrants. For those who qualify for charity care or financial

assistance, we will not seek liens on personal residences, we will

not authorize a collection effort that will result in a bankruptcy, we

will require collection agencies to follow our system-wide policy for

billing and collection. While we believe these limits generally were

being followed in our Health Ministries, our new policy is unequivocal.

Let me address the claim that hospitals make money on uninsured care. Our mission is to care for the poor, not to make money

on their suffering. As shown in our submission to the subcommittee, we collect between 5 and 10 percent of the total charges

for uninsured patients. Each health ministry reported losses on uncompensated services to the uninsured. In the aggregate, Ascension

Health lost $222 million on uncompensated care in 2003.

Mr. Chairman, Ascension Health does all it can to respond to the

needs of the poor. We have committed 350 financial counselors and

1500 registrars to identify and assist those in financial need. Our

Call to Action commits us to work for 100 percent access to

healthcare in the communities we serve.

We urge Congress to support our efforts and those of many others to achieve access for all Americans.

I thank you, and I look forward to answering any questions.

[The prepared statement of Anthony R. Tersigni follows:]

PREPARED STATEMENT OF ANTHONY R. TERSIGNI, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, ASCENSION HEALTH

Mr. Chairman and Members of the Subcommittee: Thank you for the opportunity

to appear before you. Ascension Health commends the Subcommittee on Oversight

and Investigations for its interest in uninsured patients.

I am Anthony R. Tersigni, Ed.D., FACHE, President and Chief Executive Officer

of Ascension Health, one of the nation’s largest nonprofit Catholic health systems.

Ascension Health was formed in 1999 when sponsors of two Catholic hospital systems that shared a centuries-old commitment to care for the poor—the Sisters of

St. Joseph of Nazareth and four provinces of the Daughters of Charity—agreed to

unite their health systems and continue their ministries as one.

Today, Ascension Health carries on our sponsors’ strong commitment to care for

the poor and the uninsured. It continues to be central to our mission—and the work

of the Catholic sponsors that remain active in the leadership and operation of Ascension Health. It is reflected in the principles and strategies that guide our operations [See attachment 1]. In 2003 alone, Ascension Health provided more than half

a billion dollars in charity care and community benefits. In other words, for every

dollar we made from our operations, we spent nearly four dollars on charity care

and community benefits.

Because of our tradition of caring for the most vulnerable among us, our hospitals

and clinics—or, as we call them, our health ministries—play a unique and extremely

81

important role in our society, serving as a healthcare safety net for millions of uninsured Americans. For the thousands of religious and lay persons who work in our

hospitals, this is a calling. It is humbling to lead an organization whose origin, as

well as its Mission moving forward, is due to women who have dedicated not just

their careers, but their lives, to providing care to people who are poor.

Today, I want to address three points:

• What we do right • How in the past we fell short in some areas and what we’re doing to address these

issues • Our response to the Subcommittee’s request for information

Later on in my statement I will also lay out in greater detail our Call to Action

initiative. It is perhaps the best expression of our Mission, Vision and Values. Our

Call to Action has as its goals the achievement of 100 percent access to healthcare

for every person who lives in the communities we serve—certainly an ambitious

goal, but one that speaks to our compassion for the poor and vulnerable.

What We Do Right

Every one of our health ministries has had charity care policies in place for years,

if not decades. We publish and post our charity policies throughout our health ministries. Our financial counselors are dedicated professionals who share our values

and who strive to do the right thing. They answer patient questions over the phone

about our charges. They seek out patients who may be in need before they go home

and make attempts to contact patients later on to discuss how their financial obligations could be eased. They help patients qualify for financial assistance so they can

get the healthcare they need.

In addition, the men and women who work in our health ministries every day

save the lives or relieve the suffering of hundreds of people who do not have health

insurance. The Subcommittee need not take our word for it. Our patients are our

toughest judges, and it is in their words that our success is revealed [See attachment 2].

For example, we received a letter from a woman who was a patient at SETON

Southwest Healthcare Center in Austin, Texas:

I am writing...today to tell you how thankful I am that your organization

was able to assist me on 100% of the hospital bill I accumulated while a patient

at Seton SW...

Earlier this year, my world fell apart. I lost my job and my health insurance.

Shortly there after, my fiance ́ left me for someone else. I lost my home and—

pretty much the life that I had planned on. It was at that point, I thought I

had lost everything and then I lost my health. Once that was gone, I grasped

on to all that I had left which was my family, friends and faith... Being that

sick, was one of the most humbling experiences of my life. I was unable to work

and very worried about how I would pay my hospital bill. Stress doesn’t help

my medical condition at all. Please know that it was a wonderful surprise to

hear that my bill was taken to a zero balance.

It is said that everything happens for a reason. I would like you to know that

I had a wonderful experience while in Seton. The nursing staff was excellent

and they inspired me. I have decided that I want to be a nurse. I am feeling

better now and plan to enroll in nursing school next year. I hope that I can offer

the same compassion and inspiration to someone else in their time of pain and

illness...

From another letter we received from a patient:

I recently had an operation to remove my gall-bladder. The operation went

well, and I am now in recovery. I don’t know how to thank you. Words cannot

express my gratitude. The cost of the operation had been a big burden to me.

I had just started a new life in America and was financially unstable; in addition, I had no medical insurance.

Thankfully, you heard of my situation... and funded my operation. Because

of you, I was able to have the operation safely. I believe that all of this is due

to your organization, which truly personifies the love and spirit of Christ. I

thank you... with all my heart. I do not know how I will ever be able to repay

you for all your help. Right now, all I can do is pray, and I will pray for you

and your hospital continuously and diligently. I will also do my best to follow

your example and help others with the love of Christ. Again, I thank you for

the love you have shown me. I will always be praying for your hospital and your

mission.

Mr. Chairman, for every letter like those two, there are hundreds, maybe thousands, of positive stories just like it that are not told. I have additional representative letters from patients from across the nation. I request that these letters be

82

made a part of the record [Attachment 2]. Each one is a very personal story, and

each one thanks the health ministry that provided care—in some cases, life-saving

emergency care. Each person expresses heartfelt gratitude to Ascension Health for

reducing or eliminating his or her hospital bill or eliminating it entirely.

How We Fell Short in Some Areas and What We’re Doing to Address These Issues

That Ascension Health gets many things right is not to say we get everything

right. Formed just four and a half years ago, Ascension Health is a young system

that is still in the process of integrating the many management and information

systems used by our health ministries. As a part of that effort, which began in early

2003, we reviewed the billing and collection policies that existed throughout our system and determined that we, as a system, needed more clarity and consistency in

this important area. The Subcommittee’s work also prompted us to examine our

policies more carefully, which led to our identifying a number of opportunities for

improvement.

We learned, for example, that our policies were not always explicit and each

health ministry did things a little differently. Consequently, we could not speak to

an Ascension Health system-wide billing and collection policy. Nor did we have a

process that could measure the effectiveness of our health ministries’ charity care

programs in reaching those in need. Our billing and collection practices were not

receiving the level of attention or oversight by our senior management team that,

in retrospect, they should have received. And we had no system-wide policy that addressed the level of charges for uninsured patients.

As a result, we believe too many patients, even if only one, had come to our emergency rooms and, in spite of the charity care and financial assistance programs our

health ministries have had in place for years, they had returned home fearful and

anxious about the bills they could not pay. Unfortunately, there are times when patients do not respond to our communications and their needs are not fully met.

Regrettably, it has on occasion become necessary for hospitals, even those such

as ours that are dedicated to the poor, to refer cases to collection agencies. And the

truth is, we have not wanted to be in the business of bill collecting. We have learned

through this investigation that there have been instances, and I believe they are

rare, when collection agencies have been more aggressive in their practices than our

values would support. That there may only be a few instances does not excuse us.

We concluded from this review that the experience the poor and uninsured have

when they come to us for care is too important to allow completely local variation.

Although Ascension Health is newly formed and somewhat decentralized, we determined that we needed a level of consistency throughout Ascension Health regarding

the care and billing of the uninsured. As a system, we needed assurances that our

charity and financial assistance programs were meeting certain minimum standards

and reflecting our values.

In December 2003, a single, system-wide policy was approved by our Board of

Trustees, subject to approval by the Centers for Medicare and Medicaid Services

(CMS). It is important to point out that this policy is a ‘‘floor’’—it is the least that

we require of our health ministries, many of which have been and will continue to

be more generous in their care for the poor and uninsured than this new floor requires.

Ascension Health Policy Regarding Care for the Poor and Uninsured

The Ascension Health policy is premised on several core values and principles, including our commitment to, and reverence for, human dignity and the common good;

our special concern for, and solidarity with, poor and vulnerable persons; and our

dedication to distributive justice and stewardship.

The Ascension Health policy establishes minimum guidelines relating to the level

of charges, if any, that would apply to an uninsured patient, depending upon his

or her particular circumstances: those who are poor based on poverty guidelines;

those who face special circumstances; and those who are determined or presumed

(by not applying for financial assistance) to have the means to pay [See attachment

3]. The policy is as follows:

Charity Care. For the poorest patients, Ascension Health covers 100 percent of

their hospital bills. To qualify, a patient must have household income at or below

the federal poverty level (FPL). Those with household incomes between 101 and 200

percent of FPL will have their charges reduced on a sliding-scale basis. The poverty

limits will be adjusted at each health ministry based on area wages.

Financial Assistance. Income is not the only determinant of need. So our Financial

Assistance program considers a broader picture of a patient’s financial resources

and circumstances. Each health ministry must have a written policy that considers

income as well as the patient’s assets, size of the medical bill and other financial

83

obligations (e.g., for housing, transportation and childcare). For example, a married

adult male with annual income of $14,500 a year is making 120 percent of FPL and,

therefore, would be entitled to a sliding scale adjustment of his hospital bill, leaving

him responsible for, say, 20 percent of it. However, if the bill is $30,000, he would

still owe $6,000. If he had no assets or had other obligations, he could have problems paying his medical bill.

Finally, because of the complexity and subjectivity of its guidelines, our health

ministries are required to have review boards that consider patient appeals of adverse determinations.

Uninsured Patients with Means to Pay. Not all uninsured patients are poor and

even those who are don’t always apply for financial assistance (out of reluctance to

fully disclose finances, fear or embarrassment, or other reasons). In the interests of

fairness and clarity, these patients are charged a rate comparable to the discounted

rate each local health ministry has negotiated with its ‘‘best paying’’ insurers. This

portion of the policy is subject to approval of CMS. (The commercial payers whose

rates are used as the benchmark must account for at least 3 percent of that particular health ministry’s patient volume.)

Mr. Chairman, I would like to reiterate that this policy represents the floor. It

represents the least any of our health ministries will do. We are a system that believes in distributed leadership. Local health providers know more about local needs

than those at the home office, so if an Ascension Health ministry wants to go above

and beyond the policy I just explained to the Subcommittee, it may. In fact, many

of our health ministries currently are going above and beyond what is required in

our new policy.

The Ascension Health policy on discounts for the uninsured also addresses billing

and collection practices. The policy requires that employees and agents of each

health ministry treat patients and their families with dignity, respect and compassion. Patients must be provided prompt access to charge information and be advised

of applicable policies, including charity care and financial assistance, in easily understood terms and in the language common to the community. Policies must also

be posted in hospital reception and registration areas.

Patients qualifying for financial assistance are to be provided with both extended

payment options that are appropriate for their financial status and access to financial counseling. Outstanding balances on accounts are to be pursued fairly and consistently.

With respect to collection practices, the system-wide policy adopts several key

principles:

• Ascension Health will not take action to cause bench warrants to be issued.

• Liens on personal residences will not be sought against individuals who qualify

for charity or financial assistance.

• Ascension Health will not authorize a collection effort that will result in a bankruptcy.

• Interest may only be charged to patients not qualifying for charity or financial

assistance, and only if they are not complying with payment arrangements.

• Collection agencies must follow Ascension Health’s system-wide policy for billing

and collection.

Ascension Health’s Response Highlights Our Charity Care & Values

In October of 2003, Ascension Health complied with a request from this Subcommittee for detailed information regarding four key areas: billing and collection

policies and practices for the uninsured; collections from uninsured patients; operating incomes overall and from uninsured patients; and mark-ups for services. Ascension Health worked diligently with 44 health ministries to assemble the requested information at a cost of over $400,000 [See attachments 4 and 5]. A brief

outline of our submission follows:

• Each of these health ministries has a billing and collection policy for the uninsured. Furthermore, all of our health ministries reported offering charity care

to the poor, and all reported providing assistance to patients for enrolling in

public health-insurance programs.

• The aggregate data collected from the 44 Ascension Health ministries shows that

uninsured collections as a percent of uninsured charges ranged from only 5 to

10.0 percent for the various periods reported [See attachment 4, p. 14-17]. In

fact, our health ministries lost $222 million on uncompensated services to the

uninsured in 2003.

• Services provided to the uninsured had a negative impact on margins at every

health ministry during the periods reported. Let me reiterate that point, because the claim has been made by some that hospitals ‘‘make money’’ from

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these services: every Ascension Health hospital lost money on the services provided to the uninsured.

Mr. Chairman, I direct the Subcommittee’s particular attention to the attached

chart, entitled ‘‘Charges, Costs and Collections on a Per Equivalent Patient Day

Basis’’ [Attachment 6]. As you can see, the collections from the uninsured represent

the smallest portion of collected services. As I mentioned, some have suggested that

hospitals are somehow ‘‘making money’’ by providing these services. However, we

provide them because it is our mission to serve those most in need, and we are unsure, as experienced healthcare administrators, exactly how anyone could recoup

100 percent or more of the aggregate costs of services for uninsured patients.

Moving Forward: ‘‘Healthcare That Leaves No One Behind’’

Although the purpose of this statement is to address issues raised by the Subcommittee relating to billing and collection practices, we believe a full understanding of our fundamental operating principles and some system-wide achievements in serving the uninsured will help inform the work of the Subcommittee. I

will now describe several important and representative activities.

Our Mission, Vision and Values are reflected every day in our ministry to care

for the poor and uninsured. Their best expression is found in our Call to Action, a strategic initiative that dedicates Ascension Health to achieving ‘‘Healthcare That

Works; Healthcare That Is Safe; and Healthcare That Leaves No One Behind.’’

Our Call to Action’s last component has as its goal 100 percent access to

healthcare for everyone in the communities we serve. In furtherance of 100 percent

access, Ascension Health is providing leadership at the national level to sustain and

strengthen the safety net for the poor and uninsured throughout the United States.

Ascension Health worked closely with Congress to help craft the Healthy Communities Access Program that provides infrastructure dollars to local communities to

strengthen the local safety net. Ascension Health was then the only organization in

the country that made a commitment to match first-year federal funds for expanding access.

Ultimately, Ascension Health contributed over $7 million, which was used to catalyze local leadership in eight communities to achieve 100 percent access. Dollars

were invested to design and implement information systems to link all safety-net

providers, hire case managers, screen uninsured individuals for insurance eligibility,

design disease management programs for the uninsured, and facilitate a number of

other critical activities to bring health services to uninsured persons. With four

years of experience and results, we are now designing model programs that other

communities can replicate in their efforts to achieve 100 percent access to

healthcare.

For example, in Tawas City, Michigan this year, Ascension Health ministry leadership brought together all of the local safety-net providers in a public-private partnership that now provides healthcare to the uninsured. This safety net coalition has

received close to $1 million of federal funding.

In Austin, Texas, our SETON Healthcare Network recently joined with the Travis

County Medical Society in an effort to have every private primary care physician

in the city voluntarily take ten uninsured patients into his or her practice, and

every private specialist take 20 uninsured patients. Although still in its early

stages, this combined, community-wide program has already provided ‘‘medical

homes’’ to 250 individuals without insurance and has set its sights on doing the

same for all of Austin’s uninsured.

In Detroit, Michigan, a coalition of the city’s three major health systems (Ascension Health’s St. John Health, Henry Ford Health System and the Detroit Medical

Center) are working in partnership with the Detroit Health Department and three

local federally qualified health centers to enroll uninsured patients into a ‘‘virtual

HMO’’ that case manages their care across multiple providers. The program also collaborates with several other safety net healthcare providers in the city.

In New Orleans, Louisiana, the Ascension Health primary clinic for the poor has

joined forces with the public hospital and all other safety-net providers to expand

access to healthcare. In some parishes, the number of uninsured exceeds 80 percent

of the population. In Nashville, Tennessee, the health department is working with

our Saint Thomas Health Services to provide free pharmaceuticals to the uninsured.

Our five-year goal for the ‘‘Healthcare That Leaves No One Behind’’ initiative is

to achieve 100 percent access to healthcare in the communities we serve. Each of

our hospital chief executive officers is charged with the responsibility to work towards 100 percent access within his or her own community and is held accountable

for these efforts by me and our board.

In addition to our hospitals, Ascension Health owns and operates dozens of clinics

for the uninsured throughout the country. Ascension Health is currently leading an

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effort by the nation’s major Catholic health systems to work with the federal government on ways to expand these services to the uninsured.

In furtherance of our Call to Action, Ascension Health was the only health system

in the country last year to have 100 percent participation in ‘‘Cover the Uninsured

Week,’’ which was sponsored by numerous national organizations to raise awareness

of the plight of the uninsured. At every Ascension Health hospital, activities were

held during the week, enrolling thousands of eligible poor persons into insurance assistance programs offered by states and the federal government. Today, these thousands carry an insurance card when they seek healthcare services, thanks to the

collective work of Ascension Health ministries.

Finally, our ministry to the poor extends beyond healthcare. The commitment our

hospitals have made to pay a ‘‘living wage’’ is just one example. We believe that the

people who work in our health ministries should have a decent standard of living

and be able to live within our communities.

Conclusion

Mr. Chairman, Ascension Health and our original sponsors take our tradition and

commitment to care for the poor and uninsured very seriously. For us it is both a

social and solemn obligation. I have described for the Subcommittee how the men

and women who staff our hospitals and clinics work tirelessly to care for individuals

who are poor and uninsured. I have also presented the numerous efforts across the

country in which Ascension Health employees, working closely with public and private partners, are striving to increase access to healthcare for everyone in their

communities.

It is true that, throughout the nation, Ascension Health is responding to the

needs of the poor and vulnerable. Our new billing policy will prevent some of the

problems the uninsured have faced in the past. But the work of ten Ascension

Health systems or 100 or 1,000 would still fall short and leave many of the health

needs of the poor unmet. We as a nation can do better.

We therefore urge Congress to adopt policies and provide adequate funding to

achieve universal healthcare access for all Americans. The change that is necessary

to address the needs of the nation’s 44 million uninsured will take a much greater

collective effort than any one hospital system can undertake.

Thank you, Mr. Chairman. I look forward to answering any questions the Subcommittee may have.

Mr. GREENWOOD. Thank you, sir.

Mr. Lofton, you are recognized for 5 minutes for your opening

statement. Welcome.

TESTIMONY OF KEVIN E. LOFTON

Mr. LOFTON. Thank you, Mr. Chairman and members of the subcommittee. Thank you for inviting Catholic Health Initiatives to

participate in today’s hearing. My name is Kevin Lofton, and I am

President and CEO of Catholic Health Initiatives. I have committed my entire career to serving the needs of the poor, uninsured, and underinsured. I joined Catholic Health Initiatives in

1998, and became President and CEO last August.

I also want to acknowledge and ask to stand, Sister Elizabeth

Windo, a Sister Charity who is a member of the CHI Board of

Stewardship Trustees.

CHI hospitals take care of patients in need, regardless of ability

to pay. We are proud of our policies and practices. I am pleased to

update you on our improved billing and collection practices. These

improvements are important, but they will not substitute for longoverdue structural reform in health care delivery and financing.

Catholic Health Initiatives believes the solution is universal

health care coverage. The CHI health system includes 68 hospitals

and 44 facilities offering health-related services such as long-term

care. We serve 19 States, 68 rural and urban communities, and employ more than 67,000 dedicated men and women.

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Care for the poor, uninsured, and underinsured has been the

mission and tradition of CHI hospitals for more than 100 years.

Last year, CHI’s total measurable benefit for the poor and broader

community was $644, or 10.6 percent of our total revenue. Community benefit includes things such as free clinic grants and mobile

medical vans. CHI hospitals provided $108 million in direct charity

care.

CHI does not consider its $326 million in bad debt expense as

part of our community benefit or charity care commitment. In the

last 3 years, our hospitals committed $1.9 billion to improve the

overall health of our communities.

Chairman Greenwood, I commend you, the subcommittee and

staff for your attention to hospital billing and collection issues. It

prompted CHI to examine our billing and collection practices, and

to aggressively seek clarification and guidance from HHS to ensure

we were doing the right thing. As a result, we are proactively reforming our billing and collection policies.

All CHI hospitals have amended contracts with third-party collection agencies, to include the following standards: First, no collection agency will request bench or arrest warrants. Second, no collection agency will seek liens requiring the sale or foreclosure of a

primary residence. And, third, no collection agency will seek court

action without hospital approval. Several collection agencies refused these new standards, and the hospital terminated these contracts.

We also require collection agencies to be trained on our mission,

core values, and standards of conduct, to make sure that all patients are treated with proper dignity and respect.

Mr. Chairman, we all share in the heartbreak of people who suffer under the current system of hospital billing and collection.

However, we must acknowledge that hospitals have an obligation

to seek payment so they can continue to provide services to the

community.

The goal of providing fair and compassionate health care financial services requires that healers, policymakers, administrators,

and regulators truly understand the complexity of hospital pricing.

Recent guidance from HHS allows greater flexibility in discounting for individuals in the case of medical indigence. As a result, our hospitals are expanding their definition of who qualifies

for charity care so even more people qualify.

We met with Secretary Thompson and various representatives

from HHS and CMS over the course of three meetings, to discuss

other improvements and services to the uninsured such as presumptive eligibility. These changes will bring some overdue rationality to a small corner of the problems of the uninsured.

I respectfully suggest that it is impossible for any one hospital

to solve the complex issue of financing care for the uninsured and

underinsured. We must address it as a country. We must rationalize and simplify our payment system.

Our hospitals can provide charity care and discounted services

and improve financial services, yet the biggest problem remains unsolved. There are too many people who are uninsured. There are

too many people without access to health care in an appropriate

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setting. The system is clearly broken. The solution is universal

health care coverage.

Catholic Health Initiatives wants to work with Congress and

other policymakers to achieve comprehensive reform. If coverage

for all cannot be achieved immediately, we should adopt a phasein plan, one that begins with coverage of the most vulnerable members of our society.

Mr. Chairman, we pledge our cooperation, and thank you for allowing us to testify today.

[The prepared statement of Kevin E. Lofton follow:]

PREPARED STATEMENT OF KEVIN E. LOFTON, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, CATHOLIC HEALTH INITIATIVES

Chairman Greenwood and members of the Subcommittee, thank you.

My name is Kevin Lofton. I am the President and Chief Executive Officer of

Catholic Health Initiatives. Thank you for inviting us to join you today to discuss

how we may all work together to achieve quality health care services AND fair, efficient and compassionate health care financing for all Americans, particularly persons who are poor, uninsured and underinsured.

Catholic Health Initiatives hospitals take care of patients in need, regardless of

ability to pay. Providing charity and discounted care to persons who are poor, uninsured and underinsured is core to our mission. In that regard, we appreciate the

opportunity to respond to the Subcommittee’s invitation to testify on the subject of

hospital billing and collection practices. I am proud of our policies and practices, and

am pleased to provide you with an update on our improved billing and collections

procedures. Further, we appreciate the assistance of these valuable hearings and

the increased guidance from the Department of Health and Human Services (HHS).

Improved billing and collection practices—while important—will not substitute for

the long-overdue structural reforms in health care delivery and financing. Catholic

Health Initiatives is a strong advocate for universal health care coverage, and urges

the Congress to consider meaningful expansion of health care coverage to all Americans. That view is not only the view of Catholic Health Initiatives; it is my view as well.

I have committed my entire professional career to working with public, inner city

and faith-based health care organizations, all of which have been dedicated to serving the needs of poor, uninsured and underinsured persons. I joined Catholic Health

Initiatives in 1998 as a Group President and was later promoted to Chief Operating

Officer and Executive Vice President. In August 2003, I was appointed President

and Chief Executive Officer.

Prior to joining Catholic Health Initiatives, I was Chief Executive Officer of the

University of Alabama Hospital in Birmingham, a 908-bed university teaching hospital. I have also served as the Chief Executive Officer of Howard University Hospital in Washington, D.C., and Chief Operating Officer at the University Medical

Center, the urban campus of the University of Florida Health Science Center in

Jacksonville, Florida.

I received a master of health administration degree from Georgia State University

in Atlanta and a bachelor of science degree in management from Boston University.

A copy of my curriculum vitae is attached to this testimony.

Catholic Health Initiatives is a national non-profit corporation based in Denver,

Colorado. The CHI health system, which is comprised of affiliated non-profit corporations located in 19 states, includes 68 hospitals, 44 long-term care, assisted and

independent living and residential facilities and five community-based health organizations serving 68 rural and urban communities. CHI hospitals, facilities and community health organizations are non-profit health corporations in the states in

which they operate and have fiduciary boards of directors, although Catholic Health

Initiatives has some approval rights over these other non-profit entities. Collectively, these health providers employ more than 67,000 dedicated men and women.

All of us are bound together by a common mission and vision.

Catholic Health Initiatives was formed to advance and strengthen the Catholic

health ministry into the 21st century and is unique among health care systems in

the United States. During the last decade, religious sponsors of Catholic health care

ministries recognized that the changing health care environment meant greater resources would be needed to develop programs, structures and services in the next

century. In early 1995, a group of visionary leaders in Catholic health care began

to explore ways to preserve and strengthen the health ministry for the future. They

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envisioned a national Catholic health care organization, sponsored by multiple congregations of women religious and governed by a religious-lay partnership whose

mission was to transform health care delivery and create new ministries to promote

healthy communities. The result was the formation of Catholic Health Initiatives

through the consolidation of Catholic Health Corporation, Omaha, Nebraska; Franciscan Health System, Aston, Pennsylvania; the Sisters of Charity Health Care Systems, Cincinnati, Ohio; the Sisters of Charity of Nazareth Health System,

Bardstown, Kentucky; and the Sisters of St. Francis of the Immaculate Health of

Mary, Hankinson, North Dakota.

Catholic Health Initiatives is committed to creating new models of health care,

based on collaborative relationships and partnerships with community groups, agencies and other health care organizations. Since 1997, the Catholic Health Initiatives

Mission and Ministry Fund has awarded 123 grants, totaling more than $11 million,

to improve the health of communities served by its facilities. Through this national

healthy communities commitment, hospitals and health services throughout the organization are developing unique programs to address the root causes of serious social and health issues, such as domestic violence and the inability to access basic

health care services, so we can create solutions for the long term.

In our testimony, we hope to provide a better understanding of how the Catholic

Health Initiatives mission and vision motivates our deep commitment to charity and

discounted health care services to persons who are poor, uninsured and underinsured; our resolve to proactively improve collections and billing for patients; and

our strong advocacy commitment to national health care reform.

CATHOLIC HEALTH INITIATIVES: A COMMITMENT TO CHARITY AND DISCOUNTED HEALTH

CARE FOR THE POOR, THE UNINSURED AND THE UNDERINSURED.

First and foremost, Catholic Health Initiatives cares for and cares about poor, uninsured and underinsured persons. Catholic Health Initiatives has designed charity

care standards to meet the needs of the uninsured and the underinsured. This has

been the mission and tradition of Catholic Health Initiatives hospitals for more than

100 years. As part of this commitment to persons who are poor, alienated and underserved, Catholic Health Initiatives uses financial resources to emphasize human

dignity, social justice and the promotion of healthy communities. Several examples

of CHI’s commitment to the poor and underserved include: free clinics at many CHI

hospitals; $24 million in direct community investments, which are no- or low-cost

loans to institutions or projects that promote access to jobs, affordable housing, child

care, education, environmental protection and health care for low-income and minority communities; and $11 million in Mission and Ministry grants.

When determining eligibility for charity and discounted health services, Catholic

Health Initiatives facilities have considered income, family size, available assets and

extenuating circumstances. CHI facilities use the Department of Housing and Urban

Development (HUD) income guidelines because they are more inclusive than other

poverty guidelines and more accurately reflect the economic differences of the 68

urban and rural communities in 19 states served by CHI hospitals and health care

facilities. In 26 of those communities, a CHI hospital is the only hospital serving

that community.

In an effort to be inclusive, CHI hospitals provide charity and discounted health

care services on a sliding scale. For example, at St. Anthony Hospital in Denver,

the community in which I live, a family of four with an income of up to $74,000

would qualify for assistance.

With the recent guidance from the Department of Health and Human Services,

Catholic Health Initiatives hospitals are revising their charity care policies. For example, the policies will now cover more people and will further simplify the application process. If a patient is unable or unwilling to provide financial information, but

that person has other evidence of indigence, such as a person who is homeless, he

or she will be covered by the charity care policy.

Catholic Health Initiatives and its hospitals are responding to the needs of the

poor and underserved and the broader community in very direct ways. In fiscal year

2003, CHI’s total measurable benefit for the poor and the broader community was

$644 million, which includes grants, free clinics, mobile medical and dental vans

and educational programs. That was 10.6 percent of our total revenues.

As part of that, CHI hospitals provided $108 million in direct subsidization of

charity care. This is the estimated cost of providing the care, not what was charged.

Over the last three years, Catholic Health Initiatives-sponsored hospitals provided

$1.9 billion in measurable benefits to improve the overall health of our communities.

Let me give you a few examples:

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Good Samaritan Hospital in Kearney, Nebraska, has lowered the rate of mortality

from heart disease by 34 percent in its rural Nebraska and Kansas communities

through a program to make advanced cardiac care available and accessible to the

people in these farming communities. Good Samaritan staff members have driven

more than a half million miles to outreach sites since the program began.

St. Elizabeth Health Services in Baker City, Oregon, is a critical access hospital

in an isolated, rural community in eastern Oregon. St. Elizabeth’s provides prescription medications to persons who do not have the means to purchase them. These

medications help the recipients recover more quickly from their illnesses, better

manage chronic conditions and avoid costly hospitalizations and interventions.

St. Joseph Medical Center in Towson, Maryland, provides free or low-cost health

care services to underserved residents of the greater Baltimore community through

a mobile medical van staffed with bi-lingual health care providers. The van regularly stops at a soup kitchen, and the staff serves clients who face homelessness,

mental illness and drug addiction.

Our Lady of the Way Hospital in Martin, Kentucky, handles more than 18,000

emergency department and urgent care visits each year. Nearly 60 percent of the

42,000 people living in Floyd County have a family income below 200 percent of the

federal poverty level and nearly half of the adults in the county have less than a

high school education. The hospital’s outreach program provides care for more than

25,000 people. To combat the county’s high teenage pregnancy rate, Our Lady of the

Way Hospital initiated the RESPECT Program for girls in grades six through eight.

RESPECT is a nine-week program designed to build self-esteem, develop career

skills and encourage young teenage girls to postpone sexual activity. More than 400

girls have completed the program and there have been only three teen pregnancies

among program participants.

Finally, Lakewood Health Center in Baudette, Minnesota, is a founding partner

of Communities Caring for Children, a program involving 13 counties in northwestern Minnesota, that offers free care to pregnant women and children up to age

five. The goals are to encourage healthy deliveries and to increase the number of

children who receive well-child exams and immunizations.

CATHOLIC HEALTH INITIATIVES: PROACTIVELY IMPROVING BILLING AND COLLECTIONS

Chairman Greenwood, I would like to commend you, the Subcommittee and staff

for your attention to this issue. It prompted Catholic Health Initiatives to examine

our own billing and collections practices more closely, and to aggressively seek clarification and guidance from the Department of Health and Human Services to ensure

we are doing what is right. As a result, Catholic Health Initiatives is proactively

reforming its own billing and collection policies. Let me be specific:

All Catholic Health Initiatives hospitals have been asked to amend the contracts

they hold with third party collection agencies to include the following standards:

neither CHI hospitals nor their collection agencies will request bench or arrest warrants; neither CHI hospitals nor their collection agencies will seek liens that would

require a sale or foreclosure of a primary residence; and no collection agency may

seek court action without hospital approval. Several collection agencies refused to

agree to these new standards and the hospitals terminated their contracts.

As of June 30, 2004, we will require that collection agencies be trained on the

Catholic Health Initiatives Mission, Core Values and Standards of Conduct to make

sure all patients are treated with dignity and respect. Catholic Health Initiatives

will continue to work with the hospitals so that all patient financial services staff

show respect for the individual, regardless of the source of payment for care.

Improving billing and collections—what we charge and how we collect—are important. Catholic Health Initiatives is committed to fair, efficient and compassionate

billing and collection policies and practices.

To be fair to the community, patients in a hospital have an obligation to pay if

they can or, if they cannot, to provide information so they can seek to be qualified

for government or charity programs. Hospitals have an obligation to seek payment

so they can continue to provide services to people in the community.

Some of our patients qualify for charity care and discounts based on income levels, but many others fall outside the charity care guidelines and cannot afford adequate insurance. It is for those uninsured and underinsured patients that we must

do better as health care providers, as policy makers and as a nation.

However, the goal of providing fair and compassionate health care financial services requires that healers, policy makers, administrators and regulators truly understand the complexity of hospital pricing.

Catholic Health Initiatives appreciates the guidance given by the federal government regarding charges and discounting to better serve the community, including

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people who are uninsured and underinsured. This guidance, provided by Secretary

Tommy Thompson and HHS, allows greater flexibility in discounting for individuals

in the case of medical indigency, and as a result, Catholic Health Initiatives hospitals are expanding their definition of who qualifies for charity care.

We have also been meeting with the Centers for Medicare and Medicaid Services

to discuss other improvements to the provision of services to the uninsured, such

as presumptive eligibility, so that people in any of several situations, such as those

living in subsidized housing or migrant farm workers living in transient housing,

are presumed to be eligible for charity care. I am convinced that these changes will

bring some overdue rationality to at least a small corner of the problems of the uninsured.

But as CEO of Catholic Health Initiatives, I respectfully suggest that it is impossible for any hospital to solve the complex issue of financing care for persons who

are uninsured and underinsured. We must address it as a country from the standpoint of day-to-day regulatory and operating reality.

We need to rationalize and simplify our payment systems. These systems are wellpast complex and have evolved so that list prices (charges)—which are used in the

formula for Medicare reimbursement, workers compensation plans and private insurance discounts—may or may not have a relationship to the actual cost of providing services—and also have nothing to do with what most hospitals are actually

paid. An indirect and unintended consequence of these forces is that they have created hardship for uninsured patients. The system is clearly broken.

At Catholic Health Initiatives, we believe that quality health care and fair, efficient, compassionate billing and collection policies should not, and cannot, be separated.

Information about hospital charges may be useful in helping patients ask better

questions. However, obtaining accurate charge information in advance is made difficult by the many uncertainties involved in predicting the course of treatment for

any one individual. No two patients, diseases or injuries are alike.

Average charge information may be useful for a simple procedure—such as an xray—or for diagnoses that are common and have a great deal of standardization—

such as the normal delivery of a baby. However, the average charge would be misleading for patients when the diagnosis is unclear—and so diagnostic tests are needed—or where there are greater ranges of possible treatments.

Charges will depend on the specific items and services ordered by the patient’s

physician and on complicating diseases the patient may have such as diabetes or

hypertension. For example, in Colorado where charges are publicly available, the average statewide charge for hospitalization for simple pneumonia is about $6,000 for

a patient without complications and more than $31,000 for a patient with extreme

complications. One might question if publishing the overall average charge of

$12,000 for pneumonia provides any useful information to a patient.

In the end, however, the bottom line for Catholic Health Initiatives is social justice. All Americans should have access to affordable care. The number of uninsured

persons continues to grow. St. Anthony Hospital in Denver has seen the number of

self-pay patients (who are typically uninsured) in the emergency department grow

from 21 percent to 33 percent in two years.

Catholic Health Initiatives can provide charity care and discounted services and

improve patient financial services. Yet, the biggest problem remains unsolved: too

many uninsured people, too many persons without access to health care in an appropriate setting. Again, the system is broken.

The solution is universal health care coverage.

CATHOLIC HEALTH INITIATIVES: STRONG ADVOCACY COMMITMENT TO NATIONAL HEALTH

CARE REFORM.

While incremental change that benefits patients is good . . . it is not the solution.

Catholic Health Initiatives believes all Americans should have health care coverage. All Americans should have access to quality health care services: the right

care, at the right time, at the right place.

Uninsured Americans are up to three times more likely to have poor health outcomes. Studies show nearly 40 percent of uninsured adults skipped a recommended

medical test and 20 percent say they have needed but have not gotten care because

they did not have insurance. The Institute of Medicine recommends that the problems caused by uninsurance in the United States require a national and coherent

strategy aimed at covering the entire population.

Further, as a matter of social justice, it is important that all people have access

to routine, consistent primary care in accessible settings that will be less costly.

Many persons without insurance come to the hospital through the emergency deVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00098 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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partment. Often, an uninsured person does not have a primary care physician and

as a result will have had no routine or preventive care. The emergency department

does not have the medical background or history and physical from a primary care

physician that an insured patient with access to primary care will have. More clinical and diagnostic tests are needed, and they must be done in this more expensive

setting.

In addition, a patient without access to a primary care physician is more likely

to have chronic diseases that have been untreated—diseases like diabetes and hypertension. The Institute of Medicine has found that people without health insurance have diminished health, poorer outcomes and are less likely to get preventive

services or the care they need for chronic conditions. Simply put, patients least able

and least likely to pay may be among the most expensive to treat.

Catholic Health Initiatives wants to work with Congress and other policy makers

to achieve comprehensive reform. And, if coverage for all cannot be immediately

achieved due to current budget and political constraints, we should adopt a phasedin plan that begins with coverage of the most vulnerable members of our society,

including women and children.

We encourage Congress to start by enacting legislation that: removes the prohibition on legal immigrant children and pregnant women receiving Medicaid/SCHIP

coverage during their first five years in this country; expands Medicaid/SCHIP programs to cover additional uninsured children from low-income families; and provides

Medicaid/SCHIP coverage for family members of children covered by these programs.

Mr. Chairman, we pledge our cooperation. Thank you.

Mr. GREENWOOD. Thank you very much, sir.

Mr. Bovender, welcome.

TESTIMONY OF JACK O. BOVENDER, JR.

Mr. BOVENDER. Thank you, Mr. Chairman. My name is Jack

Bovender, and I am the Chairman and CEO of the Hospital Corporation of America. We own and operate 190 hospitals and 82 outpatient surgery centers in 23 States and two foreign countries, with

about 190,000 employees. Last year, we treated over 14 million patients in our facilities.

I appreciate this opportunity to share our company’s insight into

the issues surrounding the uninsured, hospital pricing and collection policies, our escalating bad debt problems and, in particular,

our charity care discount policy, which has been used as a model

by many other hospitals and hospital systems in the country.

In my 34 years in hospital administration, I have never seen another time in which the level of uninsured using hospital emergency departments has been as great, or the amounts we are writing off to bad debts and charity care have risen so high. The numbers are staggering.

Families, USA recently reported that nearly 82 million people

went without health insurance at some point during the last 2

years. Specific to HCA, we have seen our bad debt expense rise

from 8.5 percent of net revenue to about 11.7 percent. Put another

way, HCA hospitals provided free or discounted care to over 1 million patients. For HCA, the cost—the cost, not charges—of providing this unreimbursed care was over half a billion dollars last

year.

Hospitals in this country have become virtually the only safety

net for the uninsured needing health care. The pharmaceutical

companies do not give us free of charge their expensive antithrombolytic drugs for use with the uninsured heart patient. The

medical device companies are not giving away free of charge the expensive cardiac stints we implant in the uninsured patients. And

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the managed care companies are certainly not coming into our communities offering free or significantly discounted insurance policies

to the uninsured. This unshared burden has driven hospital margins in this country down to 3.5 percent. These are historic lows,

so low that even the short-term viability of many hospitals is now

threatened. Compare this 3.5 percent margin to those in the pharmaceutical and medical device industries, which range between 13

and 15 percent.

While hospitals have been castigated recently in the press for

charging and collection practices related to the uninsured, and in

many cases with great justification, hospitals are not the problem.

They are merely the symptom of a much bigger problem. The problem is how are we as a society going to guarantee that every American has some form of health insurance, health insurance that adequately reimburses hospitals and doctors for the health care they

render?

Before I discuss HCA’s charity discount policy, I would like to

spend a minute on hospital charges. The charge master system on

which hospitals rely to set pricing and billing codes have a 40-year

history of changes that have distorted the relationship between

price and cost. It grew out of a time when decreasing Medicare reimbursement prompted cost-shifting to the private sector, and this

was exacerbated in the 1990’s by aggressive managed care discounting. I am not here to try to justify this, and it really needs

to be fixed.

HCA has focused on developing a pricing structure for the uninsured that more closely mirrors pricing to managed care. We believe recent pronouncements by CMS allow us to do this without

as much reliance on complicated indigence tests. In the interim, we

believe our charity care and financial discount policy provides necessary relief to those in financial need.

Our charity care program offers free or discounted nonelective

care for those not covered by private insurance or government

health assistance programs. For individuals with income up to 200

percent of the Federal poverty level, care is free. For those between

200 and 400 percent of the Federal poverty level, a sliding scale of

discounts is applied.

To give you an idea of who benefits from these discounts, a family of four with a gross income of $37,700 receives free care. At 400

percent above the poverty level, a family of four with a gross income of up to $75,400 would qualify for a discount as high as 65

percent. Such a discount places the pricing into the same zone as

those negotiated with some of the Nation’s largest health insurance

providers.

Now, I will be the first to admit that we are not perfect. We have

been criticized for the effectiveness of our implementation, and assertions have been made that every HCA patient who is eligible is

not receiving free or discounted care. That is undoubtedly the case,

but I assure you it is not for either a lack of effort or a lack of intent. We are making every effort to provide financial relief to those

individuals who qualify. While we and other hospitals can improve

pricing and collection practices, this will not solve the mushrooming problem of the uninsured. We need a comprehensive strategy that guarantees coverage for all Americans.

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The problem is that we as a nation are actually going in the

other direction. More and more businesses are dropping health insurance coverage, or shifting more and more of the burden to the

employee with higher premium sharing and higher co-pays and

deductibles. Many are pushing higher levels of part-time employment, thereby avoiding coverage of ever-larger segments of employees. About 60 percent of the uninsured are employed.

I believe we need to move to a system of employer-mandated

health insurance in this country, a system that would require all

businesses above a certain size to provide health insurance. Limits

on premium-sharing, deductibles and co-pays should be defined,

thereby leveling the playing field with regards to benefits across all

businesses.

Small businesses should be allowed to form purchasing consortia,

as has been advocated by the National Federation of Independent

Businesses, in order to receive the best insurance rates.

Finally, some form of Federal and/or State coverage must be provided for the unemployed. This population needs regular access to

routine and preventive care to reduce health care crises necessitating hospitalizations. Hospitals cannot long continue to incur

ever greater increases in bad debt and charity. We need help from

other segments of the health care industry. More importantly, we

need a new paradigm that provides a reasonable level of health insurance coverage for all Americans. We will continue to do our

part, but we cannot do this alone.

Thank you.

[The prepared statement of Jack O. Bovender, Jr. follows:]

PREPARED STATEMENT OF JACK O. BOVENDER, JR., CHAIRMAN AND CHIEF EXECUTIVE

OFFICER, HOSPITAL CORPORATION OF AMERICA

INTRODUCTION

Mr. Chairman, members of the Committee and staff—good morning. My name is

Jack Bovender. I come before you today as a 34-year veteran of the healthcare industry and current Chairman and Chief Executive Officer of the Hospital Corporation of America (‘‘HCA’’).

I grew up in hospitals, and I have spent my life around healthcare professionals.

My mother was a nurse. My wife was a nurse. My first civilian job was in a hospital, and I began my career in hospital administration in the Navy, at the Naval

Regional Medical Center in Portsmouth, Virginia. So I feel qualified to say the issue

of the uninsured is one the healthcare industry has always faced—it has been with

us for as long as I can remember, but at no other time in my life has this challenge

been of the magnitude it is today.

The cost of providing healthcare services to the uninsured is the most significant

issue currently facing hospitals and, I believe, one of the most important domestic

concerns for our country. And the issue of the uninsured is the responsibility of

every one of us—the business community, the government, and the individual, not

just hospitals. We must all play a role if this situation is to be ameliorated.

I appreciate this opportunity to share my personal experience, and the experiences of HCA, working on behalf of this vulnerable and growing population. We welcome the invitation to work with members of the Congress to find a real solution

to this escalating problem, and we are hopeful that with this Committee’s help, Congress will reach beyond today’s hearing to engage those groups and individuals who

can also play a role in this process.

Let me tell you a little bit about our company and what we are doing to address

this critical issue. Headquartered in Nashville, Tennessee, HCA affiliates operate

nearly two-hundred hospitals and eighty-two outpatient surgery centers in twentythree states, England, and Switzerland. Our facilities currently employ some

190,000 people. Certainly no organization has a greater interest in addressing the

present crisis in health insurance coverage. In many cases and for many, many people, we are the nation’s safety net for the uninsured. Last year alone, our hospitals

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provided healthcare services to over one million uninsured patients—let me repeat

that number—one million uninsured patients. Add to that the 1.6 million Medicaid

patients we served last year, and you have an idea of the magnitude of the care

we provide for the underserved.

Our hospitals are dedicated to delivering healthcare services to meet the needs

of all Americans, regardless of whether they are or aren’t the beneficiary of health

insurance. The costs of providing medical services to the uninsured fall disproportionately upon the hospital industry, whose emergency rooms routinely function as

the primary (and largely uncompensated) point of access to healthcare for this vulnerable population.

My testimony today will detail HCA’s charity care plan and discount policy for

uninsured patients receiving treatment at any of our hospitals nationwide, as well

as recommendations for improved coordination of resources to decrease the number

of uninsured Americans.

CARING FOR THE UNINSURED

While hospital management and medical personnel certainly can’t solve the root

causes for the vast numbers of uninsured individuals, every day our people are on

the front lines in the struggle to care for this population’s health and well-being.

The Committee is undoubtedly aware that hospitals equipped with emergency rooms

must provide medical evaluation and required treatment to everyone, regardless of

their ability to pay. This burden has grown even heavier in recent years, with the

advent of physician-owned limited-care hospitals, which skim profitable service

areas for low-risk patients, and leave larger, full-service facilities the task of handling uninsured patients within their community.

In addition, the uninsured cannot visit a pharmacy and expect to receive free or

discounted drugs; they cannot visit a physician’s office and expect to receive free or

discounted medical services; they cannot visit a physical therapist and expect to receive free or discounted rehabilitation treatment; nor can they go to an insurance

company and expect to receive a free or discounted insurance policy. But in every

HCA hospital’s emergency room, they are assured of receiving the critical medical

care they need, without consideration for their financial condition or health insurance coverage.

America’s hospital emergency rooms have become our de facto public healthcare

system, the primary point of access to quality healthcare services for the nation’s

uninsured. For HCA hospitals, medical treatment of the uninsured has represented

a substantial and growing segment of the patient population.

And contrary to a prevailing myth, the treatment of the uninsured is far from a

profit center for hospitals. Last year, the one million uninsured patients we treated

contributed less than one percent to our net revenues. On average, we received

about $200 in payments from each of the one million uninsured patients we cared

for, and many paid nothing at all. Said another way, we lost a staggering half billion dollars in un-reimbursed expenses for treating the uninsured. Again, I am not

talking about un-reimbursed charges, I’m talking about real costs we incurred for

which we were not paid. Our hospitals incur both the internal costs generated by

the hospitals’ own medical services, such as nursing salaries and utilities charges,

and costs from outside vendors, like prescription drugs, over the counter medications, medical devices, and other supplies necessary for the patient’s care and treatment.

In many instances, these goods and services are being provided to individuals

whose needs are less acute and who would, were it not for their inability to pay,

seek treatment at a physician’s office. The cost of ensuring healthcare coverage of

this nature is straining both the physical and financial capacity of the hospital industry; it cannot continue to be borne solely by hospitals, or medical services may

not be available when Americans need them. The responsibility for the uninsured

must be shared by all sectors of the healthcare industry, and by society at large.

The financial pressures facing hospitals today, including the growing non-reimbursed costs of providing care for the uninsured, are illustrated in declining hospital

profit margins (See Chart I). It is this margin that makes capital available to insure

hospitals will be here to serve future generations. It is this margin that provides

funding to cover our wage increases for our nurses and other caregivers. The most

recent estimates from the American Hospital Association show U.S. hospital margins at approximately 3.5%. Over the last five years, the net profit margins for U.S.

hospital companies have been substantially below margins of both pharmaceutical

and medical device companies, and in 2003, margins of health insurance companies

were more than double that of public hospital companies (See Chart II). For the

most recent year (2003), public hospital company margins were 1.5%, while health

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insurance company margins were 4.3%, pharmaceutical companies margins were

13.8% and medical device companies margins were 15.6%.

The lower margins for hospitals reflect the disproportionate uninsured burden

carried solely by hospitals. As illustrated in Chart III, hospitals’ bad debt (primarily

arising from uninsured) totaled 9.9% of net revenues in 2003, compared to bad debt

levels of 0.1% for insurance companies and 0.3% for pharmaceutical and medical device companies. Further, the percentage growth in spending for hospital care between 1991 and 2002 was substantially below the growth in spending for prescription drugs (three times the growth in hospital spending) and private health insurance (two times the growth in hospital spending) (See Chart IV).

THE HCA CHARITY CARE AND DISCOUNT POLICY

Charity care has always been a part of our mission at HCA, and part of the service provided at our nearly two hundred hospitals nationwide. However, in order to

respond to the recent growth of the uninsured population, last year we developed

an enhanced, system-wide charity care and financial discount policy. In March 2003,

we submitted our proposed discount program for uninsured patients to CMS for approval. In June 2003, we received a letter from CMS advising us while they ‘‘applauded HCA’s efforts to improve access to quality healthcare to financially needy

patients,’’ we still needed to ‘‘pursue our proposal’’ with our (five) fiscal intermediaries (FI’s) before implementation. After discussions with our FI’s in the fall,

we initiated our new policy nationwide, effective October 1, 2003.

Our standardized charity care programs offer free or discounted medical care to

patients in financial need who come to our emergency rooms and are not covered

under any private health insurance policy, and cannot qualify for any state or federal health payer assistance programs. For individuals whose income is up to two

hundred percent of the federal poverty level, care is free; for those who make between two hundred and four hundred percent of the federal poverty level, a sliding

scale of discounts is applied. To give you an idea of who benefits from these discounts, a family of four with a gross income of $37,700 receives free care. At four

hundred percent above the federal poverty level, a family of four with a gross income of up to $75,400 would qualify for a discount as high as sixty-five percent.

These uninsured individuals benefit from a pricing structure competitive with the

reduced rates negotiated by the nation’s largest health insurance providers.

Eligibility for charity care relates only to the patient’s or responsible party’s gross

income and family size; the potential value of other available family assets and resources are not considered when determining the appropriate rate of reduction in

hospital charges. Moreover, free or discounted benefits are available under these

programs at any time after care is rendered and the account is in the process of

being settled. This permits write-offs of outstanding charges or restructuring of payment plans for patients who lose their insurance or suffer a substantial change of

income. In addition, patients may request consideration under the charity and discount programs for costs associated with previous hospital visits. Each of our hospitals employs a team of patient representatives available to discuss an individual’s

particular situation and develop an appropriate solution.

HCA’s assistance is not just limited to providing medical care. We are also committed to helping patients who are eligible to receive the full range of government

benefits. To that end, our hospitals employ a full-time staff of specially trained benefits counselors who are responsible for educating and enrolling patients in Medicaid

or other state health benefit programs. Once enrolled in these federal and state

medical benefit programs, patients can access physicians and other healthcare providers for critical preventive and follow-up care. Last year, HCA facilitated the enrollment in Medicaid of one in five of the uninsured patients who presented at our

hospitals.

In summary, our philosophy is clear and simple. When a patient arrives at one

of our hospitals in need of emergent care, we provide that care regardless of whether or not they are insured. And if they tell us they cannot afford to pay for that

care, we will write off those costs or discount the charges. While these programs

cannot be a long-term substitute for private health insurance or government health

assistance programs, they may for now be the only recourse for a patient lacking

insurance and unable to afford essential medical care.

HCA’S HOSPITAL BILLING AND COLLECTIONS PRACTICES

Like all hospitals, HCA relies upon a chargemaster as the central repository of

charges and associated coding information used to develop claims. These charges are

determined on a local hospital-by-hospital basis. To put it simply, the chargemaster

system on which hospitals rely to set pricing and billing codes has a forty-year hisVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00103 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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tory of changes that has distorted the relationship between price and cost. It grew

out of a time in our industry’s history, during the advent of managed care, when the

inadequate level of Medicare reimbursement prompted cost-shifting. Therefore, HCA

is now seeking to develop a pricing structure for the uninsured that is more reflective

of the actual cost of providing the care, and which will provide prices comparable

to managed care pricing for all aspects of uninsured care. In the interim, we believe

our charity care and financial discount policy provides necessary relief for those individuals who are in financial need.

With regard to collections, we have worked hard to develop a policy that strikes

a careful balance between our fundamental belief that people who receive medical

care should pay a fair price for those services, and an understanding that many in

our nation lack the financial ability to do so. But despite the substantial reduction

of an individual’s medical expenses through the discount policy, HCA appreciates

that many patients will lack the readily available financial resources needed to meet

what are often unanticipated health care costs. Medical debt is, and is likely to remain, a difficult issue for hospitals and patients across the country, and I believe

will become an increasing concern for this nation as a whole. As a medical services

provider, HCA recognizes its fundamental obligation to be a steward of public health

in its local communities. The HCA charity care and discount policy ensure compassion and consideration for those among us who simply cannot afford to pay hospital

bills.

We feel the process we have in place is one that seeks to help patients who are

needy and willing to work with us to resolve their debt with our facilities. HCA hospitals will provide individuals with payment plans that are interest-free and tailored

to each patient’s distinct needs and financial ability. One of our challenges in making these options available, however, is in communication with the patients themselves. We find some patients do not answer our phone calls and letters, discuss

their financial status, talk about payment plans, receive assistance with public benefits coverage, or apply for a reduction under the charity care or discount policy. It

is difficult to effect assistance or financial relief if a patient is unable, or in many

cases, unwilling to give us information.

HCA does employ a collections process, but even then we do our best to work with

our patients as individuals, with sensitivity to their personal and financial circumstances. If we receive no response to our phone calls and letters, we eventually

place the account with an external collection agency, which continues to attempt to

contact the patient to work out a reasonable and workable payment plan. In some

instances, this collection effort still yields no response from the patient, and litigation is the remaining alternative to resolve the debt; however, we have no desire

to compel payment from patients who have no ability to pay.

We believe our collection policies are reasonable and reflect an understanding of

individual circumstances. Unfortunately, patients who are financially able yet

choose not to pay affect the cost and availability of healthcare resources to the entire population. When an individual who is able to pay for medical care refuses to

do so, the resulting debt is a cost of doing business that must be absorbed by the

hospital; and, as with any business, that cost is partially passed on to the consumer.

More importantly, the drain on hospital resources compromises its ability to continue providing everyone in the community with quality, affordable care. This situation is magnified at HCA, because we have nearly two hundred hospitals, but

through our experience we know that every day, in cities all across America, hospitals are struggling to balance a community’s healthcare needs with a way to pay

for care given when the recipients either cannot or will not contribute financially

to the effort.

SUMMARY AND RECOMMENDATIONS

As previously indicated, the cost of ensuring healthcare coverage for everyone cannot be borne solely by hospitals. I believe Congress, the Administration, the nation’s

employers, and all sectors of the healthcare industry—hospitals, pharmaceutical

companies, medical device manufacturers, insurance carriers, and the physician

community—must work cooperatively and with equal participation to solve this

enormous problem. And if every participant in the process were to play a meaningful role—as hospitals already do—think how much greater the potential would be

for finding a real solution.

Specifically, I recommend examination of appropriate discounts from all

healthcare industry participants, not unlike the charity care discounts being provided by hospitals. And I strongly suggest working with the insurance industry to

develop more affordable coverage for the self-employed, and for small business ownVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00104 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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ers and their employees. We advocate small business health plans or association

health plans.

Let us not forget the individual as well. This country has been very good to me

and to my family, and I believe in its strength and fundamental fairness; but I also

believe each individual plays a part in his or her destiny. So whatever solution is

devised, it must include an accountability for individuals to take part in the management of and payment for their healthcare needs. Ultimately, I believe all employers should be required to provide coverage for their employees.

Finally, I believe some universal healthcare coverage must be provided for the unemployed. Since the implementation of our charity care and financial discount policy, our statistics show that over 95% of those who qualify fall in the vastly lower

income levels, and many, though ineligible for Medicaid, live just above the poverty

level. These people must be given a means by which to receive regular and preventive medical care.

The bottom line is this: hospitals cannot continue to absorb more bad debt as they

strive to maintain a quality healthcare system for Americans. As more insurance

plans shift a greater burden of the cost of care to individuals, through higher copays and deductibles, the situation will only get worse. This financial picture will

not improve without the intervention and support of other sectors of the healthcare

industry, the greater business community, the assistance of the government, and

the leadership of individuals such as the membership of this Committee.

Thank you, Mr. Chairman and members of the Committee for your time and attention. I will be happy to respond to your questions.

Mr. GREENWOOD. Thank you.

Dr. Pardes.

TESTIMONY OF HERBERT PARDES

Mr. PARDES. Mr. Chairman, distinguished members of the committee, and staff, good afternoon. Thank you for convening this

hearing on hospital billing and collection practices related to the

uninsured. The committee’s inquiry into these matters has raised

public awareness regarding a serious problem facing millions of

Americans—the lack of health insurance coverage and ability to

pay for necessary medical treatment. There are more than 43 million Americans living without health insurance, and millions of

others lack coverage for catastrophic health care expenses. As a result, U.S. hospitals treat millions of patients each year who can

make only minimal payment, or no payment at all for the medical

services they receive.

My name is Dr. Herbert Pardes, President and Chief Executive

Officer of the New York Presbyterian Hospital. I have served there

for 4 years as CEO, and appreciate the opportunity to testify and

share my insight into and experience with New York Presbyterian’s

charity care and collection policies. New York Presbyterian has always strived to treat each patient fairly when it comes to how charity care is provided and how uninsured patients are billed. Through

my testimony, I hope to convey New York Presbyterian’s commitment to these important issues.

After providing a brief description of the New York Presbyterian

Hospital and the community it serves, my testimony will focus on

our charity care efforts as well as our collection policies and

charges.

New York Presbyterian Hospital is the largest single hospital

and academic medical center in the New York Metropolitan Area.

It is comprised of four separate campuses, collectively serving a

large geographic area with many diverse communities. The vast

majority of communities served by New York Presbyterian are ethnically diverse and economically distressed, with a large percentage

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of Medicaid-eligible, uninsured and underinsured individuals and

families, so we treat a high percentage of Medicaid and uninsured

patients.

As a nonprofit, New York Presbyterian maintains strong and

long-standing commitment to meeting the diverse medical and social needs of the communities it serves. It is especially committed

to our obligation to provide care both to the uninsured and underinsured in our service area. Each year, we forego some $70 million

in charity care, write off an additional $70 million in bad debt. We

also expend significant resources in support of very expensive community benefit programs. Many of our initiatives are directed to

the uninsured and underinsured populations, including a facilitated Medicaid enrollment program, prenatal assistance program,

community outreach program, and a number of others.

New York Presbyterian is committed to enrolling patients who

are eligible into Medicaid and other government programs We routinely screen patients for Medicaid eligibility, and assist them with

the enrollment process. For those patients ineligible for Medicaid

and otherwise not insured, we offer charity care and other financial

aid.

New York Presbyterian has implemented a charity care policy

that applies across its campuses. Under this policy, New York Presbyterian provides charity care and financial aid to patients with incomes up to 300 percent of the Federal poverty level, which equates

to some $56,550 for a family of four. In addition, New York Presbyterian routinely assesses patients’ eligibility for assistance from

a philanthropic fund. The philanthropic fund is supported by private donations and used to pay the medical bills of patients experiencing financial hardship. To the extent that a patient is ineligible

for either charity care or the philanthropic fund, New York Presbyterian makes every attempt to establish flexible payment arrangements based on the patient’s individual circumstances. On average, we collect only 12 to 13 percent of the charges for services

to uninsured patients. After making reasonable efforts to collect

the balances, we must frequently write off some, if not all, of the

uninsured patients’ balances, and these write-offs approach nearly

$70 million per year.

New York Presbyterian works to ensure the fair collection of outstanding patient debts. We have internal policies and procedures as

well as written agreements with our outside collection agencies.

Our collection agencies do not pursue income executions on a patient’s spouse, and we do not permit foreclosure on a patient’s primary residence.

New York Presbyterian must establish charges for thousands of

different items and services. We review our charges periodically to

ensure that they cover costs and are in line with charges in the

New York Metropolitan Area. Inevitably, increases in health care

costs lead to increases in charges. The increase in health care cost

in recent years can be attributed to a variety of factors, including

increased cost of technology, research, pharmaceuticals, employees,

insurance, and facility expansion and improvement.

Third-party payers are frequently able to negotiate discounts on

these charges based on factors such as volume of service providers,

reduced transaction cost, assurance of timely payment. New York

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Presbyterian understands that uninsured patients do not have the

benefit of negotiated group rates, and so we offer free or reducedcharge care to uninsured and underinsured patients, and are flexible in establishing payment arrangements based on patient’s individual circumstances.

At the end of the day, New York Presbyterian stands committed

to meeting the medical and social needs of the communities we

serve. We are also committed to the promotion of meaningful industry-wide change in how charity care is provided and the uninsured are billed. We welcome this opportunity to discuss our charity care and collection policies, and we will continue to buildupon

them to further our commitment to patients’ needs.

Thank you.

[The prepared statement of Herbert Pardes follows:]

PREPARED STATEMENT OF HERBERT PARDES, NEW YORK PRESBYTERIAN HOSPITAL

Mr. Chairman, distinguished members of the Committee and staff—good morning,

and thank you for convening this hearing on hospital billing and collection practices

related to the uninsured. The Committee’s inquiry into these matters has raised

public awareness regarding a serious problem facing millions of Americans—the

lack of health insurance coverage and ability to pay for necessary medical treatment. There are more than 43 million Americans living without health insurance,

and millions of others lack coverage for catastrophic healthcare costs. As a result,

U.S. hospitals treat millions of patients each year who can make only minimal payment, or no payment at all for the medical services they receive.

My name is Dr. Herbert Pardes, and I am the President and Chief Executive Officer (‘‘CEO’’) of the New York Presbyterian Hospital (‘‘NYPH’’ or ‘‘NYP’’). I have

served as the CEO of NYPH for four years. I appreciate the opportunity to testify

and share my insight into and experience with NYPH’s charity care and collection

policies. NYPH has worked to promote change in how charity care is provided and

how uninsured patients are billed. Through my testimony, I hope to convey NYPH’s

commitment to these important issues.

I. OVERVIEW

New York Presbyterian Hospital (‘‘NYPH’’) is the largest, single hospital and academic medical center in the New York Metropolitan area. NYPH is comprised of

four separate campuses, which collectively serve a large geographic region with

many diverse communities. The vast majority of communities served by NYPH are

ethnically diverse and economically distressed, with a large percentage of Medicaideligible, uninsured and underinsured individuals and families. As a result, NYPH

treats a high percentage of Medicaid and uninsured patients.

As a non-profit institution, NYPH maintains a sincere and longstanding commitment to meeting the diverse medical and social needs of the communities it serves.

NYPH is especially committed to its obligation to provide care to both the uninsured

and underinsured in its service areas. Each year, NYPH spends nearly $70 million

in charity care, and writes off an additional $70 million in bad debt resulting from

the unpaid balances of self-pay patients. NYPH also expends significant resources

in support of its Community Benefit Initiatives, many of which are directed at the

uninsured and underinsured populations.

NYPH is committed to enrolling eligible patients into Medicaid and other government programs. NYPH routinely screens patients for Medicaid eligibility and assists

eligible patients with the enrollment process. For those patients who are ineligible

for Medicaid and who are not otherwise insured, NYPH offers charity care and other

financial aid. NYPH has implemented a charity care policy that applies across all

of its campuses. Under this policy, NYPH provides charity care/financial aid for patients with incomes up to 300% of the federal poverty level, or $56,550 for a family

of four. In addition, NYPH routinely assesses patients’ eligibility for assistance from

the Philanthropic Fund, a fund which is used to pay the medical bills of patients

experiencing financial hardship. To the extent that a patient is ineligible for either

charity care/financial aid or the Philanthropic Fund, NYPH makes every attempt to

establish flexible payment arrangements based on the patient’s individual circumstances.

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NYPH also works to ensure the fair collection of outstanding patient debt. NYPH

has internal policies and procedures, as well as written agreements with its outside

collection agencies. NYPH’s collection agencies do not pursue income executions on

a patient’s spouse, and do not force a foreclosure on a patient’s primary residence.

On average, NYPH collects only 12-13% of the charges for services to self-pay patients. After making reasonable efforts to collect the outstanding monies, NYPH

must frequently write off some, if not all, of the uninsured balances. As noted above,

these write-offs approach nearly $70 million per year. While a portion of this is reimbursed to NYPH through the New York State Bad Debt and Charity Care Pool,

the write off of bad debt is still a substantial burden on NYPH.

II. NYPH’S CHARGES

NYPH recognizes that rising health care costs are a significant and growing concern. Increases in health care costs lead to increases in our charges. The increase

in health care costs in recent years can be attributed to a variety of factors, including the increased costs of technology, research, pharmaceuticals, employees, insurance, and facility expansion and improvements. NYPH must absorb these increased

costs, and must update its chargemaster accordingly. Generally speaking, NYPH’s

charge increases in recent years have been due to an overall increase in these types

of operational expenses.

NYPH understands that uninsured patients do not have the benefit of negotiated

group rates. As such, NYPH has been and remains committed to providing free or

reduced charge services that are medically necessary to persons who are determined

to be unable to pay for their care, in whole or in part, based on their financial situation. A description of NYPH’s charity care efforts is set forth below.

III. NYPH’S PROVISION OF CHARITY CARE

As the largest hospital in the New York metropolitan area, NYPH is serious about

its commitment to provide medical care to both the uninsured and underinsured in

its community. NYPH is continually modifying and improving its charity care policies to meet the three-fold challenge of surviving in the face of burgeoning costs and

cumbersome federal and state regulation, continuing to provide high-quality, innovative medical care, and serving the needs of the uninsured and underinsured patients in its community. To this end, NYPH has recently revised its charity care

guidelines in order to implement a new Charity Care/Financial Aid Policy (‘‘Charity

Care Policy’’) across all four of its campuses. NYPH’s Charity Care Policy allows

NYPH staff to consistently and fairly assess each patient’s ability to pay for medical

services, and provides a level of assistance commensurate with their resources.

NYPH’s provision of charity care/financial aid is not intended to be a substitute

for existing government entitlement or other assistance programs. Based on the individual circumstances of each patient, NYPH makes every reasonable effort to explore appropriate, alternative sources of payment and coverage through Medicaid or

other public and private programs. Eligibility for charity care/financial aid will be

determined only after eligibility for Medicaid and other public and private programs

has been assessed. This allows NYPH to provide charity care/financial aid to those

patients that are most in need of assistance.

A. Charity Care/Financial Aid Policy

1. Eligibility and Application Process

NYPH’s Charity Care Policy defines charity care/financial aid as ‘‘the provision of

free or reduced charge services that are medically necessary to persons who are determined to be unable to pay for their care in whole or in part, based on their financial situation.’’ While charity care/financial aid is aimed at NYPH’s uninsured population, insured patients who face extraordinary medical costs, not covered by a third

party payer, may be eligible for assistance. As a general rule, other than cases of

medical emergency, NYPH offers charity care/financial aid to individuals who reside

within the communities it serves.

In assessing a patient’s eligibility for charity care/financial aid, NYPH asks applicants to provide certain information and/or documentation related to their financial

resources. NYPH asks applicants to submit the following:

• Household income for the most recent three months;

• Household income for the most recent twelve-month period;

• Number of persons in the household and their relationship to the applicant;

• Net assets (e.g., value of personal and real property, insurance policies, bank accounts, and other investment accounts); and/or

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• Form 1040 (U.S. Individual Income Tax Return) or, in the absence of a Form

1040, any other documentation that can be used to substantiate household income. NYPH reviews the application and documentation in making a decision regarding

the patient’s ability to pay for the services provided, and eligibility for charity care/

financial aid. NYPH will provide free or reduced care to uninsured applicants with

incomes below 300% of the federal poverty level (i.e., $56,550 for a family of four),

and who have no significant assets other than their primary residence. The federal

poverty level is listed in the Federal Poverty Guidelines for Non-Farm Income,

which is published on an annual basis. Exceptions to the income levels may be authorized by a designated hospital executive. If a patient is found to be ineligible for

charity care/financial aid based on their available assets and income, the patient’s

eligibility may be re-evaluated at a later date. Regardless, NYPH attempts to establish flexible payment arrangements based on the patient’s individual circumstances.

2. Communication of NYPH’s Charity Care Policy to the Community

NYPH has made an effort to disseminate information about its Charity Care Policy to the communities it serves. NYPH has shared information about the policy

with various community health agencies and other local organizations that assist individuals in financial need. NYPH also provides information about its charity care/

financial aid programs in the Emergency and Admitting Departments of each of its

facilities. In so doing, NYPH provides the information in the primary language spoken by the patients served by that facility. Finally, NYPH has trained the personnel

who come in contact with uninsured and underinsured patients so they may educate

such patients about the availability of, and process for obtaining charity care/financial aid.

B. The Philanthropic Fund

NYPH’s Philanthropic Fund is used to provide aid to patients experiencing financial hardship. The Philanthropic Fund, which is supported by private donations,

contains approximately three million dollars in available funding on an annual

basis.

Both insured and uninsured patients may apply for financial aid from the Philanthropic Fund. In order to receive monies from the Fund, the patient must submit

a letter of hardship which details their financial circumstances, and explains why

the patient is unable to pay his or her medical bills. The patient may also be required to submit financial documentation, such as W-2 forms, Form 1040s and mortgage statements. Upon receipt of the patient’s letter and documentation, NYPH will

make a determination as to the eligibility of the patient. If the patient is deemed

to be eligible, NYPH will forgive the patient’s entire balance due to the hospital,

subject to the availability of funds. Monies from the Philanthropic Fund are allocated on a first-come, first-served basis.

IV. NYPH’S COMMUNITY BENEFIT INITIATIVES

In addition to providing nearly $70 million in charity care per year, NYPH expends significant resources in support of its Community Benefit Initiatives. Through

these initiatives, NYPH collaborates with various local health agencies to ascertain

and respond to the myriad of health care needs of its communities. NYPH incorporates the outcome of these assessments into its strategic and program planning

process in an effort to target needed services to residents of its communities. NYPH

currently funds approximately twenty Community Benefit Initiatives. The following

initiatives are directed at the uninsured and underinsured populations:

NYPH’s Facilitated Medicaid Enrollment Program is aimed at enrolling the uninsured in the Medicaid Program. NYPH funds community-based organizations,

throughout its five targeted neighborhoods, which hire bi-lingual community-based

staff to serve as liaisons. These liaisons seek out the uninsured by visiting public

housing, homeless shelters, churches, schools, health fairs and other community

events. The liaisons pre-screen uninsured individuals to determine if they are eligible for Medicaid, assist them in completing the application and gathering required

documentation, and provide referrals to Medicaid application offices located

throughout the City. As a result of these efforts, approximately 6,500 uninsured individuals have been enrolled in the Medicaid Program in a single year.

NYPH’s Pharmacy Assistance Program makes affordable pharmaceuticals available to the uninsured and underinsured patients who do not have a prescription

drug benefit. The Pharmacy Assistance Program currently works with over 130

pharmaceutical manufacturers to offer more than 1100 legend drugs to eligible patients. Under this Program, patients pay a $5 co-payment for a three-month supply

of medicine. Since its inception in August 2002, the Pharmacy Assistance Program

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has assisted many uninsured and Medicare patients to obtain the prescriptions they

need at an affordable cost.

NYPH’s Prenatal Care Assistance Program seeks to enroll low-income pregnant

women into the Medicaid Program. NYPH Medicaid counselors, at both the Columbia Presbyterian and Cornell campuses, pre-screen female outpatients in an effort

to determine if they are eligible for participation in the Prenatal Care Assistance

Program. The Prenatal Care Assistance Program is a State-sponsored initiative that

expands the Medicaid eligibility criteria to include pregnant and postpartum

women. NYPH maintains an electronic Medicaid application program that allows eligible pregnant women to receive Medicaid numbers within 48 hours.

In 1998, the Columbia University School of Dental and Oral Surgery, in partnership with NYPH, the Mailman School of Public Health, Harlem Hospital, and

Alianza Dominicana, became one of thirteen sites nationwide to be awarded a Community Voices Health Care for the Underserved Initiative grant by the W.K. Kellogg

Foundation. This led to the formation of Northern Manhattan Community Voices

Collaborative (‘‘NMCVC’’). NMCVC is a partnership of over 35 community-based organizations, faith-based groups, health care providers, and institutions working to

address the health care needs of the Central Harlem and Washington Heights/

Inwood communities. Under the NMCVC Program, NYPH has worked collaboratively with its partners to increase Medicaid and Child Health Insurance Plus

(‘‘CHIP’’) enrollment in the targeted communities.

NYPH’s Community Outreach Program is also aimed at enrolling the uninsured

into health insurance programs. NYPH substantially expanded its Community Outreach Program in 2001, when the number of Outreach staff grew from 12 to 36. The

increase in staffing allowed NYPH to develop a grassroots strategy aimed at the uninsured members of the community. Outreach staff approach individuals in schools,

day care centers, supermarkets, check cashing centers, Department of Labor sites,

consulates and many other community locations. The staff members educate the patients about health insurance options and attempt to enroll them into CHIP, Family

Health Plus and Medicaid plans.

NYPH’s Breast Cancer Screening Partnership is a program, directed by Columbia

Presbyterian Hospital, which provides free breast and cervical cancer screening to

uninsured and underinsured women. To be eligible for the program, a woman must

be over the age of 40, and have either no insurance coverage or insurance that does

not cover medical screenings. The Partnership conducts outreach, which includes

education and recruitment of women, through community-based and faith-based institutions. The Partnership provides ease of access through its two mobile mammography units, and through formal referral linkages with Harlem Hospital and the

Union Health Center.

The Community Benefit Initiatives, described above, clearly demonstrate NYPH’s

strong commitment to the economically disadvantaged communities that it serves.

NYPH makes every effort to obtain health insurance for the uninsured and underinsured, as evidenced by the Facilitated Medicaid Enrollment Program, the Prenatal

Care Assistance Program and the Community Outreach Program. To the extent that

patients are not eligible for Medicaid programs, NYPH provides low cost prescription drugs and free preventative services through several of its Community Benefit

Programs.

V. NYPH’S COLLECTION POLICIES

NYPH works to ensure the fair collection of all outstanding patient debt. NYPH’s

handling of outstanding patient bills differs depending on a variety of factors, including the amount of the balance, whether the services were performed in the outpatient or inpatient setting, and the age of the account. For example, outpatient balances under $1,000 are handled by NYPH’s Patient Financial Services Department.

Representatives in the Patient Financial Services Department may take varying approaches based on the particular patient’s needs and circumstances. The patient

representative may assess a patient’s eligibility for Medicaid, settle the account for

less than the full balance, negotiate flexible payment arrangements, or assess the

patient’s eligibility for charity care from the Philanthropic Fund. The patient representative’s goal is to tailor the arrangement to the individual patient’s ability to

pay.

NYPH has internal policies and procedures, as well as written agreements with

its outside collection agencies and law firms (hereinafter ‘‘outside collectors’’).

NYPH’s outside collectors do not pursue income executions on a patient’s spouse,

and do not foreclose on a patient’s primary residence. NYPH’s outside collectors routinely assess patients’ eligibility for Medicaid and other government programs. To

the extent the patients are ineligible, the outside collectors provide the patient with

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multiple opportunities to pay on the account. NYPH’s outside collectors are expected

to negotiate flexible payment arrangements based on the patient’s individual circumstances, and to settle accounts for a percentage of the balance.

On average, NYPH collects only 12-13% of the charges for services to uninsured

patients. After making reasonable efforts to collect the outstanding monies, as required under the Medicare program, NYPH must frequently write off some, if not

all, of the uninsured or self-pay balances. NYPH’s bad debt expense approaches

nearly $70 million per year.

Mr. GREENWOOD. Thank you.

Mr. Fetter.

TESTIMONY OF TREVOR FETTER

Mr. FETTER. Thank you, Mr. Chairman. I appreciate this opportunity to address the subcommittee.

My name is Trevor Fetter. Last September, I was named Chief

Executive Officer of Tenet Healthcare Corporation. Prior to that, I

had served since November 2002 as President of Tenet. I have

spent nearly 9 years as an executive in the health care field.

Tenet is America’s second largest investor-owned hospital company. Last year, we treated more than 9.5 million patients at our

99 hospitals in 14 States across the Nation. We employ more than

100,000 people in our hospitals. Every one of us at Tent is very familiar with the growing uninsured crisis in our country. We deal

with it every single day, and the burden is rapidly increasing.

Tenet, like most hospital operators, has always provided charity

care to those truly indigent patients with no ability to pay. But in

recent years, we have been forced to absorb the sharply rising cost

of treating uninsured patients who are not indigent, but for a variety of reasons can’t or won’t pay for the services that we provide.

It is important to note that the uninsured crisis is definitely not

confined just to the unemployed and to the indigent. In some communities that we serve, as many as a third of the uninsured patients have jobs, but no health insurance.

We estimate that the number of uninsured patients in Tenet hospitals has now risen to more than 500,000 per year. This has an

enormous cost. So far this year, Tenet has incurred about $20 million a month in cost to provide care to uninsured patients. It costs

us an additional $15 million per month to provide charity care to

people whom we believe cannot afford to pay us anything.

As hospitals continue to absorb costs of that magnitude to provide free care to uninsured and indigent patients, their ability to

invest in capital improvements, expanded services, and new technology becomes limited. My greatest objective is to improve the

quality of care that is provided by our hospitals, but my greatest

concern is that the uninsured crisis may compromise our ability to

reinvest appropriately in our hospitals.

We know that Tenet alone cannot fix the uninsured problem.

Only when the uninsured have insurance will we truly solve this

challenge. But we have committed ourselves to do what we can to

ease this burden until more fundamental solutions are developed.

That led us, in January 2003, approximately a month after I

made the comment that the chairman referenced in his opening

statement, to adopt what we call Tenet’s Compact With Uninsured

Patients. The Compact has radically changed many of the ways

that Tenet hospitals interact with uninsured patients, including a

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dramatic overhaul of some collection practices. Under our Compact,

we do not sue uninsured patients to collect unpaid bills, if the patient is unemployed or lacks significant income. And we also do not

impose liens on homes if they are a patient’s only significant asset.

These two changes in our collection practices have reduced by 90

percent our patient litigation and lien activity since 2002.

A key aspect of the Compact is our uninsured discount program

which we are currently rolling out. Uninsured patients in Tenet

hospitals who do not qualify charity care or government health coverage will be offered a substantial price discount similar to those

negotiated by HMOs for their members.

Tenet’s Compact provides uninsured patients with meaningful

price discounts and less onerous collection practices, but I must

emphasize that it is simply no substitute for health insurance.

As Congress continues its efforts to address this problem, I urge

you to keep in mind that the most formidable challenge faced by

uninsured patients, as well as their hospitals and other health care

providers, is the lack of affordable health insurance. With our Compact, all of us at Tenet believe we are doing our part to ease the

burden of this crisis on the patients who need that the most.

We welcome this opportunity to work collaboratively with Congress and others to find broader answers to this pressing challenge.

I applaud the subcommittee’s leadership in evaluating the uninsured crisis and how our country can do a better job of providing

health care for all Americans, and I would be happy to answer any

questions that you might have.

[The prepared statement of Trevor Fetter follows:]

PREPARED STATEMENT OF TREVOR FETTER, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, TENET HEALTHCARE CORPORATION

Thank you, Mr. Chairman. I appreciate this opportunity to address the Subcommittee.

My name is Trevor Fetter. Last September, I was named Chief Executive Officer

of Tenet Healthcare Corporation. Prior to that, I had served as President of Tenet

since November 2002. I have spent nearly nine years as an executive in the health

care field.

Tenet is America’s second largest investor-owned hospital company. Last year, we

treated more than 9.5 million patients at our 99 hospitals in 14 states across the

nation. We employ more than 100,000 people in our hospitals. Tenet’s largest regions are in California, Texas and Florida. We also operate hospitals in Alabama,

Georgia, Louisiana, Massachusetts, Mississippi, Missouri, Nebraska, North and

South Carolina, Pennsylvania and Tennessee.

This has been a challenging time for our company. Last year we reported a net

loss of $1.4 billion. Tenet’s challenges have galvanized our board of directors, our

new management and our employees to make our company a model partner with

federal and state payors and regulatory agencies. In the past 18 months, we have

made enormous progress in the areas of compliance, quality and transparency, but

all of us know that we have to regain the full trust of the government, our patients

and our physicians if Tenet is to succeed in its mission.

The specific subject you have asked me to address is the growing challenge of providing health care to uninsured and under-insured Americans, and it has two parts.

The first requires all of us to recognize that individuals without insurance are not

represented by large payors and therefore do not benefit from negotiated pricing.

The second part is the limited ability that these patients have to pay for health

care, regardless of the price. Tenet has taken action we believe is appropriate on

both fronts, but our company—and our hospitals—cannot solve this problem alone.

Every one of us at Tenet is very familiar with the growing uninsured crisis in our

country. We deal with it every single day, and the burden is rapidly increasing.

Tenet, like most hospital operators, has always provided charity care to truly indigent patients with no ability to pay. But in recent years, we have been forced to

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absorb the sharply rising cost of treating uninsured patients who are not indigent

but for a variety of reasons can’t or won’t pay for the care we provide. I think it’s

important to note that the uninsured crisis is definitely not confined just to the unemployed and the indigent. In some of our markets, as many as a third of our uninsured patients have jobs, but no health care insurance.

We estimate that the number of uninsured patients receiving care in Tenet hospitals has now risen to more than 500,000 per year. This has an enormous cost. So

far this year, it has cost us about $100 million a month to provide care to patients

where neither an insurance company nor the patient has paid us. About three-quarters of that total was from uninsured patients. In addition, Tenet provides $15 million per month in charity care to people who we believe can’t afford to pay us anything.

What’s most alarming is how the uninsured totals have grown just recently. While

our charity care increased 15 percent from 2002 to 2003, our write-offs from unpaid

patient bills—the vast majority of them uninsured—rose by 49 percent.

As hospitals continue to incur this significant and rapidly growing cost, their ability to invest in capital improvements, expanded services and new technology becomes limited. My greatest objective is to improve the quality of care provided by

our hospitals. But my greatest concern is that the uninsured crisis may compromise

our ability to do that.

When I was named President of Tenet in November 2002, this company faced

many difficult issues. Our new management team set out to address each one.

Among the things we faced were some very vocal complaints that our hospital

charges and collection practices were unfair to uninsured patients. I knew that

Tenet alone could not fix the uninsured challenge. Only when the uninsured have

insurance will we truly solve this problem. But I was determined to see what Tenet

could do to ease the burden until more fundamental solutions are developed.

In January 2003, we adopted our own approach to the uninsured crisis. We called

it Tenet’s Compact With Uninsured Patients.

The Compact has radically changed many of the ways Tenet hospitals interact

with uninsured patients, including a dramatic overhaul of some collection measures.

The paramount goal of the Compact is to treat all Tenet patients fairly and with

respect, regardless of their ability to pay. We start by giving our uninsured patients

extensive financial counseling to help them access all state and federal programs,

such as Medicaid, that may help pay for their health care. As part of this process,

we also determine if the patient is indigent and therefore eligible for Tenet’s charity

care program.

Under our Compact, we do not sue uninsured patients to collect unpaid bills if

the patient is unemployed or lacks significant income. And we also do not impose

liens on homes if they are a patient’s only significant asset. These two changes in

our collection practices have reduced by 90 percent our patient litigation and lien

activity since 2002.

One of the unique aspects of the Compact is our uninsured discount program.

Every uninsured patient who does not qualify for charity care or government health

coverage will be offered a substantial price discount similar to those negotiated by

HMOs for their members.

Although our uninsured patients have benefited from all other features of the

Compact since January 2003, Tenet has not implemented the uninsured price discount until very recently. That’s because we wanted to be sure our program complied with all federal and state laws. Earlier this year we concluded that Tenet’s

discount program is in compliance with all federal laws, but there are two states

where we have had to take interim measures. By the end of July, the discount will

be available in virtually all of our hospitals, except those in Texas and California.

We are still awaiting resolution of regulatory issues in those two states. In the interim, we are significantly expanding our charity care policy there to include many

more uninsured patients until our discount is available.

As Congress continues its efforts to address this problem, I urge you to keep in

mind that the most formidable challenge faced by uninsured patients—as well as

their hospitals and other health care providers—is the lack of available and affordable health insurance.

Tenet’s Compact provides uninsured patients with meaningful price discounts and

less onerous collection practices. But it is no substitute for health insurance. Even

with the price discount offered by our Compact, uninsured patients still must pay

their own bills. Not many Americans with health insurance would find it easy to

pay their own medical bills, even if they were discounted to HMO-style rates.

With our Compact, all of us at Tenet believe we’re doing our part to help ease

the burden of this crisis on the patients who need help the most. We welcome the

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opportunity to work collaboratively with Congress and others to find broader answers to this pressing challenge.

I applaud the Subcommittee’s leadership in evaluating the uninsured crisis and

how our country can do a better job to address the health care of all Americans.

I’d be happy to answer any questions the Subcommittee may have.

Mr. GREENWOOD. Thank you very much, Mr. Fetter. The Chair

recognizes himself for 10 minutes for inquiry.

You all heard me quote Mr. Fetter’s comments, and let me just

refer back to them again. He said, ‘‘In other words, the entire hospital industry renders its highest bills to the customers who are

least able or likely to pay. The problems that this creates are obvious. The bills are tremendous and incomprehensible to most people.

The patient leaves the hospital presumably after some traumatic

event, and the hospital ill adds to the trauma,’’ and I think all of

you have essentially recognized that this has been a problem. All

of you have essentially testified that you have made changes in

your billing practices in order to deal with this problem.

The thing that I am trying to ascertain is when did this occur

to you, and why? In other words, this is a long-standing issue. Mr.

Fetter said in his statement it is a long-standing issue. When did

these issues first raise concerns in your mind, and what did you

do about it? I would just like the panel go down from my left to

right.

Mr. TERSIGNI. Mr. Chairman, we always had policies within our

health ministries. What we didn’t have was a uniform policy across

all of Ascension Health. And so we began on the journey beginning

in early 2003, actually before the subcommittee’s investigation, and

what we learned was that our policies weren’t always explicit and

each hospital did things differently. We really couldn’t speak, as an

Ascension Health policy, that there really wasn’t a process to measure how well our charity care programs were doing, and then our

billing and collection wasn’t receiving the level of attention and

oversight that we believe we needed to do from a systemwide perspective. And, therefore, we went about, as we are beginning to integrate our system, management systems, in creating a systemwide

policy that I indicated that our board approved.

Mr. GREENWOOD. I am going to ask everyone to be brief because

I have a series of questions and limited time, so just basically when

did you start working specifically on the question of trying to make

sure that the uninsured were not billed charges. I know that all

hospitals, all of your systems have long-standing charity care procedures and so forth, but on the specific question that this committee is focused on, making sure that the uninsured aren’t billed

charges, when did you recognize this is a problem, and when did

you take action to correct it?

Mr. LOFTON. Again, we have had policies in place to help them,

so the assistance has been there. It has been done on an individual

patient-by-patient basis. The investigation brought to light a serious problem that was there. We definitely could have been more

purposeful in addressing it as a system.

CHI itself is still a relatively new system with a collection of hospitals, and each hospital had their own policies and practices. So,

last year was when we began to look at it from a systemwide basis

and looked to put systemwide policies in place.

Mr. GREENWOOD. Very well. Mr. Bovender.

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Mr. BOVENDER. In late 2002, I asked my staff to start formulating a program where we could provide policy discounts to charity

care discounts, as I enumerated in my testimony. I was told by

both inside and outside legal counsel at the time that we had to

get clearance for this through CMS, and so we, in March 2003, sent

a letter detailing our plan to CMS. They responded in June 2003,

saying that they thought the plan was good, fit within the regulations, but we would have to get individual permission from each of

our five fiscal intermediaries in order to implement the plan.

Mr. GREENWOOD. What was the impetus for you to seek that

legal advice? Was it this investigation? Was it the lawsuits that

Tenet was experiencing? What was it?

Mr. BOVENDER. It was mainly seeing the growing problem and

the attention both this committee as well as the problems that

Tenet has alluded to earlier were seen, and I just said to our people

very frankly, we need to fix this problem, it is not conscionable.

This kind of disparity between what is actually being charged to

the uninsured and what is appropriate given our managed care discounting and other rates, and it needed to be changed. But it took

a process through CMS to get approval. We got approval in October. We have implemented the policy. And as I have said, it has

not been perfect. And we have learned a lot. In fact, about 3 weeks

ago, through the open forum that the Office of Inspector General

did in HHS, they opened the doors a lot wider for discounting policies, and we are going to go back and actually, as I mentioned in

my testimony, implement some new plans, which won’t replace the

charity discount, but I think will change the pricing to the uninsured based upon actually some of the things that Dr. Anderson

was testifying about earlier.

Mr. GREENWOOD. Dr. Pardes.

Mr. PARDES. We have had policies trying to address the problems

of the uninsured for some time, Mr. Chairman, and those have included developments like reducing the number of collection agencies, taking more of the collections under our control, and trying to

interfere with inappropriate practices.

Your investigation I think has spurred that further, and I think

you should be credited for it.

Mr. GREENWOOD. Thank you. Mr. Fetter.

Mr. FETTER. Well, those comments that you cited I made in December of 2002. In January 2003, we announced this Compact With

the Uninsured, having those two features I mentioned, the different collection practices as well as the discounting.

We did immediately take action to seek an opinion from HHS

with respect to the discounting, and it was almost a year later that

the Secretary clarified HHS policy. We then took immediate action

to roll out the discounting plan which we are doing now.

I would also, as Mr. Bovender just did, like to applaud HHS for

holding those open forums. We found them to be exceedingly helpful in clarifying a variety of regulatory issues.

Mr. GREENWOOD. Thank you. And let me be clear. I am not interested in knowing whether this investigation was the inspiration for

your change so we can take credit for it so much as I want to examine the question of whether the Congress feels a need to go on

and do something legislatively, which I think you would probably,

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to a person, prefer that we did not. And so we are interested in seeing the impact of all of these events on the hospitals across-theboard.

Let me ask this question now. What is the most—using standards like Medicaid, Medicare, the average third-party payment in

your charges, what is the most highest price that an uninsured

person now could pay at your facilities? Dr. Tersigni.

Mr. TERSIGNI. Our average patient cost per day for caring for an

uninsured is about $1376, of which we collect an average of $155.

Mr. GREENWOOD. I am not sure that that exactly answered my

question. The question is, when an uninsured person comes into

your hospital, what is the most they could pay? Is it possible now,

given the procedures that you have, for that person to be billed

charges?

Mr. TERSIGNI. All of our patients presently are billed charges. In

the case of the uninsured, as they enter one of our facilities, the

financial counselors will begin working with them, and the first

questions they ask are, do you have insurance, and then we begin

the process of looking at the means to pay or the inability to pay.

Mr. GREENWOOD. But, again, someone says ‘‘I have no insurance.’’ Is it possible, in your system, for that person to walk away

from the hospital with an obligation equal to your charges?

Mr. TERSIGNI. Not if we have all of the financial information necessary to determine that they are in financial need.

Mr. GREENWOOD. Mr. Lofton.

Mr. LOFTON. One of the considerations that we have to look at

is differences across the country. I have heard a lot of generalizations about charges and we have seen cost and average charges put

up, so the answer to your question will vary based on where the

location of the hospital is. We have some markets where there is

very little discounting from charges, so the variation that was

talked about earlier is very small between what a managed care

patient will pay and what a full-charge patient will pay.

Mr. GREENWOOD. Is it still possible for an uninsured person to

pay significantly more than, let us say, third-party payers pay at

your hospital?

Mr. LOFTON. That scenario is possible, but again if the information is provided—one of the things that the advice and guidance

that the Secretary issued allows us to do, if we have the proper information with that given patient, we are able to determine whether there is a medical indigency reason whether we can discount

that bill. So a lot of it has to do with the patient providing adequate and proper information for us to make the proper determination as to what they should pay. There is no clearcut answer to

your question.

Mr. GREENWOOD. Mr. Bovender.

Mr. BOVENDER. In our circumstances, assuming that we can

qualify them under that 400 percent or below criteria, then the

payment will range from anywhere near a managed care rate down

to a 200 percent or below the Federal poverty guidelines, it would

be free. Above that level, above 400 percent now, they are going to

be charged charges. Under the plan that we are evaluating now,

hopefully we can move everyone uninsured into a price point that

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is essentially around probably the 95th percentile of all of our managed care contracts as a standard.

Mr. GREENWOOD. Now, that is the clearest answer I have had so

far. That is quite straightforward. Dr. Pardes.

Mr. PARDES. I would say, Mr. Chairman, that about—the bulk of

our patients either are either in Medicaid or Medicare programs,

or are under plans. That least about 2 percent who are self-pay. We

do have some people who are international patients and wealthy

patients who will pay charges. We individually assess every other

individual, and for those individuals who have financial distress,

we work out individual arrangements so they will pay substantially

below the charges.

Mr. GREENWOOD. Mr. Fetter.

Mr. FETTER. Once one of our hospitals has implemented our

Compact With the Uninsured Discounts, uninsured patients would

not be rendered a bill of charges. They would be rendered a bill

that would approximate the 75th percentile of what we are paid in

that market by managed care.

Prior to the implementation of the Compact, an uninsured patient could receive a bill at full charges, but I would like to point

out——

Mr. GREENWOOD. When do you expect all of your hospitals to

have that contract in place?

Mr. FETTER. By the end of July, with the exception of the States

of California and Texas, where there are certain State laws that

have presented us with difficulties in implementing that. But I

would like to point out with respect to those patients who would

receive a bill at full charges, that was represented by the Orange

bar, I believe, on the graph that you showed in the beginning. The

collection rate from those patients is actually less than 10 percent.

Mr. GREENWOOD. In the aggregate, I understand that. What we

have been worried about in this committee is that disaggregated,

that some individuals of limited means get hammered with

charges, and that is the only thing that we think is unfair about

it. Speaking for myself, that is the unfairness of the system.

The gentlelady from Colorado.

Ms. DEGETTE. Thank you, Mr. Chairman. I would like to ask you

gentlemen about something you keep referring to, which is about

a year ago when you said you got clarification from CMS as to the

policies, and that combined with these pending hearings were what

caused you to really re-examine your policies that related to the

uninsured, and to change them.

What policy was it from CMS that you thought had to be clarified? Mr. Fetter, we will just start with you, I think.

Mr. FETTER. Thank you. And I would point out I believe that

HHS guidance was actually issued in April of this year, not a year

ago. I referenced a year. That was more than a year ago.

Ms. DEGETTE. I am sorry. What policy was it that you thought

needed to be clarified?

Mr. FETTER. The policy that required that charges be uniform for

all patients, and that discounts could be negotiated with individual

payers, but there must be a charge master, and the charge master

must be the same, regardless of the——

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Ms. DEGETTE. For all patients. Now, was that a written policy,

or was that more of an understanding?

Mr. FETTER. You know, I am not an expert in——

Ms. DEGETTE. Does anybody know? Was that—Mr. Bovender?

Mr. BOVENDER. We were told by both our inside counsel and outside counsel, Medicare experts, attorneys who are experts on the

Medicare law, that you could not arbitrarily, without reference to

some indigence test, discount your charges to individual patients.

And so that is what led us in March to send a letter of request detailing our discount program that I talked about before and, as I

said, we got a letter back in June that said that CMS thought the

program was fine, but it needed approval by each of our five fiscal

intermediaries.

Ms. DEGETTE. And what Mr. Fetter just described about having

to have the same charges for everyone, was that everyone else’s understanding as well? Mr. Lofton?

Mr. LOFTON. Yes. Ours was we could not charge individual patients, there had to be consideration for discount.

Ms. DEGETTE. And was that also a basis of your previous understanding, that CMS was requiring that you aggressively pursue

these collections as well?

Mr. LOFTON. Yes. In the past, OIG has been very forthright in

making it clear about waiver of co-payments or reductions of patient bills for individual patients.

Ms. DEGETTE. Now, do all of you think that has now been

cleared up by HHS?

Mr. LOFTON. Yes.

Mr. BOVENDER. Yes.

Ms. DEGETTE. Okay. And so that is why you are now instituting

these policies, in addition with these pending hearings, correct?

Mr. FETTER. Yes.

Ms. DEGETTE. I want to ask about the collection process because

you have all talked about how you are really making these efforts

to make accommodations for the uninsured particularly, the less affluent uninsured, and so on, but I just said this actually in a different hearing in this committee on Tuesday of this week—the

devil is really in the details.

So, I want to ask you when—and I guess I will start with you,

Dr. Tersigni—what is your organization’s policy when you send

these cases to a collection agency?

Mr. TERSIGNI. Well, we have asked the collection agencies to

comply with——

Ms. DEGETTE. Do you have a policy after a patient has been discharged from the hospital, how long is it before you will send it to

a collection agency?

Mr. TERSIGNI. It depends on the circumstance.

Ms. DEGETTE. So you don’t have a firm policy on that?

Mr. TERSIGNI. We don’t have a firm policy of when it goes to collection.

Ms. DEGETTE. Mr. Lofton, do you have a firm policy on that?

Mr. LOFTON. I don’t know if I can say policy. Our practice is that

a bill will go to a collection agency 90 to 120 days following discharge. And during the course of the next 150 days, if that bill has

not been acted on or been active during that time, we take it back

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from the collection agency. So, 90 to 120 days we send it, and then

another 150 days we take it back.

Ms. DEGETTE. And is there some discretion involved within that

90 to 120 days, or does every case go to a collection agency at that

point?

Mr. LOFTON. It is discretion within that based on if they have already worked with a given patient or family and they think that

they have a resolution, it does not have to go.

Ms. DEGETTE. Mr. Bovender?

Mr. BOVENDER. Our general policy is 180 days, but it does also

have the exceptions that Kevin mentioned, which is that if we are

working actively with a patient, either qualifying them for Medicaid or on charity care policy, obviously that doesn’t happen.

Ms. DEGETTE. Dr. Pardes?

Mr. PARDES. We try to handle most internally, and then we don’t

send it out to collection agencies until at least 6 months have

passed.

Ms. DEGETTE. Six months have passed? Is that for every bill, or

certain kinds of bills?

Mr. PARDES. If there is an unpaid bill, then we would first have

bills sent out over a 6-month period before it went to a collection

agency.

Ms. DEGETTE. Mr. Fetter?

Mr. FETTER. Our policies are similar to what Mr. Bovender and

Dr. Pardes described, with the exception that we use an internal

staff, we do not generally send bills out to collection agencies.

Ms. DEGETTE. Do you put it on people’s credit reports after a period of time, if you are using an internal——

Mr. FETTER. Yes.

Ms. DEGETTE. And how long is that?

Mr. FETTER. That would be also after about 180 days.

Ms. DEGETTE. Okay. I don’t know if you heard the testimony—

I think you were all here—the testimony of the previous panel. One

of the panelists said that actually once it goes to a collection agency

and is listed on someone’s credit report, it may make it more difficult for them to get a job or find some other method of paying

their bills. Did you hear that testimony? Mr. Bovender? What do

you make of that?

Mr. BOVENDER. I think that is true, but I have been told by people who do credit scoring and are in this type of business, that hospital debt is not viewed at the same level as mortgages or car payments. You may know that if you were to rank how well people pay

different portions of their debt, from first to last, mortgages being

first, hospitals are ninth on that list. The only ones worse than us

as far as payment are the student loan programs.

Ms. DEGETTE. Let me ask you this question. Do any of you utilize—this has been all over in the press, what they call body attachments. They don’t have those in Colorado. I practiced law for

a number of years, and they don’t have that civil arrest or body attachments, but in some States they do, and of course those are

some of the horror stories, people who can’t or don’t pay their hospital bill and end up in jail.

Dr. Tersigni, do you know if your organization uses body attachments?

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Mr. TERSIGNI. I can’t answer whether we have in the past used

body attachments. I know that presently that is not part of our policy.

Ms. DEGETTE. And when you send something out to collection, do

you tell them not to go for body attachment?

Mr. TERSIGNI. Yes. As a matter of fact, each of our collection

agencies have to sign an agreement with us that comply with our

policy.

Ms. DEGETTE. Would you mind supplementing your testimony

today with a copy of that agreement?

Mr. TERSIGNI. Sure.

Ms. DEGETTE. That would be great. While I am asking questions,

what about attaching people’s homes? Dr. Tersigni?

Mr. TERSIGNI. Again, we want to make sure that we are not taking advantage of people’s situation, so our financial counselors will

work with them, and we do, in some cases, have liens, but it is very

clear that we don’t want to have any foreclosures or do anything

that is deleterious to their homes or——

Ms. DEGETTE. Well, I am here to tell you, a lien on someone’s

home is deleterious. Is your policy with respect to liens on people’s

homes also in your agreement with the credit agencies?

Mr. TERSIGNI. Yes, it is.

Ms. DEGETTE. Mr. Lofton, I think you testified that your policies

say no bench warrants, no court action without approval, and no

liens, is that right?

Mr. LOFTON. That is correct. Every one of our contracts have

been amended to state such, that we would not do that, on a primary residence.

Ms. DEGETTE. How long has that been your policy?

Mr. LOFTON. That has been in effect since April 1st.

Ms. DEGETTE. April 1st, 2004?

Mr. LOFTON. 2004.

Ms. DEGETTE. Why did you institute those policies, Mr. Lofton?

Mr. LOFTON. Well, again, we took this opportunity to look at our

practices. CHI cares deeply about the poor uninsured and underinsured. And we have been working with those individuals on a

case-by-case basis, but we felt that we would take a look at that

from a system perspective, and the boards of every one of our local

hospital systems adopted that contract change.

Ms. DEGETTE. Mr. Bovender, does your organization allow body

attachment?

Mr. BOVENDER. No, ma’am.

Ms. DEGETTE. Is that in your written policies?

Mr. BOVENDER. Yes, I believe so.

Ms. DEGETTE. And what about liens on homes?

Mr. BOVENDER. Liens on homes are only permitted with homes

of over $300,000 in value.

Ms. DEGETTE. That seems reasonable. What about you, Dr.

Pardes?

Mr. PARDES. Body attachment is prohibited in New York State,

Congresswoman.

Ms. DEGETTE. What about liens on homes?

Mr. PARDES. We have liens on homes in exceptional situations,

do not have foreclosures on homes.

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Ms. DEGETTE. Is that in your written policies?

Mr. PARDES. Yes.

Ms. DEGETTE. Would you mind supplementing your record?

Mr. PARDES. Happy to do so.

Ms. DEGETTE. What about you, Mr. Fetter?

Mr. FETTER. I do not believe we have body attachments as part

of our policy, and also, as I mentioned earlier, under our Compact

With Uninsured Patients, will not place liens on homes.

Ms. DEGETTE. I just want to ask one last question for all of you,

under your new policies, do you intend to release any liens that you

have already placed on primary residences? Just go real fast because my time is over.

Mr. GREENWOOD. Be very brief because the gentlelady’s time has

expired.

Mr. FETTER. As Congressman Walden pointed out earlier, you always attempt to work things out with patients who owe you money,

so I am sure that we are releasing liens on homes where we have

liens today.

Mr. PARDES. I would say we are reviewing all of our policies and

issues, and we may well find that we will release additional ones

of those.

Mr. BOVENDER. If we find any we have with value under $300,000, we will.

Mr. LOFTON. We are reviewing for all patients, and all of our patients can come back and we can review their record after the fact,

and make appropriate changes.

Mr. TERSIGNI. Again, as well, we review all patients and, after

the fact, can make the changes.

Ms. DEGETTE. Thank you.

Mr. GREENWOOD. The Chair thanks the gentlelady, and recognizes the gentleman from Oregon, Mr. Walden, for 10 minutes.

Mr. WALDEN. Thank you, Mr. Chairman.

I am curious, as you all work on getting payment situations set

up for those who owe you money, do any of those folks end up getting a loan from a financial institution to pay you? Do you see that

happening? Do they go to the bank or their credit union and get

a loan, take out a loan so they can pay you? Anybody?

Mr. TERSIGNI. I don’t know that.

Mr. WALDEN. You don’t know.

Mr. LOFTON. I am not aware of any specific cases.

Mr. BOVENDER. Do not know.

Mr. WALDEN. So you are not seeing any of that sort of activity.

Mr. PARDES. Don’t know.

Mr. WALDEN. Don’t know. All right. I am just curious because it

would seem to me if they went to a financial institution to get a

loan to pay you back, that financial institution would probably require that loan to be secured by some asset, right? I mean, I was

on a bank board for 5 years. You don’t make uncreditworthy loans

on purpose, and so I wonder how all that works.

Let me go to the charge master issue. Now that you all have

taken a second look at your charity care, your billing and collection

processes, and we have heard a lot today about charge master rates

being significantly higher than those rates actually paid for by

third-party payers, insurance companies, Medicaid, Medicare. What

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have you done, if anything, to change and lower your charge master rates? Have you adjusted your charge master rate downward

and, if so, by how much?

Mr. TERSIGNI. I don’t know that the answer is we have adjusted

the charge master downward as of this point in time, but we have

asked all of our ministries to look at those charges from various

factors—market factors, service cost, the competition within the little local area, as well as the impact to the uninsured.

Mr. WALDEN. Mr. Lofton?

Mr. LOFTON. We have looked at a number of ways of helping our

constituents and patients, and CHI has adopted the HUD guideline

for who would qualify for charity care. We feel that they are both

more inclusive, as well as they take into account the geography differences.

Mr. WALDEN. But do the HUD guidelines—does that have anything to do with how you set your charge master rates?

Mr. LOFTON. No. We have not adjusted the charge master, but

what we have done from the charity care side is to see that we can

qualify more patients and then provide them discounts from the

charge master.

Mr. WALDEN. Mr. Bovender?

Mr. BOVENDER. There are really two issues associated with this

charge master problem. The first is the uninsured, and we have

talked about that, and programs and plans to fix that by going to

some discounted method that looks like managed care.

The more complicated problem is that many of our contracts—

and at HCA we have over 5,000 contracts with managed care providers across the country. Many of those contracts are not on a per

diem basis or case rate basis, but are really based on a discount

off of charges.

It will take us probably two to two and a half years to renegotiate all of those contracts because many of them are multiple year

contracts. It is our plan to get away from the charge master having

any impact, or very little impact, if you will, even on the—not just

on the uninsured, but on the issue of how we negotiate managed

care.

Mr. WALDEN. Good to know. Doctor?

Mr. PARDES. Approximately 2 years ago, we engaged an outside

consultant to examine our charges in relationship to other charges

in the area, and adjusted them accordingly.

Mr. WALDEN. Okay. But if the other hospitals in the area had

charge master rates that were high—I mean, we have heard testimony in the prior panel that in some cases you have got a $10,000

charge, $11,000 here, but if you are private pay, you are $30,000.

If that is the situation among all the hospitals, is that really

change anything, if yours is $30,000 and theirs is $29,000, and you

know what I am saying?

Mr. PARDES. Yes. We found that we were somewhat lower actually than charges in many of the other areas. We found also that

our cost-to-charge ratio in our urban setting is lower than urban

settings in about 28 other States.

Mr. WALDEN. Maybe I will ask this question differently. How

much different is your charge master rate for a given procedure

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for-service plans, Medicare and Medicaid? What is that relationship?

Mr. LOFTON. Again, Representative Walden, for us, it is going to

range. We have some markets where we are a sole community provider in rural north Nebraska, where there is only a 7 percent difference between the two. And examples were given about California rates. Well, we are not in California. So when we look at the

markets that we are in, the rates and variation between charge

master and the managed care contracts are going to vary, so there

is no one answer for the entire system.

Mr. WALDEN. Well, one of the prior witnesses—whose name escapes me for the moment—suggested that the charge master rate

should be Medicare+25 percent, which seems sort of arbitrary to

me, but I guess that is what I am trying to get at. What is your

charge master rate compared to Medicare? Is Medicare+25 percent

far more than your charge master rate or private pays, or is 25 percent a pretty good deal?

Mr. BOVENDER. Well, in our case, I can tell you that 25 percent

is significantly below our managed care—our overall average managed care rate. So it would put it significantly below what we are

negotiating with managed care.

Mr. WALDEN. So, Medicare+25 percent is below your managed

care rate.

Mr. BOVENDER. Right. I think the theory that he is putting forward is good, the price point, at least in our case, based upon what

Medicare is paying us related to our total all end charges is well

below what the rate would need to be to make that happen.

Mr. WALDEN. You see what I am trying to get at here, though,

is—I mean, being in the radio business, we sell advertisements—

I can set a rate at whatever per commercial, but that doesn’t mean

I get it. And, yet, in your situation it is a little different because

my clients don’t have to walk in my door half dead and have to

have a radio ad. It would be easier to sell, but collections could still

be a problem. But in your case, that literally is what happens, and

they can’t negotiate that price, and that is why we are having this

hearing, is to say is this system working? Is it broken? And it sure

seems like there are some problems. And you are addressing some

of them, I think we have all given you credit for that, but what is

that differential between charge master and actual cost of delivering the service? What is the right price point, Medicare+40 percent? Is that even a realistic way to do it?

Mr. BOVENDER. Well, it would be a realistic way, but I think a

better way was the second suggestion, which is to peg the price for

the uninsured and do it on possibly a DRG rate, or a case rate, a

diagnostic rate, but peg it to a percentage of your average managed

care contract either in a specific market or nationwide. And as I

said, we are looking at a price point somewhere around the 95th

percentile of all of our managed care contracts. You have got to be

careful in setting that because, obviously, any managed care provider above that is going to want at least as good as what the uninsured is getting.

Mr. WALDEN. They are going to tell you that minus 3 percent.

Mr. BOVENDER. Well, it sounds easy to say, well, just fix your

charge master. It has to be fixed for the uninsured, which it needs

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to be done, but it has to be fixed also taking into account that we

have got 5,000 managed care contracts to renegotiate over the next

year to 2 years.

Mr. WALDEN. I understand that. Anybody else want to comment

on that? Mr. Lofton?

Mr. LOFTON. That approach makes a lot more sense because it

will allow the rate to be market-specific, and it will be on a market

rate tied to something that is realistic, as opposed to picking numbers out of the air because when you have managed care contracts,

as Jack says, then they don’t want someone else coming in paying

much lower than what they will be paying. So, it would allow for

whatever the market rate is in a given community, it would be tied

to what is the customary rate being paid.

Mr. WALDEN. What about in—you don’t always have managed

care contracts, though, in all communities, do you, in the really

rural communities? Isn’t there a lack of managed care in some

cases?

Mr. LOFTON. Yes, for the most part. The word is generally used

from a more generic standpoint.

Mr. WALDEN. Than traditional—okay. I guess the reason I am

trying to probe and get at the bottom of this is, there is enough

pressure built up that if you all don’t figure it out, I am afraid we

will, in a way that may not work, and that isn’t good for the delivery of health care in my community or anywhere else. But it is also

hard for us to go back and say, ‘‘Sorry, you don’t have insurance

and you are going to pay three times the amount and they are

going to take your house.’’ I mean, you are correcting some of those.

I appreciate your comments, and I have used up my time. Thank

you, Mr. Chairman.

Mr. GREENWOOD. Are you sure you want to yield back all 3 seconds of your time?

The gentleman from Los Angeles, Mr. Waxman, is recognized for

10 minutes.

Mr. WAXMAN. Thank you very much, Mr. Chairman, from Bucks

County. Gentlemen, the American Hospital Association has established a set of principles and guidelines regarding a more humane

way to deal with this problem, and the way they will do billing and

collection practices. And they have asked hospitals to adopt these.

But it is one thing to ask for a pledge and another to be sure the

pledge is carried out.

Will the American Hospital Association discipline members who

don’t follow the guidelines? How can we be sure they are enforced

if we don’t adopt legislation, but rely on the industry to police

itself? Anybody want to respond to that?

Mr. LOFTON. Well, CHI’s system supports the pledge that the

American Hospital Association promulgated. One hundred percent

of our hospitals approved the pledge, and that was done at a local

level, gaining approval from their local board of directors.

The follow-up to that is such that we have to implement audit

processes to ensure that the pledge is being carried out not just

from an audit perspective, but we also are looking for our system

to include patient billing into our patient satisfaction review. That

had not been a component previously. So, there are ways that you

can monitor this on an ongoing basis, and we plan to do that.

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Mr. WAXMAN. Why don’t we just go quickly down the line. Are

all of you going to abide by the American Hospital Association

guidelines?

Mr. TERSIGNI. Yes. As I indicated in my testimony, we have

asked all of our CEOs, CFOs, and BP submission to sign an affidavit that will abide by our policy. We will then bring an audit

process in to make sure that they are in compliance.

Mr. BOVENDER. Yes, we will comply with it.

Mr. WAXMAN. Dr. Pardes?

Mr. PARDES. Yes, Mr. Waxman, we will comply, and we will

make sure it is implemented in our institutions.

Mr. WAXMAN. Mr. Fetter?

Mr. FETTER. Yes. I signed the pledge on behalf of our hospitals,

due to the investor-owned nature of our company, I can ensure that

it will be complied with, as well as our internal policies.

Mr. WAXMAN. Thank you. In our first panel, we heard from Mr.

Rukavina, and he outlined the difficulties his organization had in

attempting to get information about the billing practices for HCA

and Tenet. He said it took him more than 6 months to get a copy

of your policy. I would like to know why that took so long, and

whether you have a policy in effect today, and how you are ensuring that it is being carried out. Mr. Fetter?

Mr. FETTER. Two clicks on our Web site leads you to our policy,

so it is relatively easy and simple. It is also posted in our hospitals

and the Compact With the Uninsured is distributed in leaflet form

as well as poster form at points of service within our hospitals.

Mr. WAXMAN. Mr. Bovender?

Mr. BOVENDER. We are making wide dissemination of our discount policy. In fact, I have met with my staff within the last week

to make sure that it is getting much wider dissemination than it

has in the past. I think the problem, as I was told, with the 6-

month lag in his being able to get our policy was that when it was

first asked for, it still had not been approved and implemented.

Mr. WAXMAN. Do you know why, Mr. Fetter, it took so long? Six

months he was asking for meetings, no one responded. In fact, this

is what he said. He called Tenet and HCA Healthcare Systems, and

he said both you had ‘‘announced with fanfare programs to help the

uninsured with discounts and sliding scale.’’ And he asked the company to give him a copy of this policy which they had announced.

Made another request a month later. Finally, 6 months later, he

went in to find out what was going on and asked for a community

meeting, but the leaders—I think it was in Florida—do you have

any idea about that?

Mr. FETTER. I really am not aware of that. Are you sure he is

referring to Tenet, because it is quite available.

Mr. WAXMAN. Is there another Tenet?

Mr. FETTER. Well, I don’t know the specifics of his——

Mr. WAXMAN. Mr. Fetter, you indicated in California that it is

different because of regulatory problems. I hadn’t heard from other

California hospitals that this was a problem. What specifically is

the issue in California?

Mr. FETTER. The problem—and I am repeating here legal advice

that we received—but it relates to insurance regulations. I have

been informed that the California Health Care Association, which

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represents hospitals, has brought this to court to seek clarification,

and we do expect that it will be resolved sometime relatively soon.

As an interim measure, we have expanded our charity care policy

within California.

Mr. WAXMAN. Would you submit that letter so that we can have

it for the record?

Mr. FETTER. Yes.

Mr. WAXMAN. I wonder if any of you would comment on the

issues you see for your institutions if HSAs and high deductible

plans become a major way people are provided insurance coverage

in this country. What will it mean for the financial viability of your

institutions? Any of you want to comment on that?

[No response.]

Well, let me ask it this way. Is it fair to ask you to provide discounted rates for persons during their period of no coverage before

the high deductible plans kick in? Any of you have any views on

that?

Mr. BOVENDER. My view on HSAs is that if they bring more people in with insurance, even if it is catastrophic insurance, that is

helpful. My big fear, though, is that the high deductibles and copays are going to increase the level of our bad debts, just said very

simply and shortly.

Mr. WAXMAN. You are worried about it increasing the amount of

bad debt?

Mr. BOVENDER. The higher levels of co-pays and deductibles is

going to increase the level of our bad debts.

Mr. WAXMAN. And why is that the case?

Mr. BOVENDER. Because the first $2,000 has to be assumed by

the patient, and assuming they haven’t accumulated that amount

in their savings account, then we are exposed to that whereas they

may have been in a—some of them, at least—in a health insurance

plan before that had a $250 deductible or $500 deductible.

Mr. WAXMAN. Do you think if you discount the bills during this

period, you are helping the individual, or protecting the insurer by

lengthening the time before their coverage kicks in? If you give a

discounted rate to somebody who has a high deductible, are you

helping the individual by giving him a discounted rate, or are you

simply allowing the insurance company not to negotiate a price

with you to ensure that you are going to actually be paid?

Mr. BOVENDER. I think the answer is that we absorb more and

more of the cost of the care. The insurance company, nor the employer, nor the patient is absorbing it in those circumstances.

Mr. WAXMAN. You would absorb most of the cost of that.

Mr. BOVENDER. Yes.

Mr. WAXMAN. Well, this hearing clearly has identified several

issues. One, people without insurance are charged the very highest

rate for services. Two, the charge structure of hospitals no longer

bears any sensible relationship to cost, if it ever did. And, three,

people faced with high bills beyond what they can afford have been

the victims of indefensible collection policies in too many instances.

I think all of you agree health insurance coverage is the best and

probably only effective way to deal with this problem. Policies to

assist people of limited income to forgive bills, to help arrange payment policies that are affordable can help, but I want to conVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00126 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
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centrate on another piece of the problem—billing the uninsured on

the basis of a charge structure that makes little sense and that

clearly means the uninsured are billed at the highest rate. Isn’t it

time to move away from bills based on charges that make little

sense? How can we move to a billing that is more closely related

to the cost of service? And whatever rate you set, if they are uninsured and they don’t have the money, you are not going to be able

to collect it. Any of you want to respond to those points?

Mr. TERSIGNI. We would support that premise from the standpoint that we need to move, and we have been moving in this industry from a cost-based to competition-based pricing, and I think

that brings some reality to the present situation.

Mr. LOFTON. From the standpoint of the uninsured, it makes perfect sense. We generally, right now, only collect about 7 percent of

our revenue comes from that population. So, the change in terms

of the dollars would not be really substantial. And then when you

look at this or HSAs, those are still slices of the whole pie, and we

still have to come back to the 40 million people that are not insured.

Mr. WAXMAN. Anybody else want to comment?

[No response.]

So, in the ultimate sense, then, if you are going to get your

money, it is far better to have somebody with insurance.

Mr. PARDES. Yes.

Mr. WAXMAN. And all the other things don’t really account for

much, it just tinkers with how much bad debt you are actually

going to absorb.

Mr. PARDES. Not only is it better to have the insurance, but it

also provides the individuals with dignity when they walk into the

hospital.

Mr. WAXMAN. And for those who have these high deductibles, to

you it makes no difference, it is just most likely going to be another

bad debt.

Mr. BOVENDER. Could be.

Mr. WAXMAN. Unless they are higher income people.

Mr. BOVENDER. Right.

Mr. WAXMAN. Do you have trouble collecting from these higher

income people?

Mr. BOVENDER. Sometimes.

Mr. PARDES. I think it is important to recognize that there are

some high income people and some international patients who do

pay full charges, and as a result of that, there is a certain amount

of cost optimization. For hospitals like those of us in New York in

which 90 percent of the hospitals are below 1 percent margin, that

is very important.

Mr. WAXMAN. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman. The gentleman from New Jersey, Mr. Ferguson, is recognized for his inquiry.

Mr. FERGUSON. Thank you, Mr. Chairman. I have a few questions for Dr. Tersigni. Doctor, first of all, you said this is your

fourth day on the job?

Mr. TERSIGNI. Yes, it is, Congressman.

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Mr. FERGUSON. Congratulations to you. Clearly, you learn something quickly in your fourth day on the job, which is it is good to

bring the Nun.

I went to Catholic school. It is always a good idea to bring the

Nun.

Mr. TERSIGNI. I am still on probation, Congressman.

Mr. FERGUSON. Good decision. Dr. Tersigni, you talked about

your new policies and some of the procedures you go through with

some of the uninsured. Is one of the things you do when you are

dealing—when your hospitals are dealing with the uninsured is, do

you ever help them or walk through with them finding public assistance in other ways perhaps, if they don’t have their own insurance?

Mr. TERSIGNI. Yes, Congressman. As a matter of fact, the whole

process of identifying and meeting with the patient to determine

whether they are uninsured, whether they are financially needy, or

whether they are just working uninsured, and then we begin the

process of trying to identify for them whatever public funds, private

funds are available, and we continuously do that through our financial counselors and our registrars.

Mr. FERGUSON. So part of the process in determining or trying

to figure out some sort of payment or reimbursement is helping

them to look through and find what public assistance might be

available.

Mr. TERSIGNI. That is correct.

Mr. FERGUSON. Now, your new policy—you kind of outlined your

new policy, and I know it is in your written testimony. I am assuming this is going to cost you money. This is going to affect your bottom line—your revenues, and possibly your bottom line. Do you

have any estimates on that yet? Have you determined what this is

going to cost?

Mr. TERSIGNI. We don’t have any estimates at this point. We

know that the present situation, we lost $222 million in 2003. We

expect that to go up, but our mission——

Mr. FERGUSON. Was that a good year?

Mr. TERSIGNI. As a matter of fact——

Mr. FERGUSON. This is a tough industry.

Mr. TERSIGNI. [continuing] it has been rising. But, again, our

mission is to care for the poor and the vulnerable in this country,

to actually seek them out. And so we actually incent our CEOs of

the Health Ministries to continue to grow the charity care that we

provide in our communities annually, and I think there is some information in the testimony or in the information that shows that

charity care has grown.

Mr. FERGUSON. Let me get that straight. You incent your executives to try and grow your charity care each year.

Mr. TERSIGNI. Correct.

Mr. FERGUSON. You try and find ways of providing more free

health care.

Mr. TERSIGNI. More free health care. We try to find ways to take

care of those who need to be taken care of, that are falling through

the cracks. We have invested millions of dollars in 40 clinics, 175

programs across the country, specifically to deal with preventative

care, primary care, and targeted for the poor and vulnerable.

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Mr. FERGUSON. And I don’t imagine that is necessarily good for

the bottom line.

Mr. TERSIGNI. That isn’t good for the bottom line, but——

Mr. FERGUSON. It is part of your mission.

Mr. TERSIGNI. [continuing] it is part of our mission.

Mr. GREENWOOD. Would the gentleman yield just for a second. I

just want to be clear. There is a portion of charitable care for which

you get reimbursed. So, I want to be clear that we are not saying—

are you saying that you incent your executives to actually lose

money, or to be able to get as much money into a pot that gets reimbursed by the Federal Government?

Mr. TERSIGNI. Actually, it is for charity care. We exclude the bad

debt out of that $500 million that we have provided in 2003 for

charity care and uncompensated care. So, we continue to seek out

the poor and to make sure that we can begin—or hopefully help address a problem that is mammoth in this country.

Mr. GREENWOOD. Thank the gentleman for yielding.

Mr. FERGUSON. Of course. How do you communicate your charity

care and your financial assistance policies to your patients, obviously, particularly to your uninsured patients that you serve?

Mr. TERSIGNI. Well, several ways. No. 1, we have signs and materials in multiple languages in our presenting station areas,

whether it is emergency room, whether it is the clinics, whether it

is our waiting rooms of surgery centers. We train our administrative personnel to make sure that as the patient presents, that we

have dialog with that patient and direct them to the paraphernalia

that we have relative to identifying what the policy is.

Mr. FERGUSON. There is a theme that has been suggested by

some today, and elsewhere, that hospitals can make money on their

uninsured patients. Now, obviously, there are uninsured patients

who have the ability to pay, and I could see how for that portion

of the uninsured population it is possible for a hospital to make

money, so to speak, on the uninsured patients. But I have got to

believe that, in the aggregate, it is difficult for a hospital to make

money on uninsured patients. Is that accurate?

Mr. TERSIGNI. That is correct. As I indicated earlier, our average patient cost for caring for the uninsured is about $1376, of which

we collect about $155.

Mr. FERGUSON. Along these lines, I wanted to address another

question to the entire panel. Tenet operates about 100 hospitals,

HCA about 190 hospitals, Catholic Health 68 hospitals, New York

Presbyterian a handful of large health campuses, and Ascension 75

hospitals. Across almost 40 States you five systems have hundreds

of men and women working daily with patients to understand and

address their hospital charges. Consistent application of these policies and procedures is clearly crucial to making sure that they

work. If your policies are not properly communicated to people, the

policy is not particularly relevant.

Can each of you, in a few minutes that we have left, can each

of you tell me the specific steps that your system is taking to make

sure that, in effect, possibly hundreds of front-line employees know

about and are applying consistently and equitably your billing and

collection polices and procedures? Why don’t we start with Dr.

Tersigni.

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Mr. TERSIGNI. I am happy to say that, No. 1, 103,000 of our associates understand our mission is to care for the poor and vulnerable, and we are in the process of reinforcing that by communicating with them out new policy, and making sure that we hold

them as responsible as we hold ourselves to adhering to that policy

and making it work.

Mr. LOFTON. All of our associates know that CHI takes care of

patients regardless of ability to pay. We have a very strong process

to roll out our core values across our system, which are reverence,

integrity, compassion and excellence. And we have training for financial counselors along this line, so that they know that all of our

patients are treated with proper respect and dignity and, as I mentioned earlier, all of our collection agencies, by the end of this

month, will have been trained on the core values of CHI as well.

Mr. BOVENDER. Obviously, the practical problems of rolling out

any policy of any kind in 190 different hospitals is difficult. One

of the programs that we implemented, began implementing 3 years

ago, was to consolidate all of our business office operations into ten

regional revenue service centers, patient account service centers.

This makes rolling out policies like this, and fixing problems, easier

to do. It is easier to do it in ten different sites because the people

at the hospital in the billing cycles and front-end, when they receive patients into the emergency room and in the hospital, are actually tied into these revenue service centers. So it makes training

easier for us, and it makes implementation of these policies—and

it also creates a better feedback loop where we find where problems

have been created and how we need to fix those problems.

Mr. PARDES. We have been communicating our policies to all

staff involved in admissions intake, anything related to these

issues, Congressman, and disseminated to all the campuses. We

have also disseminated to community agencies. We have put information in our emergency rooms and admission offices, so we are

trying to disseminate them as widely as possible to ensure full

compliance.

Mr. FETTER. Congressman, you raise an important challenge, and

we have undertaken this by virtue of a very extensive communications and training program involving printed materials, written

materials, materials that are communicated by the Intranet as well

as conference calls.

Mr. FERGUSON. Mr. Chairman, I have a question I would like to

submit for the record and ask for a written response, if I could submit that for the record, please.

Mr. GREENWOOD. Without objection, that will be the order.

Mr. FERGUSON. And I just want to close by thanking our panelists for being here today. I understand the hospital business is

about the toughest—has got to be one of the toughest, if not the

toughest, business to be in in America today. We hear it from our

hospitals in our district. I am sure ours are no different from many

hospitals around the country, particularly with the care and treatment that you provide Americans all over the country. We appreciate that. We appreciate the actions that you have taken to change

some of your policies and procedures, and certainly encourage you,

as you continue to implement those and find new ways of treating

and caring for those who you care for, and we certainly appreciate

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you taking the time to be with us at a very long hearing today.

Thank you for being here, and thank you, of course, to the Nuns

for being here, too.

Mr. GREENWOOD. The gentleman from Florida, Mr. Stearns, is

recognized for 10 minutes.

Mr. STEARNS. Thank you, Mr. Chairman.

I was wondering if staff could put this graph up, and you folks

could probably see it on the screens. What we have here, the staff

has taken four of the hospitals at the dais here, the panels. One

of them we didn’t use. We took the four, and we tried to nominalize

it by Medicare net revenues. It appears the cost of Medicare net

revenues. We have blue, we have black, we have green, we have

yellow, and red. And the importance of this is that Medicaid and

Medicare are not too far from what appears to be the actual cost

by the hospitals in question.

The third-party payer is a little higher. Now, obviously, that

would be understandable because hospitals have to recapture a

profit so they can capitalize to expand or to change and renovate

and get new equipment and to keep up. But then the last, which

is the red, is the uninsured amount billed. And we have on the first

graph, 2000, then 2001 and 2002. So we are looking at a trend.

Maybe we could argue about these graphs, you might not agree

what staff did, but I think we see a trend in the red, which is the

uninsured amount billed.

So the question I have for you folks is, if we go to 2003 and 2004,

will this trend continue like this? In other words, will the red continue to go up, in your opinion? I would be glad to start with Mr.

Lofton, the Catholic Health Initiatives. Would it be reasonable for

me and the American public to say that this red line, which is the

uninsured amount billed, is going to continue to go up? Just yes or

no.

Mr. LOFTON. If I understand the graph, it is yes. But if I also

look at the graph, it says Revenue, Cost, Revenue, Revenue, and

then you get to Bill. So, I don’t think we are comparing the same

thing up there. If we talk about what is billed, if we look at the

cost column, I don’t think that that Medicare cost——

Mr. STEARNS. Okay, I will grant you that. I would agree that the

cost, we could argue about that. I agree. But I am concentrating

on the red line because, really, this is all about how this uninsured

amount being billed is growing—not geometrically, at least—it is

going up for the last 3 years, and then we have 2003 and 2004, and

your opinion is probably in 2003 it is going to be higher, and in

2004 it is going to be even higher.

Mr. LOFTON. I would say it will be higher, but the actual experience for our system is that that group of patients, we only collect

13 cents on a dollar for.

Mr. STEARNS. Dr. Pardes, would you agree?

Mr. PARDES. I think that that would be true. I think that the

costs of health care keep going up. Of course, the people who pay

the full charges, Congressman, are, as I said, the well-to-do patients or international patients. We work individually so that the

bulk of people who are not in those categories would pay far less.

Mr. STEARNS. Is there anybody on the panel that does not think

that this trend is going up?

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Mr. BOVENDER. I may need some clarification of your question,

but if you are talking about the charges actually to the uninsured,

given what CMS came out with about 3 weeks ago and said that

we are allowed to do now, as I testified earlier, it is possible for

us to go back and try to construct a charge system for the uninsured possibly based on case rate or a DRG basis, but to peg it to

possibly the 95th percentile average of all of our managed care contracting. If we are able to do that, then obviously that red will not

go up as fast. In fact, it would actually probably come down.

Mr. STEARNS. But your charge master rate, you can still use that.

Mr. BOVENDER. But the charge—as I testified earlier, the issue

with the charge master is also separate. There is a separate component from the uninsured part, which is the managed care contracts

we have that are pegged as a percentage of charges, and we have

committed ourselves, as a company, to move away from percentage

of charge contracting, and actually move to case rate or other basis

for managed care contracts. But that will take us, as I testified,

two, two and a half years because we have got over 5,000 contracts.

Mr. STEARNS. Now, isn’t it true, when you have uninsured costs

that are going up so much like that, at the end of the year, don’t

you take those uninsured costs and write them off against revenue?

Mr. BOVENDER. Well, the uninsured——

Mr. STEARNS. In other words, you try to collect the debt, and if

you can’t collect the debt, it is considered a bad debt, right?

Mr. BOVENDER. Correct, it is an expense.

Mr. STEARNS. It is an expense. So, if this graph continues to go

up higher and higher, technically, you are going to be able to write

that off as expense on your revenue, is that correct?

Mr. BOVENDER. Yes. I mean, it is a bad debt.

Mr. STEARNS. So the incentive here is not necessarily to control

this because—and it appears from this that you are charging so

much more relative to your getting reimbursed from Medicaid and

Medicare, or even your third-party. So, you have this master rate

that you are using, and I guess the question I have, what considerations go into the charges that make up that red? And why does

it keep going so much higher than the yellow? I mean, the yellow

seems to be stabilized here. That is the third-party net revenue.

And yet the red continues to go up in almost quantum jumps here.

So my question is for each of you, what considerations go into

this for the costs that make up these uninsured? I mean, how do

you go about setting a charge rate for these? Let me start here on

the right.

Mr. FETTER. Congressman, at Tenet Healthcare, as I mentioned,

we have implemented this Compact With the Uninsured. So, with

reference to your graph, the first point I would make is that our

charges have been frozen since November 2002, so the orange bar

would not continue to go up.

Second, as we implement——

Mr. STEARNS. So, under your—you are freezing it. You are saying

2003 and 2004—it is a red bar, but I understand—you are saying

that bar would stabilize, it would not continue to go up.

Mr. FETTER. Well, actually, more importantly, under our discount

plan that is part of the Compact With the Uninsured, the red bar—

orange it looks to me—would approximate the level of the yellow

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bar. But I think it is very important—Mr. Lofton made a very important point—no pun intended—the bars are comparing apples to

oranges because you have billed and a billed amount on the——

Mr. STEARNS. I anticipated that. I am trying to make my argument in terms of trend.

Mr. FETTER. Right. I will answer with respect to our own company, the trend will be that the red bar all the way on the far right

will drop substantially to approximate the yellow bar.

Mr. STEARNS. And, Dr. Pardes, you would agree, is yours going

to drop?

Mr. PARDES. I am not sure that ours will drop in the same way

that——

Mr. STEARNS. Because what we are going to do now is we are

going to compute 2003 and 2004, so I want you to realize we are

going to take the same information and try to see, for each of your

hospitals, because your hospitals are up here, and we are trying to

determine that. Let me go to my far left here. Would you care to

comment, too?

Mr. TERSIGNI. I believe with our new policy, we are going to have

all uninsured at the same discount from charges on our best-paying

payer, so I believe that we will begin seeing a difference in that red

bar.

Mr. STEARNS. What is the tax consequences of setting very high

billing levels for the uninsured amounts billed, then writing them

down? I mean, I touched on this, but in your own words, what are

the tax consequences? I mean, just tell us for the—your bottom line

and your profit, how this affects it. I told you what I thought it

was. I would like, in your own words, basically with this huge

amount of uninsured amount billed, and you are not getting it back

reimbursed, how does this affect the bottom line?

Mr. TERSIGNI. Well, I can tell you, if our data is in that red line,

our bottom line for that particular year is 1.7 percent of margin.

Mr. STEARNS. Now, if you didn’t have that red bar, basically, you

would pay more taxes, wouldn’t you?

Mr. TERSIGNI. We are not-for-profit.

Mr. STEARNS. But if you were for-profit?

Mr. TERSIGNI. That information I wouldn’t know. We haven’t calculated that.

Mr. STEARNS. But, basically—Mr. Bovender, let me ask you that

question. If this was not there, wouldn’t you pay higher taxes? Just

yes or no.

Mr. BOVENDER. No, I don’t believe so because, if you didn’t put

the charges on, they wouldn’t appear on the bottom line, to begin

with. If you put the charges on, then take them off as a bad debt,

it has no impact. The change in the bottom line, there is no impact.

Mr. STEARNS. So you are not writing off the uninsured bad debt

on your revenue?

Mr. BOVENDER. Yes, we are, but if that revenue—if I understand

your question, you are asking if those charges were smaller instead

of large like you see them on the red side, is it not beneficial for

us to inflate the charges and then just write off the bad debts, and

that is not the case because, if you never put the charges on, you

wouldn’t be paying taxes——

Mr. STEARNS. But these uninsured are charges that you put on.

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Mr. BOVENDER. But it does not affect whether you do not have

the charges before the net revenue line or after the net revenue

line does not affect the actual profits at the end of the day.

Mr. FETTER. Our company is the other taxpayer on the panel,

and Jack’s answer is correct. There is no tax impact of this

level——

Mr. STEARNS. So you are saying that because you have a large

uninsured and you can’t collect it, it doesn’t affect your profit at

all?

Mr. FETTER. Well, it affects book income, but your tax impact is

no different, regardless of where you set the charges for the uninsured.

Mr. STEARNS. But if you had a $100 million revenue and you had

$10 million of uninsured and you couldn’t get it back, you could

take that $10 million and put it to the revenue and pay less taxes.

I mean, every small business knows that, and that is what you

have here with these red graphs.

Mr. FETTER. You are incurring the expense anyway, regardless

of the patients. That is determined by——

Mr. STEARNS. But if the cost is a lot less than the red line, then

you have got a bigger spread that you can use to write down your

revenue. Instead of it cost you $10 and you charge $100, then you

can write the $100 off instead of the $10.

Mr. FETTER. Respectfully, I don’t believe it works that way.

Mr. STEARNS. Let me ask you this. For nonprofits, how much

does your hospital save each year on taxes by virtue of your

501(c)(3) status?

Mr. LOFTON. I am not in a position to give you an answer for the

whole system. As you know, the tax base is based on a State rate,

but we don’t compute that. We are in 19 States, and the amount

of the tax would vary. I can tell you that in one of our markets in

Carne, Nebraska, where we have a very sophisticated way of computing our community benefits, they have calculated that the

amount that they would have approximated that we would have

paid in taxes there is about $3 million versus the community benefit which is about $28 million. So we submit that the kind of

things that we do—free clinics and other mission-based health

care—where we provide free care far outweighs the amount that

the tax would be, but I can’t give you the total for the whole system.

Mr. STEARNS. If I could conclude, Mr. Chairman, just a quick

comment, and I would say that I am very respectful—you folks are

trying to make a living and make a profit, and how difficult it is,

particularly, you have to take anybody that comes into your emergency room. But I am saying if you want to prevent Congress from

coming in with the Hefley bill or any price controls, that red line

can’t continue to get bigger and bigger and bigger relative to the

real cost, and that is what you folks have got to come up with an

answer for us. We are trying to help you and to point out what we

see as amateurs here, and your CEOs, you have got to come back

to me and say, ‘‘Congressman, this is going out of sight, I am going

to stop it, and this is what I am going to do, and I am going to

reprice my master rule, and I am going to make sure this doesn’t

go any higher, and in so doing, I don’t need you as a Congressman

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to come in and legislate with price controls,’’ and that is where you

folks better get, I think, on the ball here and start to make those

arguments and articulate them, instead of just arguing whether

the staff has got that right normalization with the cost or any of

these others. I mean, our attempt to understand this—the staff I

think has done an excellent job just trying to show trends, and that

is what I was trying to show. Thank you, Mr. Chairman.

Mr. GREENWOOD. The Chair thanks the gentleman and recognizes himself for 10 minutes, and I want to follow right on the gentleman’s comments.

When we look at the red line, we look at what your master

charges are, and we try to figure out why do they seem so absurdly

high compared to your costs, and why are they rising at such a

rate? Now, we know—and Dr. Anderson commented on it in the beginning—that there is a formula that CMS uses to take care of

outliers from the DRGs. So, when a patient comes to a hospital,

you are reimbursed on the basis of a DRG, but if there are complications, if there are unanticipated costs, you can, as I understand it, put those cases into an outlier pool and then be reimbursed by Medicare on a formula that is basically a cost-to-charge

ratio, which puts the cost as the numerator and the charge as the

denominator.

Now, it seems to me that that, in and of itself, would create a

tremendous incentive for hospitals to set the charges as high as

possible so that when it comes time to submit their data to CMS

on a cost-to-charge ratio for reimbursement for outliers, that the

reimbursement is maximized. Am I correct about that? Dr.

Tersigni?

Mr. TERSIGNI. Mr. Chairman, I am not sure I quite understood

the last part of the question.

Mr. GREENWOOD. Okay. When you have outliers from your

DRG—in other words, as I understand it, there are CMS regulations that say that when you have specific cases in the hospitals,

the cost of which significantly exceed certain parameters in comparison to the DRG, that you then get reimbursed using a different

methodology than the DRG. You get reimbursed on the basis of—

that gets called an ‘‘outlier.’’ It gets put into a dataset of outliers,

and then you submit a bill to CMS for those cases, and the basis

of reimbursement is a function of the cost-to-charge ratio. Is anybody with me, have I got this right? The Nuns are nodding their

heads ‘‘yes.’’

Anybody with me on this?

Mr. FETTER. Yes.

Mr. GREENWOOD. Would somebody comment, please? Do I have

that right?

Mr. FETTER. It is close enough, I think.

Mr. GREENWOOD. All right. Help me out.

Mr. FETTER. Largely because of an outlier issue with Tenet

Healthcare in late 2002, CMS undertook a change in the rules.

Now, Tenet voluntarily adopted the rules that CMS ultimately

promulgated——

Mr. GREENWOOD. Let me interrupt you. We will give you plenty

of time here. But am I correct that it has long been, or ever since

this regulation has been in place, an incentive for hospitals to set

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charges high so that when they bill CMS, Medicare, for outliers

from the DRGs, that they maximize their revenues?

Mr. FETTER. I was leading to a direct answer to the question,

which is that prior to August of 2003 when CMS changed these

rules, the system—I am ignoring a tremendous amount of complexity—but the system was set up in a way where rapid increases

in gross charges did increase outlier payment. CMS made two important changes in the regulation that have essentially eliminated

that incentive, as you describe it, or a reward that would accrue

to the hospital from that type of behavior.

Mr. GREENWOOD. Because a part of my concern is that what we

had—let us at least talk about prior to that regulatory change—you

had this significant incentive to raise the charge for purposes of

Medicare reimbursement, and you had to be able to say with a

straight face, ‘‘Yes, that is what we charge people,’’ and the only

people that got charged that were people who were uninsured. So

the poor schmuck who is uninsured gets ground up in the gears

created by the CMS system that creates an incentive for you to

have high charges. Do I have that right or wrong?

Mr. FETTER. I believe that problem was fixed, though.

Mr. GREENWOOD. I understand, but wasn’t that the way it was—

isn’t that what happened?

Mr. FETTER. I might not choose the same adjectives, but you essentially have it.

Mr. GREENWOOD. It wasn’t an adjective, it was a noun,

‘‘schmuck.’’

Look it up. But the fact of the matter is that people got ground

up in the system, I think, because of that. Now, the question then

remains, do incentives remain for you to have charges that are

quite high, from which you have to create a discount so you don’t

overcharge the poor uninsured person. For instance, if you have an

automobile accident patient come into your emergency room, and

you are going to have a settlement, and you are going to get a subrogation out of that, and then you can bill the auto insurance company charges. Is that an existing incentive to have high charges?

Mr. FETTER. I don’t believe the incentives continue to exist, but

as Mr. Bovender pointed out earlier, because so many managed

care contracts are structured based on these charges, it is very difficult to reduce the charges or address the charges in that other

type of way. There is no incentive to have, on an absolute basis,

high charges.

Mr. PARDES. The one concern we would have, Mr. Chairman, is

that we not necessarily decrease charges for international patients

or well-to-do patients who can handle the charges.

Mr. GREENWOOD. Yield to the gentlelady from Colorado.

Ms. DEGETTE. Thank you, Mr. Chairman. We are trying to avoid

holding you here while we have our next series of votes. I just want

to ask a couple questions of Dr. Pardes, and if you will take a look

at Tab 21—there is a notebook over there, do you see that, Tab 21?

Is that your policy on how you are going to deal with the uninsured?

Mr. PARDES. There is a whole lot of page here. I can tell you how

we are going to deal with the uninsured.

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Ms. DEGETTE. Well, take a look at this Tab 21, is this your policy? I can represent to you——

Mr. PARDES. These are policies that—yes.

Ms. DEGETTE. These are the policies you have currently in effect?

Are they currently in effect?

Mr. PARDES. Not necessarily. I think they have been updated.

Ms. DEGETTE. They have been updated. The date on this at the

bottom is 1995 to 2002. Have they been updated since then?

Mr. PARDES. Yes.

Ms. DEGETTE. All right. When were they updated?

Mr. PARDES. In early 2004.

Ms. DEGETTE. In early 2004. Did you provide this committee

with the updates of the policy? You lawyer is nodding ‘‘yes.’’

Mr. PARDES. I believe we did.

Ms. DEGETTE. I don’t believe we have those updates. Would you

please, sir, supplement—we don’t have those updates unless they

are under Tab 21, so would you please supplement your response

with that?

Mr. PARDES. Sure.

Ms. DEGETTE. I am going to ask you a couple of questions very

quickly. In this policy which is in Tab 21, it says that—at the bottom, right-hand, NYPH0001520, it is sort of about two-thirds of the

way back in the document, do you see that?

Mr. PARDES. Yes.

Ms. DEGETTE. Now, it says there, ‘‘Attempt to obtain payment in

full and settle the account. The second priority of a representative’’—first, they are supposed to get insurance. Then if there is not

insurance, ’’The second priority of a representative dealing with

self-pay accounts is to settle the account balance of the patient.

First settlement offering is 100 percent of the estimated account

balance at discharge.’’ Is that still your policy, Dr. Pardes?

Mr. PARDES. Our policies have been reworked——

Ms. DEGETTE. So none of these policies in here are still your policies?

Mr. PARDES. The policies, as we said before, were updated as of

the beginning of 2004.

Ms. DEGETTE. But are they all new? Is this still your policy and,

if not, what is your policy?

Mr. PARDES. Our policy is, first of all, to try to get as many

patients——

Ms. DEGETTE. No, no. Do they still offer them 100 percent of the

estimated account balance at discharge?

Mr. PARDES. I am sorry, say again?

Ms. DEGETTE. You know what, Mr. Chairman, I am going to ask

unanimous consent to ask this witness some written questions and

to have him respond within 20 days of this hearing because I have

a number of questions about New York Presbyterian and Columbia

Presbyterian’s policies that relate to patients, and we have not

been given the current policy.

Mr. PARDES. We would be happy to respond to that.

Ms. DEGETTE. Thank you. Let me just ask a couple—is that all

right?

130

Mr. GREENWOOD. Yes, the gentleman has agreed to respond to

questions that you submit in writing. They will become a part of

the record.

Ms. DEGETTE. All right. I will just do that, Mr. Chairman, given

the time.

Mr. GREENWOOD. We will add that to the record. The Chair

would note that we have 5 minutes and 13 seconds to go over to

the Capitol and undertake a series of votes, which will take well

more than a half an hour, and what we have tried to do, we have

debated whether to make you sit here for half an hour and come

back and grill you for another hour or so, and we have decided that

you have been saved by the bell. So, we thank you for your testimony. WE thank you for your time this afternoon. We thank you

for all of the voluntary reforms that you have done. We are going

to continue our work, we are going to continue to work with you.

We may even ask you to come back at another date, but for this

evening you are dismissed. Thank you.

The committee will recess for 30 minutes.

[Brief recess.]

Mr. GREENWOOD. The Chair thanks the witnesses for their patience. I know it has been a long day for you, as it has for us. As

you both know, the committee takes its testimony under oath. Do

either of you have objection to giving your testimony under oath?

Mr. KUHN. No.

Mr. MORRIS. No.

Mr. GREENWOOD. You are entitled to be represented by counsel,

pursuant to the rules of the House. Do either of you wish to?

Mr. KUHN. No.

Mr. MORRIS. No.

Mr. GREENWOOD. Would you please stand and raise your right

hands?

[Witnesses sworn.]

Mr. GREENWOOD. You are under oath. Mr. Kuhn, you are recognized to make your opening statement. Welcome.

TESTIMONY OF HERB KUHN, DIRECTOR, CENTER FOR MEDICARE MANAGEMENT, CENTERS FOR MEDICARE & MEDICAID

SERVICES, U.S. DEPARTMENT OF HEALTH AND HUMAN

SERVICES; AND LEWIS MORRIS, CHIEF COUNSEL, OFFICE OF

INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Mr. KUHN. Thank you, Chairman Greenwood and members of

the committee. I appreciate you inviting me to speak today about

the Centers for Medicare and Medicaid Services regulations and

how they affect hospitals and the ability to bill patients who are

underinsured or uninsured.

Medicare and Medicaid provide health insurance for more than

80 million Americans. I would like to state right from the start that

the provider reimbursement rules for those programs in no way restrict the ability of hospitals and other providers to offer free or

discounted care to patients who are either underinsured or uninsured. The Medicare program provides flexibility to those providers

who choose to offer discounted care to patients.

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CMS has been closely involved with hospital billing for the

underinsured and uninsured. A year ago, we received a request

from some hospitals for guidance on whether it was permissible to

discount charges to low-income uninsured or underinsured patients. After providing guidance to these hospitals, CMS began discussions with your staff in the Fall of 2003. In December of 2003,

Secretary Thompson received a letter from the American Hospital

Association that alleged that Medicare program rules, as well as

restrictions imposed by the HHS Office of Inspector General hindered the ability of hospitals to provide discounts to low-income patients or to patients who were medically indigent. Secretary

Thompson responded to the AHA letter in February and subsequently responded to a letter and request for information from this

subcommittee.

Earlier this month, we held an open-door forum to provide a detailed overview of our policy in this area, and to allow providers to

raise any additional questions or concerns. Of course, providers and

their representatives should feel free to contact us at any time

should they need guidance in this area.

Mr. Chairman, when CMS provides guidance on this issue, we

have found that there are three main areas of concern. The first

area is discounts and how they may be used. Medicare billing requirements do not prevent discounts as long as full charges, not

discounted charges, are reported on the Medicare cost report. To

provide discounts, providers must maintain accounts and records in

a manner that would be necessary for any business. The program’s

rules have attempted to prevent the Medicare program from subsidizing a service that should be paid for by another provider, or

preventing another provider from subsidizing a service the Medicare program should be reimbursing.

The second area of concern is indigency. Medicare indigency requirements do not prevent discounting to uninsured patients provided a few requirements are met. Providers may make indigency

determinations using their customary method, but to protect all patients in the Medicare program, the methods used in determining

indigency for non-Medicare patients should be similar to those for

Medicare patients. Any indigency determination should be supported by documentation and be determined on a patient-by-patient

basis because financial need is specific to each and every patient.

Hospitals set their own indigency policy and have the discretion

and flexibility to define eligibility, including income level. This

makes sense because hospitals are in the best position to know

what their community needs are.

The third area of concern is Medicare’s rules regarding bad debt.

These rules do not require providers to aggressively collect unpaid

bills. The rules do require efforts to collect from non-Medicare patients to be similar to those efforts for Medicare patients. This is

designed to protect the integrity of the program if hospitals are

seeking Medicare bad debt reimbursement.

We often hear from hospitals that Medicare somehow requires

aggressive collection efforts that include attaching a patient’s

home, use of a bill collector, or other similar tactics. This is simply

not true. The program does require, however, that if the hospital

wants to bill the Medicare program for bad debt related to unpaid

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deductibles and co-insurance by Medicare beneficiaries, it must use

the same level of collection activity to secure collection of those

debts by Medicare patients as it does to secure collection of debts

by non-Medicare patients. Simply stated, the collection of Medicare

and non-Medicare debts need to be treated similarly.

Mr. Chairman, thank you for this invitation to testify this

evening. I want to acknowledge the subcommittee for its efforts in

bringing to the forefront the problem of providing quality health

care for patients of limited means. I applaud you for making this

important issue the focus of your hearing today, and I will be

happy to answer any questions that you may have.

[The prepared statement of Herb Kuhn follows:]

PREPARED STATEMENT OF HERB KUHN, DIRECTOR, CENTER FOR MEDICARE MANAGE- MENT, CENTERS FOR MEDICARE AND MEDICAID SERVICES, DEPARTMENT OF HEALTH

AND HUMAN SERVICES

Chairman Greenwood, Rep. Deutsch, thank you for inviting me to speak with you

about the role the Centers for Medicare & Medicaid Services plays in how hospitals

and other Medicare providers bill patients who are uninsured or under-insured. I

want to acknowledge the Subcommittee for their efforts in bringing to the forefront

the problem of providing quality health care for patients of limited means and I applaud you for making this important issue the focus of your hearing today.

Combined, the Medicare and Medicaid programs provide health insurance for over

80 million Americans. The provider reimbursement rules for those programs ‘‘should

in no way restrict the ability of hospitals and other providers to offer free or discounted care to patients who do not have coverage under these two programs. I am

here today to talk about how the Medicare program provides the flexibility for providers to do so if they choose.

Hospital billing for the uninsured and underinsured is a very timely issue and an

issue in which CMS and, in particular, the Center for Medicare Management, which

I direct, have been deeply involved for over a year. It was a year ago that we received a request from some hospitals in the country for guidance on whether it was

permissible to discount charges to low income uninsured or under-insured patients.

Some months later, after responding to numerous inquiries on the issue, CMS began

discussions with your staff in the fall of 2003. In December of 2003, Secretary

Thompson received a letter from the American Hospital Association that alleged

that Medicare program rules, as well as restrictions imposed by the HHS Office of

Inspector General, hindered the ability of hospitals to provide discounts to low-income patients or to patients who were medically indigent. Secretary Thompson responded to the AHA letter in February, and subsequently responded to a letter and

request for information from this Subcommittee. CMS also briefed your staffs in

preparation for this hearing.

There are three central topics that most commonly arise when providing guidance

on this issue. I’d like to address those topics for you today. Then, to conclude, I’d

like to say a few words about what the Medicare and Medicaid programs are currently doing to assist hospitals that treat the uninsured. Finally, I’d like to conclude

by mentioning the many initiatives that the Administration has taken to reduce the

number of uninsured.

Three Topics of Focus on Billing the Uninsured

• Discounts: Medicare billing requirements do not prevent discounts as long as: • Full charges, not discounted charges, are reported on the cost report. • Accounts and records are maintained in a manner that would be necessary

for any business.

Indigency

• Medicare indigency requirements do not prevent discounting to uninsured patients.

• Providers may make indigency (including medical indigency) determinations

using their customary methods.

• In order to protect all patients and the Medicare program, the methods used

in determining indigency for non-Medicare patients should be similar to those

used for Medicare patients.

• Indigency should be supported by documentation (good business practices

would dictate that).

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• Indigence should be determined on a patient-by-patient basis because financial need is specific to each patient. • Medicare does not reimburse the bad debts of non-Medicare patients. • Once indigence is determined, collection is no longer undertaken with regard

to the patient for the forgiven amount.

Bad Debt

Medicare does not require providers to be aggressive in their collection of accounts. Medicare rules state that:

• Efforts to collect from non-Medicare patients must be similar to the efforts to collect from Medicare patients. Medicare wants parity in the treatment of Medicare and non-Medicare patients to protect the program and all patients, not just

our beneficiaries. • Efforts to collect on accounts should be more than a token effort. Rather, they

should be positive efforts that would be used in any business.

Since the enactment of the Medicare program in 1965, the program’s rules have

attempted to prevent ‘‘cross-subsidization’’—in other words, preventing the Medicare

program from subsidizing a service that should be paid for by another payor, or preventing another payor from subsidizing a service the Medicare program should be

reimbursing. One way that Medicare’s regulations do that is to require hospitals to

list their stated charges for a service on their cost reports for a service and maintain

a uniform charge for a service. To repeat, nothing in CMS regulations prevents a

hospital from providing a discount off of that stated charge. But when filing its cost

report, the hospital must list its full charges.

Without question, a hospital can provide free care or discount charges to uninsured or underinsured patients. As we noted in our response to the American Hospital Association, ‘‘[n]othing in the Centers for Medicare & Medicaid Services’

(CMS’) regulations, Provider Reimbursement Manual, or Program Instructions prohibit a hospital from offering discounts to any patients, Medicare or non-Medicare,

including low-income, uninsured or medically indigent individuals.’’

In reference to the ability of a hospital to develop an indigency policy, it may be

overstating matters to say that the Medicare program imposes a ‘‘restriction’’ on

this. Hospitals—not the federal government—set their own indigency policies and

have the discretion and flexibility to define eligibility indicators including income

level. This makes sense because a hospital, as a community institution, is in the

best position to know what policy best suits the community that it serves.

As I have stated earlier, if a hospital wishes to provide a discount off of its customary charges as part of an indigency policy, it can do so, but it must report the

full charge for that service on its Medicare cost report.

Turning to the issue of bad debt, we often hear from hospitals that Medicare

somehow ‘‘requires’’ aggressive collection efforts that include attaching a patient’s

home, use of a bill collector, and other similar tactics. The reality is otherwise. The

Medicare program does not require any particular level of collection activity. It does

not require that collection activities be ‘‘aggressive.’’ It does not require that hospitals seize patient’s homes or bank accounts. What the program does require, however, is that if the hospital wants to bill the Medicare program for bad debt related

to unpaid deductibles and coinsurance by Medicare beneficiaries, it must use the

same level of collection activity to secure collection of those debts by Medicare patients as it does to secure collection of debts by non-Medicare patients. For example,

if a hospital wants to use a bill collection agency for its bad debts, it cannot turn

only non-Medicare patient bills over to that collection agency; rather, the hospital

must treat all bad debts the same. The principle, again to prevent cross-subsidization, is that collection of Medicare and non-Medicare debts need to be treated similarly.

In addition, a hospital may make an individualized indigency determination for

a particular Medicare patient and excuse that patient from any efforts to collect unpaid deductibles and coinsurance. Doing so would not prevent the hospital from collecting Medicare bad debt payments from other payors on those unpaid amounts,

provided the hospital treats all indigent patients the same. This is also true if the

patient is a dually-eligible Medicare and Medicaid beneficiary. In such a case, the

hospital would submit a bill for the unpaid deductible and coinsurance amounts to

the state Medicaid plan. If the state Medicaid plan was not liable and denied payment on the account, the hospital could bill the Medicare program for it as a bad

debt.

It is also important to note that in very limited circumstances, Medicare reimbursement could be affected by the ‘‘lesser of cost-or-charges,’’ or ‘‘LCC’’ principle.

This principle was of significant importance in the early years of the program, but

is admittedly less so now that most providers are reimbursed on the basis of a proVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00141 Fmt 6633 Sfmt 6621 95446.TXT HCOM1 PsN: HCOM1
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spective payment methodology rather than on the basis of costs. However, where the

LCC principle is applicable, a Medicare provider is paid the lesser of its actual costs

or its actual charges. Implementing a reduced charge program for uninsured patients could potentially trigger the LCC principle because if a hospital lowered

charges for enough patients, a hospital’s fiscal intermediary could take the position

that a hospital’s charges were not its posted, or stated, charges, but rather, the

charges applicable to most of its patients who were receiving discounted services.

If the FI did take that position, it could then invoke the LCC principle and pay the

hospital that lower charge-based amount.

Few providers are subject to the principle at all. The only example I am aware

of is a pediatric or cancer hospital in its first year of operation, before it becomes

subject to the TEFRA methodology, because there are no base year costs upon which

to calculate a TEFRA target rate limitation. Other providers, including critical access providers, are not subject to the LCC provision.

The Office of Inspector General Guidelines

I cannot speak for the Office of Inspector General (OIG), but I will note that

shortly after we released our letter to the AHA, the OIG put on its website a document addressing the application of its fraud and abuse authorities to discounts for

uninsured patients and cost-sharing waivers for financially needy Medicare beneficiaries.

Lewis Morris, the Chief Counsel to the Inspector General, is here with me today

to address the OIG’s perspective on these issues.

Funding Programs for Uninsured Individuals

CMS has done its share to reimburse hospitals for the treatment of uninsured individuals. Since 1986, select hospitals have received reimbursement under the Medicare disproportionate share (DSH) program. Hospitals qualify for Medicare DSH

payments if they treat a ‘‘disproportionate share’’ of low-income patients—defined in

the statute as the share of a hospital’s total inpatient days attributable to Medicare

patients who are also eligible for SSI compared to all Medicare patients plus days

attributable to Medicaid patients compared to all patients. As I mentioned above,

Medicare also reimburses hospitals for the bad debt that arises from treating lowincome Medicare beneficiaries who are unable to pay their cost sharing and deductible amounts. Finally, the Medicaid program requires states to designate certain

hospitals as disproportionate share under their state Medicaid plans, and make additional payments to those DSH hospitals. The Medicaid DSH program is also advantageous for states because DSH payments to a hospital under a state plan are

not counted in determining whether or not the state has breached the Medicaid

upper payment limit, thus enabling states to increase payments to other providers

participating under their state plan.

Other Administration Initiatives for the Uninsured

In addition to providing the guidance to hospitals on the uninsured, this Administration has undertaken other initiatives to address the plight of individuals who

otherwise lack access to health insurance or who may be under-insured. For example, the Administration has dramatically increased funding to federally qualified

community health centers, the ‘‘front line’’ treatment option for low-income uninsured individuals. The Administration provides an advanceable health coverage tax

credit to certain individuals who are receiving a pension from the Pension Benefits

Guaranty Corporation or who have become unemployed due to the adverse effects

of international trade and are eligible for Trade Adjustment Assistance. This tax

credit pays 65% of the premium for qualifying health insurance, including either

employer-sponsored ‘‘COBRA’’ coverage or a state-designated private health insurance plan. The Administration’s Medicaid waivers, state plan amendments, and

HIFA waivers have provided health insurance for 2.6 million people who would have

otherwise lacked coverage, and enhanced existing benefits for nearly 7 million individuals.

Many of you in Congress voted for and deserve credit for the provisions in the

Medicare Modernization Act that will revolutionize health savings accounts and

help make insurance more affordable for millions of Americans. In addition to creating a Medicare prescription drug benefit and providing interim savings and subsidies through Medicare-approved discount cards, this historic legislation allows people to establish health savings accounts (HSAs) in conjunction with affordable, highdeductible major medical coverage. These new products will make health insurance

more affordable to businesses large and small, as well as to individuals whose employers do not sponsor coverage. The President has proposed to provide further assistance to such individuals by allowing them to claim an above-the-line deduction

of the major medical insurance premiums.

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For working individuals and families who would not benefit from tax deductibility

because their incomes are too low, the President has proposed $70 billion in refundable, advanceable tax credits. He also proposed allowing expanded use of association

health plans that allow small businesses to more easily pool resources to purchase

health insurance. Combined with the steps that we have already taken, enactment

of these and other measures will further reduce the number of individuals without

health insurance in the United States.

Mr. Chairman and Congressman Deutsch, thank you for your invitation to testify

this morning. I am happy to answer any questions that you may have.

Mr. GREENWOOD. Thank you, Mr. Kuhn.

Mr. Morris.

TESTIMONY OF LEWIS MORRIS

Mr. MORRIS. Thank you. Good evening, Mr. Chairman. I am here

today to discuss the Office of Inspector General’s views on the discounts that hospitals offer to uninsured patients and to others who

are unable to pay their hospital bills. Simply put, the fraud and

abuse laws enforced by the OIG allow hospitals to offer discounts

to patients who cannot afford to pay for their care. Indeed, our

legal authorities have virtually no application to the discounts offered to uninsured patients.

When the patient’s health care is covered under a Federal health

care program, such as Medicare and Medicaid, our legal authorities

have greater relevance. But even then the laws clearly establish

that hospitals are able to help patients who are experiencing financial hardship. Today, I will begin by describing why the fraud and

abuse laws have virtually no relevance to hospitals offering discounts to uninsured patients, and then I will describe how a hospital may reduce or waive cost-sharing amounts for Medicare or

Medicaid beneficiaries experiencing financial hardship.

I would note that while today’s presentation focuses on discounts

that hospitals offer to uninsured and financially needy patients, the

underlying principles apply equally to the rest of the health care

industry.

It has been suggested that the fraud and abuse laws, particularly

the anti-kickback statute, prevent hospitals from offering financial

assistance to patients who do not have health care coverage. At

best, this view reflects a misunderstanding of the law. For the millions of uninsured citizens who are not referral sources, the antikickback statute simply does not apply. In other words, giving

something of value, such as a discount on hospital charges, to an

uninsured patient does not implicate the anti-kickback statute except in the most unusual situation where the uninsured patient is

in a position to generate Federal health care business, such as a

physician. In short, no OIG authority or policy should deter hospitals or others from offering financial relief to uninsured patients.

I will now address a hospital’s ability to offer discounts to financially needy Medicare and Medicaid beneficiaries. Simply put, the

law allows hospitals significant flexibility to help financially needy

Medicare and Medicaid beneficiaries. For these patients, a discount

generally takes the form of some or all of a co-payment or deductible waiver—that is, the portion of the bill that the beneficiary

owes.

In 1996, Congress passed a law that prohibits a provider from offering a Medicare or Medicaid patient anything of value, including

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waivers of cost-sharing amounts, that is likely to influence the selection of a provider of Medicare or Medicaid services. This law was

necessary to curb abusive arrangements under which providers

would pay patients to obtain services, often services which were

unnecessary, overpriced, or substandard. However, Congress recognized that some beneficiaries might not be able to afford their costsharing amounts. The statute does expressly allow providers to

waive these amounts on the basis of financial need. The exception

has three requirements. The waiver may not be routine, the waiver

may not be offered as part of an advertisement or solicitation, and

the waivers may only be made after determining in good faith that

the individual is in financial need or that reasonable collection efforts have failed. This exception is available to hospitals and others

that want to provide relief to Medicare and Medicaid patients who

cannot afford their cost-sharing amounts.

The OIG also has a long-standing and well-publicized position

supporting such financial hardship waivers. For example, the ability to forgive Medicare cost-sharing amounts is discussed in a 1992

OIG special fraud alert on this topic. That fraud alert, as well as

a wealth of guidance and other information about these issues, is

available on the OIG’s Web site. In short, the fraud and abuse laws

clearly allow hospitals to provide financial relief to Medicare and

Medicaid patients who cannot afford their cost-sharing amounts.

In conclusion, the OIG fully supports efforts to assure that a patient’s financial need is not a barrier to health care. Our laws allow

hospitals to offer bona fide discounts to uninsured patients as well

as Federal health care beneficiaries who cannot afford their health

care bills. Frankly, we do not know why lawyers advising hospitals

would tell them that the fraud and abuse laws are an impediment

to discounts to the uninsured. Such discounts do not violate the

fraud and abuse laws. We have never taken any enforcement action

in this area. And, finally, we have issued guidance as early as 1992

suggesting otherwise.

Mr. Chairman, thank you for the opportunity to present the

OIG’s views on these issues.

[The prepared statement of Lewis Morris follows:]

PREPARED STATEMENT OF LEWIS MORRIS, CHIEF COUNSEL TO THE INSPECTOR

GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES

Good morning Mr. Chairman and Members of the Subcommittee. I am here today

to discuss the Office of Inspector General’s (OIG’s) views on the discounts that hospitals offer to uninsured patients and to others who are unable to pay their hospital

bills. We understand that there is widespread concern about hospitals’ billing and

collection practices as those practices affect patients who cannot afford to pay their

hospital bills. I—want to assure the Committee that OIG fully supports efforts that

hospitals have made to help financially needy patients. We appreciate the opportunity to address this issue and to discuss OIG’s legal authorities in this area.

Simply put, the fraud and abuse laws enforced by OIG allow hospitals and other

health care providers and suppliers to offer discounts to patients who cannot afford

to pay for their care. Indeed, our legal authorities have extremely limited application to discounts offered to uninsured patients. When the patient’s health care is

covered under a Federal health care program, such as Medicare or Medicaid, our

legal authorities have greater application. But even then, the laws and regulations

clearly enable hospitals and others to help patients who are experiencing financial

hardship. OIG has long-standing and clear guidance on this point.

While today’s presentation focuses on discounts that hospitals offer to uninsured

and financially needy patients, the underlying principles apply equally to the rest

of the Medicare- and Medicaid-serving health care industry. Before I discuss OIG’s

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views, it is important to note that a thorough discussion of hospital discounts for

patients with financial hardship also involves questions for the Centers for Medicare

& Medicaid Services (CMS). CMS has programmatic responsibility for the Medicare

program and has established the cost reporting and bad debt rules relevant to hospital discounting practices. A CMS witness is also testifying today and will address

the CMS issues.

From OIG’s perspective, discounts offered to uninsured patients are analyzed

under two fraud and abuse laws: the Federal anti-kickback statute and the permissive exclusion authority prohibiting providers and suppliers from charging Medicare

or Medicaid substantially more than they usually charge other customers. Discounts

offered to financially needy Medicare or Medicaid beneficiaries also must be analyzed under the civil monetary penalty (CMP) statute that prohibits offering inducements to Medicare and Medicaid beneficiaries.

Today, I will begin by describing the limited application of OIG’s legal authorities

to discounts offered to uninsured patients. Next, I will describe how a hospital may

reduce or waive cost-sharing amounts for Medicare or Medicaid beneficiaries experiencing financial hardship. Finally, I will explain how hospitals and other health

care providers and suppliers can obtain further guidance from OIG on these issues.

DISCOUNTS FOR UNINSURED PATIENTS

OIG authorities allow hospitals to offer discounts to uninsured patients. It has

been suggested that two fraud and abuse laws—the Federal anti-kickback statute

and the exclusion authority prohibiting excessive charges to Medicare and Medicaid—prevent hospitals from offering discounted prices to patients who do not have

health care coverage. This view reflects a misunderstanding of the law.

The Federal Anti-Kickback Statute

The Federal anti-kickback statute is a criminal statute that prohibits the purposeful offer, payment, solicitation, or receipt of anything of value in exchange for, or

to induce, business payable by any Federal health care program, including Medicare

and Medicaid. Congress was concerned that improper financial incentives often lead

to abuses, such as overutilization, increased program costs, corruption of medicaldecision making, and unfair competition. Accordingly, Congress banned kickbacks in

the Federal health care programs.

Giving something of value (such as a discount on hospital charges) to an uninsured patient does not implicate the Federal anti-kickback statute, unless the patient is in a position to generate Federal health care program business. For example, a hospital asked OIG about the propriety of offering discounts to doctors who

self-pay. Such discounts would implicate the statute if one purpose were to induce

the doctors to refer Medicare or Medicaid business to the hospital. But those situations are not, in our view, typical of hospital policies for discounting to the uninsured. Rather, most need-based discounting policies are aimed at making health

care more affordable for the millions of uninsured citizens who are not referral

sources for the hospital. For discounts offered to these uninsured patients, the antikickback statute simply does not apply.

The Excessive Charges Exclusion Authority

By statute, OIG is authorized, but not required, to exclude from participation in

the Federal health care programs any provider or supplier that charges Medicare

or Medicaid substantially more than it usually charges other customers. This law

is intended to protect the Medicare and Medicaid programs—and the taxpayers—

from providers and suppliers that routinely charge the Medicare or Medicaid programs substantially more than they usually charge other customers.

Some providers have expressed concern that discounting to uninsured patients

might skew their ‘‘usual charges’’ to other customers and possibly subject them to

exclusion under this provision. Let me assure you that this is not the case. OIG has

never excluded or even contemplated excluding any provider or supplier for offering

discounts to uninsured patients or other patients who cannot afford their care.

OIG believes that the statute can be reasonably interpreted as allowing providers

to exclude discounts to these patients when calculating their usual charges to other

customers. To this end, when we proposed regulations in connection with this exclusion authority, we included a provision that would clarify that free or substantially

reduced prices offered to uninsured patients do not need to be factored into a hospital’s usual charges for purposes of the exclusion authority. Those proposed regulations are still under development.

To further assure the industry with respect to discounts to the uninsured, we

issued guidance in February that, pending issuance of final regulations or a decision

not to proceed with final regulations, we will continue our enforcement policy that,

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when calculating their ‘‘usual charges,’’ providers and suppliers need not consider

free or substantially reduced charges to uninsured patients.

In sum, no OIG authority or policy should deter hospitals and others from offering

financial relief to uninsured patients.

WAIVERS OF COST-SHARING AMOUNTS FOR FINANCIALLY NEEDY MEDICARE AND

MEDICAID BENEFICIARIES

A discount offered to a Medicare or Medicaid beneficiary generally takes the form

of a waiver of all or a portion of the Medicare or Medicaid program copayment or

deductible, that is, the portion of the bill that the beneficiary owes. Routine waivers

of Medicare or Medicaid cost-sharing amounts are problematic under the fraud and

abuse laws because they may be used impermissibly to induce Federal health care

program business. For example, many fraud schemes use the promise of ‘‘free’’ or

‘‘no out-of-pocket cost’’ medical items or services to attract Medicare or Medicaid

beneficiaries.

However, the law also clearly permits health care providers to waive Medicare

and Medicaid cost-sharing amounts for financially needy beneficiaries. OIG has a

long-standing and well-publicized position supporting such financial hardship waivers. For example, the ability to forgive Medicare cost-sharing amounts in consideration of a patient’s financial hardship is discussed in a 1992 OIG special fraud alert

on the waiver of copayments and deductibles. The alert is available on our web site,

along with other guidance on this subject, at http://oig.hhs.gov/fraud/fraud

alerts.html.

The Civil Money Penalty Prohibiting Beneficiary Inducements

While the Federal anti-kickback statute may be implicated in some cases, the primary legal authority in the area of waivers of Medicare and Medicaid cost-sharing

amounts is the CMP prohibiting inducements to beneficiaries. Enacted as part of

HIPAA in 1996, the CMP prohibits offering a beneficiary anything of value, including waivers of cost-sharing amounts, that is likely to influence the beneficiary’s selection of a provider, practitioner, or supplier of Medicare or Medicaid payable items

or services. Beneficiary inducements are of particular concern because vulnerable

beneficiaries may be enticed to obtain services that are medically unnecessary, overpriced, or of substandard quality.

While generally banning routine cost-sharing waivers, such ‘‘insurance only’’ billing and the like, the Congress recognized that some beneficiaries might not be able

to afford their cost-sharing amounts. The statute thus includes an express exception

for waivers on the basis of financial need. The exception has three requirements:

• the waivers may not be routine;

• the waivers may not be offered as part of any advertisement or solicitation; and

• the waivers may only be made after determining in good faith that the individual

is in financial need or that reasonable collection efforts have failed.

This exception is available to hospitals and others that want to provide relief to

Medicare and Medicaid beneficiaries who cannot afford their cost-sharing amounts.

We recognize that what constitutes a good faith determination of financial need

may vary depending on individual patient circumstances. We believe that hospitals

should have flexibility to consider relevant variables. For example, hospitals may

consider:

• the local cost of living;

• a patient’s income, assets, and expenses;

• a patient’s family size; and

• the scope and extent of a patient’s medical bills.

A hospital’s financial need guidelines should be reasonable, based on objective criteria, appropriate for the hospital’s locality, and applied uniformly to all patients.

Hospitals should take reasonable measures to document the financial need determination. We are mindful that there may be situations when patients are reluctant

or unable to provide documentation of their financial status. In such cases, hospitals

may be able to use other reasonable, documented methods for determining financial

need, including, for example, patient interviews or questionnaires.

As discussed in our 1992 special fraud alert and elsewhere, it is OIG’s position

that the principles articulated in this CMP exception apply equally to financial

need-based cost-sharing waivers under the Federal anti-kickback statute. There also

is a safe harbor under the Federal anti-kickback statute that protects certain costsharing waivers for inpatient hospital services (waivers protected under this safe

harbor are also protected under the CMP). The safe harbor contains a number of

conditions designed to prevent abusive waiver practices, but does not require a determination of financial need.

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1 42 U.S.C. § 1320a-7b(b).

In sum, the fraud and abuse laws clearly allow hospitals to provide relief to Medicare and Medicaid beneficiaries who cannot afford their cost-sharing amounts.

OBTAINING OIG GUIDANCE

As evidenced by the number and range of fraud alerts, bulletins, and other guidance we have issued, OIG has a strong commitment to providing guidance to the

health care provider community. As previously noted, in February we issued specific

guidance on OIG’s fraud and abuse authorities and their application to hospital discounting practices. This guidance, titled ‘‘Hospital Discounts Offered to Patients

Who Cannot Afford to Pay Their Hospital Bills’’ (‘‘Discounts Guidance’’), is available

on our website at www.oig.hhs.gov and is attached to this testimony.

In addition to these resources, OIG’s advisory opinion process is available to hospitals or others that want to know how OIG views a particular discount arrangement. OIG advisory opinions are written legal opinions that are binding on OIG, the

Department of Health and Human Services, and the party that requests the opinion. To obtain an opinion, the requesting party must submit a written description

of its existing or proposed business arrangement. Further information about the

process, including frequently asked questions, can be found on OIG’s web site at:

http://oig.hhs.gov/fraud/advisoryopinions.html

In addition, our web site contains the Discount Guidance, the proposed regulations on the excessive charges exclusion authority, and a special advisory bulletin

discussing the CMP statute, as well as special fraud alerts and bulletins, safe harbor regulations, compliance program guidances, and advisory opinions that relate to

the issues I have discussed today.

CONCLUSION

In conclusion, I want to assure the Committee that OIG fully supports efforts to

ensure that a patient’s financial need is not a barrier to health care. Furthermore,

OIG legal authorities permit hospitals and others to offer bona fide discounts to uninsured patients and to Medicare or Medicaid beneficiaries who cannot afford their

health care bills.

Mr. Chairman and Members of the Committee, thank you for inviting OIG to testify today. I would be happy to answer any questions you may have.

ATTACHMENTS

HOSPITAL DISCOUNTS OFFERED TO PATIENTS WHO CANNOT AFFORD TO PAY THEIR

HOSPITAL BILLS

This document addresses the views of the Office of Inspector General (‘‘OIG’’) on

the following topics: (1) discounts provided by hospitals for uninsured patients who

cannot afford to pay their hospital bills and (2) reductions or waivers of Medicare

cost-sharing amounts by hospitals for patients experiencing financial hardship. For

the following reasons, the OIG believes that hospitals have the ability to provide

relief to uninsured and underinsured patients who cannot afford their hospital bills

and to Medicare beneficiaries who cannot afford their Medicare cost-sharing

amounts. The OIG fully supports hospitals’ efforts in this area.

Discounts for Uninsured Patients Who Cannot Afford to Pay Their Hospital

Bills

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.

• The Federal Anti-Kickback Statute.1 The Federal anti-kickback statute prohibits a hospital from giving or receiving anything of value in exchange for referrals of business payable by a Federal health care program, such as Medicare

or Medicaid. The Federal anti-kickback statute does not prohibit discounts to uninsured patients who are unable to pay their hospital bills. However, the discounts may not be linked in any manner to the generation of business payable

by a Federal health care program. Discounts offered to underinsured patients

potentially raise a more significant concern under the anti-kickback statute,

and hospitals should exercise care to ensure that such discounts are not tied

directly or indirectly to the furnishing of items or services payable by a Federal

health care program. As discussed below, the statute and regulations offer

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2 42 U.S.C. § 1320a-7(b)(6)(A). 3 68 Fed. Reg. 53939 (Sept. 15, 2003).

4 Hospitals still need to ensure that they comply with all relevant Medicare program rules.

5 In certain circumstances, the routine waiver of coinsurance and deductible amounts can implicate the False Claims Act, 31 U.S.C. § 3729. See Special Fraud Alert: Routine Waiver of Copayments or Deductibles Under Medicare Part B, 59 Fed. Reg. 65372, 65374 (Dec. 19, 1994),

available on the OIG webpage at: http://oig.hhs.gov/fraud/docs/alertsandbulletins/121994.html. 6 42 U.S.C. § 1320a-7a(a)(5). The statute includes several other exceptions. One exception permits the waiver of cost-sharing amounts for certain preventive care services without any remeans to reduce or waive coinsurance and deductible amounts to provide assistance to underinsured patients with reasonably verified financial need.

• Section 1128(b)(6)(A) of the Social Security Act.2 This law permits—but does

not require—the OIG to exclude from participation in the Federal health care

programs any provider or supplier that submits bills or requests for payment

to Medicare or Medicaid for amounts that are substantially more than the provider’s or supplier’s usual charges. The statute contains an exception for any

situation in which the Secretary finds ‘‘good cause’’ for the substantial difference. The statute is intended to protect the Medicare and Medicaid programs—and taxpayers—from providers and suppliers that routinely charge the

programs substantially more than their other customers.

The OIG has never excluded or attempted to exclude any provider or supplier

for offering discounts to uninsured or underinsured patients. However, to provide additional assurance to the industry, the OIG recently proposed regulations that would define key terms in the statute.3 Among other things, the proposed regulations would make clear that free or substantially reduced charges

to uninsured persons would not affect the calculation of a provider’s or supplier’s ‘‘usual’’ charges, as the term ‘‘usual charges’’ is used in the exclusion provision. The OIG is currently reviewing the public comments to the proposed regulations. Until such time as a final regulation is promulgated or the OIG indicates its intention not to promulgate a final rule, it will continue to be the OIG’s

enforcement policy that. when calculating their ‘‘usual charges’’ for purposes of

section 1128&)(6)(A), individuals and entities do not need to consider free or

substantiallv reduced charges to (i) uninsured patients or (ii) underinsured patients who are self-paying patients for the items or services furnished.

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 addition to the two laws discussed above, it has been suggested that hospitals

are reluctant to give discounts to uninsured patients because the OIG requires hospitals to engage in vigorous collection efforts against uninsured patients. This

misperception may be based on some limited OIG audits of specific hospitals’ compliance with Medicare’s bad debt rules. The bad debt rules and regulations, including the scope of required collection efforts, are established by the Centers for Medicare & Medicaid Services (‘‘CMS’’). No OIG rule or regulation requires a hospital

to engage in any particular collection practices.

Reductions or Waivers of Cost-Sharing Amounts for Medicare Beneficiaries

Experiencing Financial Hardship

The fraud and abuse laws clearly permit the waiver of all or a portion of a Medicare cost-sharing amount for a financially needy beneficiary.4 Importantly, under

the fraud and abuse laws, the ‘‘financial need’’ criterion is not limited to ‘‘indigence,’’

but can include any reasonable measures of financial hardship.

Like many private insurance plans, the Medicare program includes a cost-sharing

requirement. Cost-sharing is an important control on overutilization of items and

services. If beneficiaries are required to pay for a portion of their care, they will be

better health care consumers, selecting items or services because they are medically

needed.

The routine waiver of Medicare coinsurance and deductibles can violate the Federal anti-kickback statute (discussed above) if one purpose of the waiver is to generate business payable by a Federal health care program.5 In addition, a separate

statutory provision prohibits offering inducements—including cost-sharing waivers—

to a Medicare or Medicaid beneficiary that the offeror knows or should know are

likely to influence the beneficiary’s selection of a particular provider, practitioner,

or supplier.6 (This prohibition against inducements offered to Medicare and Medicaid beneficiaries does not apply to uninsured patients.)

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quirement to determine financial need. 42 U.S.C. § 1320a-7a(i)(6)(D); 42 C.F.R. § 1003.101; see

also 65 Fed. Reg. 24400, 24409 (April 26, 2000). 7 42 U.S.C. § 1320a-7a(i)(6)(A); Special Fraud Alert, supra note 5. 8 42 C.F.R. § 1001.952(k). 9Furthermore, 42 U.S.C. § 1320a-7a(i)(6)( B) provides that any waiver that fits in a safe harbor to the anti-kickback statute is similarly protected under the beneficiary inducements statute

(discussed above).

However, there are two important exceptions to the general prohibition against

waiving Medicare coinsurance and deductibles applicable to hospitals, one for financial hardship situations and one for inpatient hospital services.

First, providers, practitioners, and suppliers may forgive a Medicare coinsurance

or deductible amount in consideration of a particular patient’s financial hardship.

Specifically, under the fraud and abuse laws, Medicare cost-sharing amounts may

be waived so long as:

• the waiver is not offered as part of any advertisement or solicitation;

• the party offering the waiver does not routinely waive coinsurance or deductible

amounts; and

• the party waives the coinsurance and deductible amounts after determining in

good faith that the individual is in financial need reasonable collection efforts

have failed.7

The OIG recognizes that what constitutes a good faith determination of ‘‘financial

need’’ may vary depending on the individual patient’s circumstances and that hospitals should have flexibility to take into account relevant variables. These factors

may include, for example:

• the local cost of living;

• a patient’s income, assets, and expenses;

• a patient’s family size; and

• the scope and extent of a patient’s medical bills.

Hospitals should use a reasonable set of financial need guidelines that are based

on objective criteria and appropriate for the applicable locality. The guidelines

should be applied uniformly in all cases. While hospitals have flexibility in making

the determination of financial need, we do not believe it is appropriate to apply inflated income guidelines that result in waivers for beneficiaries who are not in genuine financial need. Hospitals should consider that the financial status of a patient

may change over time and should recheck a patient’s eligibility at reasonable intervals sufficient to ensure that the patient remains in financial need. For example,

a patient who obtains outpatient hospital services several times a week would not

need to be rechecked every visit. Hospitals should take reasonable measures to document their determinations of Medicare beneficiaries’ financial need. We are aware

that in some situations patients may be reluctant or unable to provide documentation of their financial status. In those cases, hospitals may be able to use other reasonable methods for determining financial need, including, for example, documented

patient interviews or questionnaires.

Second, another exception to the general prohibition against Medicare cost-sharing waivers is contained in an OIG ‘‘safe harbor’’ regulation related to inpatient hospital services.8 Compliance with a safe harbor regulation is voluntary, and failure

to comply does not necessarily mean an arrangement is illegal. However, a hospital

that complies fully with a safe harbor is assured that it will not be prosecuted under

the Federal anti-kickback statute.9

The safe harbor for waivers of coinsurance and deductibles provides that a hospital may waive coinsurance and deductible amounts for inpatient hospital services

for which Medicare pays under the prospective payment system if the hospital

meets three conditions:

• the hospital cannot claim the waived amount as bad debt or otherwise shift the

burden to the Medicare or Medicaid programs, other payers, or individuals;

• the waiver must be made without regard to the reason for admission, length of

stay, or diagnostic related group; and

• the waiver may not be part of a price reduction agreement between the hospital

and a third-party payer (other than a Medicare SELECT plan).

While the OIG is not concerned about bona fide cost-sharing waivers for beneficiaries with genuine financial need, we have a long-standing concern about providers and suppliers that use ‘‘insurance only billing’’ and similar schemes to entice

Federal health care program beneficiaries to obtain items or services that may be

medically unnecessary, overpriced, or of poor quality.

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10Section 1128D(b) of the Social Security Act; 42 C.F.R. part 1008.

OIG Advisory Opinion Process

The OIG has an advisory opinion process that is available to hospitals or others

that want assurance that they will not run afoul of the fraud and abuse laws.10 OIG

advisory opinions are written opinions that are legally binding on the OIG, the Department of Health and Human Services, and the party that requests the opinion.

To obtain an opinion, the requesting party must submit a detailed, written description of its existing or proposed business arrangement. The length of time that it

takes for the OIG to issue an opinion varies based upon a number of factors, including the complexity of the arrangement, the completeness of the submission, and how

promptly the requestor responds to requests for additional information. Further information about the process, including frequently asked questions, can be found on

the OIG webpage at http://oig.hhs.gov/fraud/advisoryopinions.html.

Conclusion

Hospitals have the ability to provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations. Nothing in the OIG rules or regulations prohibits such discounts, and the OIG fully supports the hospital industry’s

efforts to lower health care costs for those unable to afford care. While every case

must be evaluated on its own merits, it is important to note that the OIG has never

brought a case based on a hospital’s bona fide discounting of its bill for an uninsured or underinsured patient of limited means.

Guidance about the anti-kickback statute and other fraud and abuse authorities

is available on the OIG’s webpage at http://oig.hhs.gov/. This guidance includes the

Special Fraud Alert on Routine Waivers of Copayments and Deductibles under

Medicare Part B; safe harbor regulations (and the ‘‘preamble’’ discussions that include explanatory information), the compliance program guidance for hospitals, and

OIG advisory opinions.

Mr. GREENWOOD. Thank you very much. The Chair recognizes

himself for questioning.

I am going to go through a list of questions here, but before I

do, I think you were both here throughout the afternoon, and you

heard the line of questioning I started as we were running out of

time with the hospitals, and that is that it seems to me the part

of the phenomena that has driven up the charges at hospitals has

been the fact that hospitals are reimbursed for outlying cases, outlying from the DRG range, on a charges-to-cost ratio, and therefore

it seems, since the costs are fairly constant, growing at a slight

rate, that it was in the hospital’s interest to have the charge set

as high as possible to maximize the revenue. Am I correct that that

was—at least prior to 2003, that that rather relatively perverse incentive existed?

Mr. KUHN. That is correct, Mr. Chairman. There was a phenomena in the Medicare law that allowed some hospitals—and they

actually figured out this loophole—that by greatly accelerating

their charges, they could take advantage of the outlier payment.

And what was really happening is that charges could be current,

but the data on which they based cost were about 2 or 3 years old.

By increasing that spread, it triggered the outlier payment more

quickly. And, again, some hospitals figured that out, some hospital

systems—you heard Mr. Fetter speak about that—capitalized and

moved on that very aggressively. When CMS discovered that, we

moved new regulations, which were finalized last year, that include

two things. One, to tighten the time period between costs and

charges in terms of the most recent cost report so hospitals can’t

work on that spread. We also have a look-back provision, so we can

go back and really audit these folks and take dollars back should

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they be abusing that system. So, you are correct in your statement.

There was an opportunity for hospitals to accelerate charges because of some incentives in the Medicare program, but that is now

gone.

Mr. GREENWOOD. Was it the case that the higher the charge, the

higher the reimbursement, assuming constant costs, or was it simply that the higher the charge, the more cases fit into the outlier

program and were reimbursed on a basis that is unrelated to the

charge itself?

Mr. KUHN. It was more the latter. It just created a quicker, easier opportunity to trigger the outlier payment and to improve cashflow.

Mr. GREENWOOD. But it still created incentive to raise the

charges, and it seems to me that that, I suspect, was the driver for

these charges going up, at least a significant driver for the charges

to go up, and to some extent the uninsured patient just got caught

in the crossfire because hospitals had to, if they were going to, in

fact, claim that that was their charge, they had to charge it.

Mr. KUHN. That was certainly one of the triggers that was out

there. There are other things, obviously, for charge movement forward. That incentive did exist, but it does not exist anymore.

Mr. GREENWOOD. It is your contention that since 2003 that incentive has been eliminated.

Mr. KUHN. That is correct.

Mr. GREENWOOD. Do hospitals still have incentives to keep their

charges high in cases of automobile accidents, for instance, where

there may be a settlement and they get to subrogate and get a

piece of the settlement and they use charges, or is that outside of

your area of expertise?

Mr. KUHN. That is outside of my area. I am just looking at the

Medicare program. I would leave that to others to opine on that.

Mr. GREENWOOD. Is it HHS’ responsibility to make sure that the

uninsured self-pay patients are not adversely and unfairly treated

by hospital billing and collection practices?

Mr. KUHN. What our policy is, and it is really reflected by the

clarification Secretary Thompson issued in the Qs and As we provided for hospitals in February of this year, is that we really did

encourage hospitals to use whatever authority they had to take

care of the uninsured and work in that area.

Where our exact oversight applies, however, is if a hospital

wants to collect Medicare bad debt. That is really where the

indigency policy becomes critical, and that is where we come into

play. If a hospital wants to forego the bad debt in that Medicare

payment, we really don’t have oversight authority.

Mr. GREENWOOD. But suppose that an uninsured patient goes to

a hospital and gets billed for charges that are extraordinarily high,

and that patient just sucks it up and puts it on a credit card and

says, ‘‘Well, I will spend the rest of my life paying for this,’’ there

is no bad debt here. CMS has no responsibility under any statute

or regulation to protect that patient from that effect?

Mr. KUHN. You are correct, we have no authority in that area.

Mr. GREENWOOD. In a February 2004 briefing to this committee,

representatives of HHS claimed to have not known until the middle

to late part of 2003 of hospitals’ concerns with the impact of MediVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00151 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
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care rules on their treatment of the uninsured. Today, we heard

statements from Trevor Fetter of Tenet who said in 2002 that this

was something that had concerned him for years.

Could you explain why something apparently known by some or

many in the industry for years was not even on the radar of HHS

until 2003?

Mr. KUHN. That misunderstanding or that discrepancy also troubles us as well because as we prepared for this hearing, I queried

a lot of staff in terms of what was going on in 2001, 2002, even

2003, and, quite frankly, we heard from few, if any, hospitals asking questions. Likewise, we talked to our regional offices and our

fiscal intermediaries, and they too were receiving little comment.

So, it was our impression that hospitals had a pretty good understanding of our rules which have been out there for a long time in

the Provider Reimbursement Manual, and it wasn’t until recently

that some concerns became known. And what we tried to do this

year in Secretary Thompson’s response to Dick Davidson of the

American Hospital Association was to try a different format. Instead of giving them a copy of, for example, the Provider Reimbursement Manual, we decided to do it in a series of questions and

answers, and since then I think that has really clarified things. I

have heard from the American Hospital Association—I really salute them for this effort—that they have over 2,700 hospitals in the

country now that have signed a pledge that says they understand

the rules, they are going to move forward with policy——

Mr. GREENWOOD. What percentage is that of the hospitals in the

United States?

Mr. KUHN. I believe there are about 5,000 acute care hospitals

in the country, so it is well over half. So, I think that is a good

number in a very short period of time, and I commend them for

that effort.

Mr. GREENWOOD. Well, if they get to 5,000, we won’t have to legislate.

Mr. KUHN. We can all hope.

Mr. GREENWOOD. As part of Medicare cost reporting, HHS was

aware of steadily declining cost-to-charge ratios revealing in inverse steadily growing disparities between the cost to a hospital

and charges given to patients. In California, for example, these

markups rose, on average, from 174 percent in 1990 to 310 percent

in 2003. These figures depict real bills to real people with all too

real consequences. Did this slip through the cracks at HHS?

Mr. KUHN. Well, I think we have become aware of that, and obviously we were aware of it when we fixed the outlier policy last

year, as I mentioned earlier. But, again, when we set Medicare

payment policy, as you showed on your graphs earlier, Medicare

payment policy is very close to cost. We use charges in a lot of different ways. We use it for apportionment. We use it to set DRG

rates. We use it to trigger outlier payments. So, it is used importantly by us, but in terms of what we ultimately pay, that is set

by the rates when Congress gives us the updates. So, it is part of

the process, but it doesn’t really trigger that much in terms of the

overall payment scheme.

Mr. GREENWOOD. And aside from the outlier issue that we talked

about in the beginning, are you aware of any other Medicare forVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00152 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
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mulae or processes that would still create an incentive for hospitals

to have high charges?

Mr. KUHN. We are not aware of any kind of incentives or disincentives or perverse incentives that would be in the Medicare

program that would drive that.

Mr. GREENWOOD. You wrote in your response to this committee,

‘‘If a hospital wants Medicare bad debt reimbursement, it must at

the very least send non-indigent Medicare patients a bill for the

debt, and must make some reasonable effort to collect from Medicare patients as it does for non-Medicare patients.’’ Why is HHS

unwilling to be more precise about what is a reasonable collection

effort?

Mr. KUHN. We really want to leave that up to the hospitals and

what works for them. Each hospital wants to design its own bad

debt policy differently. We want to give them maximum flexibility.

What we are really looking for in our manual is genuine and reasonable efforts and good business judgment on their part.

Mr. GREENWOOD. Do you think that that creates any incentive

for them to err on the side of more aggressive collections, since

there isn’t perfect clarity?

Mr. KUHN. Well, sunshine is a good thing, and I think this hearing and some of the news reports have been a good thing to kind

of help stabilize and try to create community standards out there.

Mr. GREENWOOD. And as you have said, you have never taken

any action whatsoever against a hospital for not actively pursuing

bad debt, isn’t that what you said earlier?

Mr. KUHN. What we would do is if, indeed, a hospital did not

have consistent policy—say, they were trying to collect Medicare

bad debt and they didn’t have consistent policy on either side—in

an audit, we would go back and maybe take back some of those

Medicare payments that they claimed, but that would be the only

activity that we could take.

Mr. GREENWOOD. As part of the Medicare proscribed reasonable

and consistent collection efforts, can a hospital consider bills of

similar amounts differently, based on the circumstances of the

debtor? For example, if you had a $50,000 bill for a low-income person who doesn’t qualify for charity, and a $50,000 bill for a well

off professional, must collections proceed similarly against both individuals?

Mr. KUHN. As long as they are pursuing similar collections and

it is a part of their indigency policy and they want to collect Medicare bad debt, they need to be consistent on both sides. However,

I would just say that there are ways that they could do their policy

differently. For example, we all know if you legislate, if you set any

rule, if you draw a line at, say, 300 percent of poverty or $50,000,

but, say, the person with $50,000 is the young college student right

out of school, and he has got a pretty good job, he is making

$50,000, but he incurs a huge debt from a medical incident. A hospital could simply have a policy that says, ‘‘We have an indigence

policy,’’ but anything that falls outside of that, we are going to look

at these on a case-by-case basis. We are going to have a special

committee of the hospital that will include the CEO and other

folks, and as long as they do that consistently for Medicare and

non-Medicare patients, we are fine.

146

Mr. GREENWOOD. Do all determinations of indigency for the purpose of qualifying a patient for a charity program have to be

through a means test?

Mr. KUHN. No, they don’t have to be through a means test, although we would like to see—I think what works best for us is to

see income levels, and if you mean by means test, assets test, et

cetera, we don’t require that. They could use just a straight income

test.

Mr. GREENWOOD. Hospitals have suggested that the anti-kickback law could interfere with efforts to make widely available to

patients notice of a hospital charity policy. Could posting a hospital’s charity policy on a Web site or including information about

the policy in billing mailings, for example, ever run contrary to any

HHS rules?

Mr. MORRIS. Probably the anti-kickback statute would not even

be of concern. As I noted in my testimony, discounts to the uninsured have very little relevance because they are not Medicare and

Medicaid patients, and that is not within the scope of the anti-kickback statute.

I did reference a beneficiary inducement prohibition which, in

order to meet the protections of it, one of the elements is not advertising the promotion of those routine waivers, by which we believe

Congress meant a provider should not be out there saying, ‘‘No outof-pocket for you. We don’t bill anything but insurance.’’ But the

public service announcements, things that would let the community

know that the hospital has an indigency policy? You should ask

about it. Putting flyers up so people can be informed? We don’t

think that is what Congress intended by the bar on advertising.

The concern was that people should not be encouraged to seek

medical care where they are told there is no out-of-pocket, and it

is being put on the side of buses and things.

Mr. GREENWOOD. Isn’t it true that with very limited exception

such as prompt pay discounts, for example, the only manner by

which a discount might be offered to an uninsured patient is by

means of a hospital’s charity program?

Mr. MORRIS. Well, a discount can be offered to anyone that the

hospital, based on its indigency program—and, as has been indicated, we believe there should be great flexibility provided so they

can structure those as they see fit—so a prompt pay discount, if it

is a bona fide prompt pay discount reflecting the fair market value

of not having to pursue administrative action against the money to

seek, that would be appropriate—you could construct your

indigency policy with a great deal of flexibility. It would not need

to be restricted to a prompt pay.

Mr. GREENWOOD. The problem some hospitals are having, I believe, is how broad can a charity policy be. The issue turns perhaps

on the definition of ‘‘financial need’’ and what to do about the group

who is above both Medicaid and the 200 to 400 percent of the Federal poverty line bracketing many hospital policies.

Mr. MORRIS. I think the way I would answer that is that a good

faith determination of financial need resides with the hospital, and

they can bring whatever community assessment they want to that.

Where I think the fraud and abuse laws could be implicated is

if there was a blanket waiver of all cost-paying obligation to an enVerDate 11-MAY-2000 08:57 Oct 21, 2004 Jkt 000000 PO 00000 Frm 00154 Fmt 6633 Sfmt 6602 95446.TXT HCOM1 PsN: HCOM1
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tire community—no one was expected to pay the co-pays and

deductibles—which, frankly, would seem to be a rather dangerous

business proposition, much less a——

Mr. GREENWOOD. Suppose they said anyone without insurance?

Mr. MORRIS. And they applied that across-the-board?

Mr. GREENWOOD. Is that too broad?

Mr. MORRIS. I think there would need to be an individualized determination; so a blanket statement to anyone who does not have

insurance does not have to pay co-payments would be problematic.

There would need to be an individualized determination, but the

element——

Mr. GREENWOOD. Based on things like income and assets.

Mr. MORRIS. Income, assets, number of members in the family,

size of the debt, all those would be variables that should be taken

into account.

Mr. GREENWOOD. Is there some limit? If a hospital said that our

charity applies to anyone who is above 500 percent, or 700 percent,

or 800 percent of poverty, is there some point at which CMS would

say, ‘‘Wait a minute, that is too high?’’

Mr. KUHN. I would say, ultimately, there would be a community

standard that the auditors could come and look at. For example,

under Medicare right now, the deductible is $876, so if you set the

income standard so high that you waive that deductible on a consistent basis, I think that would be a bit of a problem. One, as Lew

said earlier, as a business sense, I don’t think the hospital would

be doing that. But if you set it so high to kind of write everything

off and collect a Medicare bad debt, I think the auditors would

have to look at that one a little bit differently because, when Congress had the idea that there ought to be deductibles and co-payments, for those that have the ability to pay, I think there was an

intent that people should pay those things.

Mr. MORRIS. It is worth remembering, too, that when we talk

about Medicare co-pays and deductibles, we are therefore talking

about people who have insurance, they are covered by a program,

as distinct from those who are uninsured, for which, from a fraud

and abuse standpoint, we have no jurisdiction directly. So, if we

are talking about waivers of co-pays and deductibles for those who

have Medicare coverage, what we expect is some reasonable assessment of financial need with a great deal of flexibility.

Mr. GREENWOOD. If CMS reimburses a hospital for a bad debt

and 10 years later, or 5 years later, some period later, the debt

ends up being collected by an agency and remitted to the hospital,

does the hospital have a legal duty to report that to Medicare?

[The following was received for the record:

Yes. Medicare regulations at 42 CFR § 413.80(f) state, 11In some cases an amount

previously written off as bad debt and allocated to the program may be recovered

in a subsequent accounting period: in such cases the income from there must be

used to reduce the cost of beneficiary services for the period in which the collection

is made.’’ Unfortunately, there is no way to quantify these offset amounts. There

is a line on Worksheet E, part A of the Medicare cost report for offset adjustments,

but that is an aggregate amount and a myriad of things is combined in the total.

Mr. KUHN. In 10 years, I am not sure, but within a reasonable

amount of time. There is a part of the cost report where there is

a place to report income. I remember looking at this recently, and

I can’t tell you exactly where, but we could follow up in writing to

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make sure. But there is a way for that to be reported back and to

indicate it that was once claimed as a bad debt but then reported

back as income in the cost report.

Mr. GREENWOOD. What is the current process by which a hospital can seek an advisory opinion on matters such as this.

Mr. MORRIS. The advisory opinion process, as set forth on our

Web site, allows any provider to write in with a proposed or actual

arrangement if they would like to know whether it violates any of

our anti-fraud and abuse provisions. Generally, the process takes

a great deal of give-and-take. Sometimes the initial solicitation

isn’t clear, or in an effort to try to get an affirmative response, we

may make suggestions to improve or reshape the proposal so it will

not trigger concerns.

We have a team of attorneys who work on those. We have a substantial backlog because of the size of our staff.

Mr. GREENWOOD. Well, that gets me to the next question, which

is what are the timeframes involved?

Mr. MORRIS. It depends a lot on the complexity of the request.

The timeframes can be anywhere from the 60-day statutory obligation, provided that it is a clean request and doesn’t require any sort

of feedback. Some of our requests have been pending for over a

year. In many cases, it is because we ask additional information of

the requestor and we have not gotten information back for those,

we are still waiting for additional information.

Mr. KUHN. And if I may, Mr. Chairman, if I could just reference

that as well. This is for the OIG’s advisory opinion process. But for

hospital indigency policies, in order to go forward, they need not request an advisory opinion from CMS. In fact, we don’t give advisory

opinions. Hospitals are empowered to go out and set their own policies and move forward. And as I referenced earlier, the AHA said

that 2700 hospitals have already signed a pledge that they have already done it. There is no way we could do 2700 advisory opinions

that fast. They are empowered to do it, as they always have been.

And so earlier there was testimony where people say they were

waiting 6 months for these opinions, et cetera. That is not the case.

They are empowered to go forward, set their policies, and move forward. We are not holding them up. Go do it.

Mr. MORRIS. And if I could add one other point germane to advisory opinions in this area, we have not seen a great deal of requests for advisory opinions on the application of our statutes to

the uninsured because they don’t apply. I am aware of only one formal request, for an advisory opinion, and before we were able to

finalize our response, the request was withdrawn in light of the information that the Secretary provided earlier this year.

Mr. GREENWOOD. What is a UB92 form?

[The following was submitted for the record:]

The UB92 was developed over many years by the National Uniform Billing Committee to serve as a single simplified billing form that is used nationwide by institutional providers and payers for handling health care claims. The data elements included on the form are identified as being necessary for claims processing and meet

the requirements for preparing Medicare, Medicaid, OCHAMPUS, BCBS, and commercial insurance claims. (A copy of the UB92 form and instructions is attached for

the record.)

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Mr. KUHN. Uniform bill. UB92, and it is a bill that is used by

hospitals in order to bill insurers, Medicare, everybody else, and it

is an attempt to try to consolidate the information so there is

standardization in terms of the information that moves forward,

one, for standardization, but hopefully to help hospitals save cost

by not having to add a lot of different things for this payer or that

payer, et cetera.

Mr. GREENWOOD. Should these be available to any patient, Medicaid or otherwise—anyone who wants one, at least?

Mr. KUHN. That is a good question. In terms of transparency on

the bill, I wouldn’t see that there would be any barriers on that,

but I would like to check with staff, and if we could get back to

you on that one, that would be helpful for me, if I could.

[The following was submitted for the record:]

No. As previously stated, the UB92 is a claim form used to bill insurers for services provided to a patient they cover. Providers use many different codes on this

claim form to identify services and reimbursement for different insurers. These

codes are meaningless to the patient. Furthermore, these forms would not apply to

uninsured patients.

Mr. GREENWOOD. Okay. Seeing no other colleagues with questions—in fact, seeing no other colleagues—we thank you for your

help this afternoon. We apologize for the length of time you have

had to spend here, but it is helpful.

Without objection, the binder of documents will be added to the

record. The record will be kept open for 30 days, and the subcommittee is adjourned.

[Whereupon, at 7:40 p.m., the subcommittee was adjourned.]

[Additional material submitted for the record follows:]

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Æ