Public Policy
The way we pay for medical care, and how much we pay, is shaped by public policy as well as market forces.

Hospital Billing

Few laws limit hospital prices, transparency lacking

Aside from California's Hospital Fair Pricing Act and similar laws in Illinois, Minnesota and New York, no state, federal or local law limits what hospitals can charge their patients. Hospitals are free to set their own prices, and each hospital does so in a complex document called the "chargemaster."

California does require hospitals to publicly disclose their prices, but a 2009 study by the Rand Corporation found that "]u]ninsured patients in California are unable to successfully obtain information about the cost of medical care at hospitals despite recent state legislation intended to improve price transparency."

California law requires each hospital must submit a copy of its chargemaster, and a list of average charges for 25 common outpatient procedures, to the state oversight agency (OSHPD), which publishes them online. You can find any California hospital's chargemaster here. 

The Chargemaster isn't easy to use, so the Sacramento Bee newspaper has created a database, drawn from state records, that shows the average cost of a hospital stay involving several common diagnoses for nearly every hospital in California.  The prices shown are not adjusted to account for the Fair Price discount, so they resemble the bill a hospital would send to an uninsured patient. 

It is well established that chargemaster prices are inflated, vary widely from hospital to hospital, and often have no relation to the actual cost of providing care.  

Insurers, whether public or private, do not pay chargemaster rates. Instead, they negotiate discount rates with each hospital. They are able to do this because they have market power: they can direct patients away from hospitals that charge too much. 

Self-pay patients, on the other hand, are usually charged the full, inflated chargemaster price for hospital care, and have no leverage to negotiate a discount. 

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California's Hospital Fair Pricing Act

In 2006, in response to years of consumer complaints about hospital overcharging of the uninsured, and advocacy by consumer groups, California enacted the Hospital Fair Pricing Act, authored by Assemblywoman Wilma Chan and sponsored by Health Access, to limit the amount hospitals can charge self-pay patients, and limit hospitals' ability to send such patients to collections. 

Hospital implementation of and compliance with the Hospital Fair Pricing Act (HFPA) remains incomplete, however.  A survey in February 2009 found widespread noncompliance with the basic public notice requirements of HFPA.  The IOU partners are working with the California Hospital Association and individual consumers to identify non-compliant hospitals and bring them into compliance.

More resources on California's Hospital Fair Pricing Act:

 Overcharging by Emergency Room Doctors

Many ER doctors, surgeons and anesthesiologists are actually independent contractors who work at the hospital but bill separately.  While the Hospital Fair Pricing Act prevents hospitals from overcharging uninsured and underinsured patients, it applies only to bills issued by the hospital itself, and not to bills issued by doctors working in the Emergency Room as contractors.   

These doctors continue to charge the uninsured up to four times what they would be paid by insurers for the same care, forcing those with the least coverage (and usually the least money) to pay the most for care. 

As the recession deepens and more people lose their health insurance, the Emergency Room becomes the only source of care for increasing numbers of Californians. 

AB 1503, a bill introduced by Assemblymember Ted Lieu (D-Torrance), would protect consumers by expanding the fair pricing rules of 2006 to emergency room doctors as well. 

Specifically, AB 1503 (Lieu) would:

  • Provide uninsured and underinsured individuals with the same consumer protections for fair pricing and collections activity by ER physicians as by hospitals;
  • Require that payment from a dedicated fund for emergency care provided to an uninsured person (known as the "Maddy Fund") be considered payment in full and no further billing or collections activity be permitted;
  • Allow that a person of low- or moderate-income (defined as 350 percent of the federal poverty level), be required to pay no more than the higher of the Medicare or Medi-Cal reimbursement rate; and,
  • Require other consumer protections, such as a prohibition of liens on primary residences, a prohibition of wage garnishment, and a requirement that patients are provided a notice of their protections under the law.

 More resources on Overcharging by Emergency Room doctors:

Charity Care

Two-thirds of the hospitals in California are non-profit, which means that they pay no property tax and no corporate income tax and get a discount on their unemployment insurance taxes, while contributions to them are tax deductible. 

In exchange for these tax benefits, the IRS requires nonprofit hospitals to be organized and operated exclusively for charitable purposes.  For many hospitals that means providing care to uninsured and underinsured patients at no cost or at a lower cost than they would normally charge.  However, the IRS gives hospitals a lot of flexibility in defining what counts as a charitable expense, and in calculating how much they spend. For example, some hospitals count bad debt as a charitable expense, while others count things like health classes and libraries. 

As a result, the amount of free and discounted care provided by non-profit hospitals varies widely and, in many cases, amounts to significantly less than the value of the tax benefits they receive. In California, one study found that nonprofit hospitals spend less than 1 percent of net patient revenue on charity care, while another study found that nonprofit hospitals in California provide significantly less charity care than nonprofit hospitals in other Western states. 

Greater public disclosure can help.  In 2001, San Francisco enacted a Charity Care Reporting Ordinance that requires hospitals to report the amount of charity care they provide, in a standard format to permit comparisons between hospitals.  The ordinance provides a clear definition of charity care as care provided "without expectation of reimbursement," requires all hospitals to calculate charity care in the same way, and lists the dollar value of all the hospitals' tax benefits next to the dollar value of charity care provided. The City's Annual Charity Care Reports are posted online here. 

A report in 2006 found that the San Francisco ordinance had helped increase the amount of charity care provided by hospitals in San Francisco, simply by shining a light on their practices.  The ordinance has also helped to:

  • Maintain strong taxpayer support for the county hospital, San Francisco General Hospital, which provides the majority of charity care in the county; and,
  • Make it possible for San Francisco to enact its innovative health access program, Healthy San Francisco, by quantifying the cost to local taxpayers of health care provided to uninsured employees of local businesses that did not provide health coverage.   

At the national level, in 2006-2007, Senator Charles Grassley (R-IA) and the U.S. Senate Finance Committee investigated non-profit hospitals' provision of charity care to determine whether they are providing uncompensated care commensurate with the value of their tax exemptions.

After months of investigation, the Senate Finance Committee released a discussion draft prepared by Senator Grassley's staff, proposing that all tax-exempt hospitals be required to provide a minimum of 5% of revenues in free care.  Consumers Union and other IOU partners commented on this draft in September of 2007.  This issue has been eclipsed, for the time being, by Congressional consideration of broader health care reform.

However, partly as a result of Senator Grassley's hearings, the IRS in 2008 began to require nonprofit hospitals to report quantifiable data on the amount of charity care and other community benefits that they provide. 

In California, ACORN and other IOU partners in 2009 asked the State Board of Equalization, which oversees state taxation, to require nonprofit hospitals to spend at least 5% of patient revenues on charity care in exchange for state tax-exempt status.  The BoE agreed in April 2009 to collect data on charity care spending by nonprofit hospitals, and to revisit the issue of a minimum standard for charity care later once that data has been collected and analyzed. 

In the meantime, ACORN is surveying people in San Diego, Los Angeles and San Jose to document stories of people having trouble paying bills from non-profit hospitals that refused to give them free or discounted care.  To share your hospital debt story with ACORN, contact Christina Livingston at cafielddirector@acorn.org or 213-747-4211.

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Balance Billing

Insured patients are increasingly being billed by doctors when the patient's insurer refuses to pay as much as the doctor wants. This practice is known as "balance billing," and unfairly puts the consumer in the middle of a billing dispute between the health insurer and the doctor.  Patients who do not pay these bills are often aggressively pursued or sent to collections.

In October 2008, the Department of Managed Health Care established rules to restrict balance billing for emergency services.  These rules protect consumers with coverage through HMOs, Blue Cross PPOs and Blue Shield PPOs against billing disputes between out-of-network emergency doctors and their insurance companies.

Consumers with coverage through PPOs sold by companies other than Blue Cross and Blue Shield, or other kinds of health benefits such as high-deductible plans and limited benefit plans, are not protected by the DMHC rules. 

In January 2009, the California Supreme Court unanimously upheld the DMHC rules and outlawed balance billing for HMO patients receiving Emergency Room care.  In the decision, Justice Ming Chin wrote, "Billing disputes over emergency medical care must be resolved solely between emergency room doctors, who are entitled to a reasonable payment for their services, and the HMO, which is obligated to make that payment."

Health Access and other IOU partners support the 2008 DMHC rules and new efforts to further prohibit this practice for consumers not covered by the California Supreme Court ruling.

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