As numerous news outlets have reported over the past month (including The New York Times, NPR, and Consumer Reports), it has become all too common for an individual to visit an emergency room, have surgery, or be admitted to a hospital, only to be stunned months later when a bill arrives for thousands, tens of thousands, or even hundreds of thousands of dollars. A study published in The American Journal of Managed Care (the AJMC Report) last year found that the charged amount is typically “neither approved nor seen by patients in advance,” leaving many individuals unexpectedly saddled with large amounts of debt. Even for uninsured and out-of-network individuals who expected to be billed (self-pay patients), the amount of the charge can leave them shell-shocked.
This experience can be particularly appalling to individuals who have health insurance and expect it to cover the costs of their healthcare. However, health insurance may not protect against “surprise bills,” such as those sent by out-of-network providers that performed services at an in-network facility, or “balance bills,” those demanding the difference between the amount charged and the amount an insurance company has agreed to pay. As a result, insured individuals may be left on the hook.
The mechanism for overcharging individuals is the product of two interrelated constructs of the healthcare industry: “chargemaster rates” and a complex coding scheme. Chargemaster rates are the exaggerated amounts listed on a provider’s master price list for each healthcare service and/or product offered. Providers typically shroud their chargemaster rates in secrecy, treating them “as trade secrets vital to their business,” making the reasonableness of those rates highly open to question. Indeed, the AJMC Report found that chargemaster rates have no relation to actual costs or market prices, but are inflated to give providers leverage when negotiating billing rates with insurance companies, and are tactically used to secure higher payments from Medicare. Unsurprisingly, “most people never pay those prices.”
Coupled with the abhorrent nature of chargemaster rates, healthcare bills are generated using a complex coding system, which can be manipulated through “upcoding” an individual’s treatment profile to increase the amount charged for the healthcare services. According to an article published in Forbes last fall, “what doctors get paid increasingly reflects more on their ‘coding’ skills than clinical ability.” For insured individuals, upcoding may go unnoticed because their insurance company is capable of analyzing claims and denying any that appear to be overreaching. In contrast, most self-pay patients lack this area of expertise, and therefore end up at the mercy of a sophisticated and secretive system, with little or no means to fight it.
Fortunately, courts and state legislatures have stepped up to the plate in an attempt to protect individuals from the runaway price of healthcare.
Some courts have found that healthcare providers are only entitled to the reasonable value of their services, not their chargemaster rates. For example, in Nassau Anesthesia Associates PC v. Chin, a New York State trial court found that a hospital’s list of chargemaster rates cannot be considered reasonable “unless it reflects ‘what is actually being charged in the marketplace.’” If it does not, the hospital is entitled to only “the average amount that it would have accepted as full payment from third-party payors such as private insurers and federal health care programs.” In Moran v. Prime Healthcare Management, Inc., a California appellate court found that chargemaster rates are substantively unconscionable because they “far exceed the actual cost of care and provide for a large profit margin.” And in Temple University Hospital v. Healthcare Management Alternatives, Inc., a Pennsylvania trial court determined that a provider’s chargemaster rates were unreasonable where the provider conceded that 94% of the time, it received 80% or less of its chargemaster rate.
Furthermore, as discussed in the AJMC Report, certain state legislatures, including Massachusetts, Maryland, Colorado, and New York, have passed a variety of legislation aimed at protecting healthcare consumers, including: (1) increasing access to price and coverage transparency prior to the performance of services; (2) prohibiting healthcare providers from balance billing individuals; (3) “hold harmless” policies that require insurance companies to cover surprise bills sent to the individuals they insure; and (4) banning surprise billing in emergency situations while also setting up a dispute resolution mechanism for any costs individuals may be personally responsible for.
Regardless of form, it is clear that individuals require protection from skyrocketing and seemingly out-of-control healthcare bills. Initial steps are being made to expand consumer protections and relieve individuals from the overwhelming burden of healthcare-related debt. As such, if you receive an outrageous healthcare bill, be sure to fully investigate your options.