Hospital Collections Are Ugly but Not the Real Problem

Source: The Virginia Mercury

I have big issues with the way hospitals conduct business in Virginia, especially the highly profitable nonprofit hospitals, as I have repeatedly made clear on this blog. But there’s one thing I don’t have a problem with — the fact that they try to collect their bills. Some observers find that practice problematic. Witness the recent story published in the Virginia Mercury, which kicks off this way:

Annie Washington is 60 years old, has diabetes and no insurance. If she needs to see a doctor, she winds up in the emergency room. But while hospitals can’t turn indigent patients away, they can still bill them. And when patients can’t afford those bills, collection lawsuits often follow.

“I work at McDonald’s,” the Henrico County resident said after a recent hearing over an $860 lawsuit filed by the doctors group that staffs VCU Medical Center. “There’s no insurance there.”

Virginia medical providers filed more than 400,000 lawsuits over the past five years, netting more than $587 million in legal judgments against their patients, an analysis of state court records by the Virginia Mercury has found. The review relied on data collected by virginiacourtdata.org, which aggregates online state court records.

Virginia Mercury deserves credit for plumbing a data source which heretofore has gone unreported upon. I appreciate the reporters’ enterprise. But I take issue with the implication that there is something disreputable about making an effort to collect unpaid bills. The capitalist system is based upon the premise people pay for the things they buy. The underlying problem with Virginia’s health care system is not that hospitals ask people to pay their bills but the insane way — insane, as in utterly disconnected from reality — that they calculate the bills in the first place.

Hospital charges, which are deeply discounted for Medicare, Medicaid and private insurers but not for individuals, are obscenely and unconscionably high. Many people, perhaps most people, are unable to pay the charges. But what are hospitals supposed to do? Not bill people without insurance? Or, if they don’t pay, make no effort to collect? If it is widely known that there are no repercussions for failure to pay, what incentive is there for anyone to pay?

Hospitals routinely provide charity care and write off unpaid bills. But how are they supposed to know who has the capacity to pay and who doesn’t unless they try to collect?

Sentara Health System, according to Virginia Mercury, uses predictive data analytics like credit scores to surmise who might be able to may and who might not. Bon Secours has adopted a policy of forgiving the debt of anyone whose income is 200% of the federal poverty level. That’s all very admirable, but there’s always a cut-off at which the people just below the line (whether credit score or income) get off free and people just above the line get stuck. A precept of the welfare state is that no matter where you set the line, there is always someone who draws the wrong side of it and there’s always someone deserving of compassion. Because there is always a victim, there is always a reason to draw a new, more forgiving line. That is not a sustainable model for a health care system.

If we want to address root causes, we must address the skyrocketing price of healthcare — both the cost of providing the care, caused by the cartelization of the industry, and the setting of insanely high nominal prices, the sole purpose of which is to establish a starting position for negotiating with insurance companies.

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9 responses to “Hospital Collections Are Ugly but Not the Real Problem

  1. We should be clear though. Doctors are not required to treat you. Labs are not required to do lab work for you and pharmacies are not required to give you drugs for free. None of them are required to render service and many require you to pay upfront before they will. So what explains their “skyrocketing” prices if they’re not forced to serve non-payers?

    Make no mistake: ” A study done by Harvard University revealed that the leading cause to bankruptcy is due to medical expenses. These expenses account or a whopping 62 percent of all reported bankruptcies. The study also showed that 72 percent of the people who filed due to medical expenses had some sort of health insurance.”

    So what happens to folks who can’t afford doctors, labs and drugs and go without? Well once they deteriorate to the point of life-threatening problems – they show up at the ER – very sick and needing very expensive care to try to save them. Hospitals are not forced to treat you – either – unless you have a serious medical problem – they do not render care for things like diabetes….but they’ll end up seeing you after the untreated diabetes has ravaged your cardiovascular system or your destroyed your organs or your feet need amputation.

    From that point on – other people are paying for your care – not the hospital… who basically cost-shifts the losses and hospitals who operate in demographically prosperous areas – and are good at collection can end up not going broke like hospitals serving demographically poor communities.

    We won’t begin to fix any of this as long as we target some hospitals that operate in demographically more prosperous communities.

    Talk about focusing on one part of an elephant!!!

  2. I would have a little more sympathy except for $90K and above paper pushers who do nothing but put $$$ in lobbyists.

  3. I just think when we target what we don’t like and use it as a reason to harm or undermine an institution that we depend on – it’s the wrong way.

    We have millions of people who do not get adequate health care ..and we have more and more hospitals that are actually going broke and closing – yes the naysayers don’t have any answers for those issues but instead focus on the segment that is too financially healthy and use that to essentially tear down the whole institution… by forcing even more hospitals to go under.

    Hospitals are not responsible for the cost problems. Hospitals, in general, are put into untenable financial circumstances by having to provide service to people who can’t or won’t pay and they have to recover those losses somehow or they will go broke -you can’t pay doctors and nurses with IOUs.

    SOME hospitals that exist in higher income communities – come out better and don’t have more expenses than revenues…other hospitals in poorer communities don’t fare so well.. That’s a problem but tearing down the ones that make money is not going to fix the problem -only harm more hospitals while not doing anything about the ones that ARE going broke.

    That’s not how we fix our problems… that’s how we make everything worse.
    It’s not a problem-solving approach…it’s a destructive approach without any constructive alternatives.

    Sorry – I’m just seeing way too much of the “burn it all down” mentality these days.

  4. Here’s an idea: limit the amount of the judgment available to the provider to the provider’s lowest negotiated rate for the service. I really hate the idea that some person is hit with a crippling debt in the amount of the list price, the $500 Labcorp puts on its invoice for a test as opposed to the $28.50 it accepts from Anthem or Medicare. Like other recent discussions, a big part of the problem is the ridiculous way these prices are set.

  5. “Hospitals are not responsible for the cost problems.”

    Larry, the U.S. healthcare system is inefficient at every level. It almost has to be to get to close to 1/5th of GDP directed to healthcare, much more than any other country. According to OECD data, U.S. healthcare expenditure is higher than any comparable country for every category of care. This includes Hospitals, nursing homes, ambulatory care, pharmaceutical and medical goods, and public health and administration. No data supports your conclusion. Every category should be examined.

  6. Izzo says – Larry, the U.S. healthcare system is inefficient at every level.

    Izz0 – I don’t mean to be unfairly burden your time, but respect your opinion, so venture to ask a few questions, if they can be answered within a few relatively few words, namely:

    Why do you think the US healthcare system is inefficient at every level? How long has it been that way? And has it gotten far worse?

    Can you name any major institution and/or institution in the United States, roughly but similarly situated, that is efficient?

    If so, how has it managed to be different from US Healthcare.

    My sense is that in far too many cases, our technology explosion, ironically, causes these institutions be become “highly inefficient,” luring them to pursue agendas that are divorced from their original and legitimate mission.

    For, example, the reporting of news in this country,.

  7. Reed, these are tough questions and I’m not an expert in healthcare like Tom is in energy (or Larry on every subject ;)), but I’ll give it a shot:

    Why do you think the US healthcare system is inefficient at every level?

    The data indicates inefficiency at every level. Overall, the U.S. spent 17.2% of GDP on healthcare in 2017 vs an OECD average of 8.9%. The U.S. spent nearly $10K per capita (at PPP) vs $4K for the OECD average. If you compare the U.S. to the average of Canada, France, and Germany, the U.S. spends 1.9X as much on hospitals and nursing Homes, 1.9X as much on ambulatory care, 1.5X as much on pharmaceuticals, and 2.6X as much on public health and administration. (I’d note that government spending on healthcare per capita in the U.S. actually exceeds government spending in these three countries.)

    As for the “why” I don’t want to focus on the model question (single payer, national insurance, out-of-pocket, etc.) or the right vs entitlement question because I don’t think it will be fruitful. I think a more efficient and effective system could be achieved with any model, but it would have to overcome three macro issues, which may all be related:

    1) Political polarization. The parties are at odds and do not work together toward a solution as some of the other high spending countries did in the early 1970s. There are a number of factors for this, but I’ll point to Gerrymandering, which creates bright red and vivid blue districts and not enough purple districts, and special interest money, which exacerbates the divide. There is a long history of one side undermining the other’s efforts. President Nixon’s proposed reforms of 1971 and 1974 were more progressive than Obamacare, but it was undone by opposition from Democrats like Ted Kennedy who wanted a single payer system. The Republicans are currently trying to dismantle Obamacare rather than trying to fix the elements that were not working. They don’t seem to have an alternative.
    2) Market distortions from vested interests. If you look at the top lobbying spenders from 1998-2018, the American Medical Association (AMA), American Hospital Association, and the Pharmaceutical Research and Manufacturing Association of America are in the top 6. I think they are getting a good deal on what they pay for. The AMA, for example, has long controlled licensure and standards of care in the U.S. (They of course have a vested interest in keeping their pay high by controlling competition and alternatives.) As a result, the U.S. has by far the highest paid doctors in the world, a shortage of doctors in many areas (the U.S. has only 75% as many doctors per capita compared to the OECD average), particularly rural general practitioners, and significant controls on less-expensive alternatives like nurse practitioners, who may be able to do 70% of the tasks done by doctors with no increase in risk. All of these associations effectively oppose reforms they don’t like.
    3) Fragmentation. The U.S. system has elements of single payer, out-of-pocket, national insurance, and private insurance models. Practitioners spend lots of time on paperwork but there is still comparatively little coordination between providers (for prescriptions, between generalists and specialists), no one understands billing and pricing, and incentives don’t align. This is probably exacerbated by numbers 1 and 2 above.

    How long has it been that way? And has it gotten far worse?

    The U.S. healthcare system has been comparatively costly and inefficient for a long time, but has gotten worse. In 1970, the U.S. spent 1.8X as much per capita on healthcare as the OECD countries and in 2017 it was 2.5X. Of note, though, Switzerland, Denmark, Sweden, Canada, and Germany were higher or close to the level of U.S. spending at that time and they have gotten costs under control in a relative sense since then.

    To your point about technology driving costs, it may well be true because the OECD average spend has gone from 4.6% of GDP in 1970 to 8.9% in 2017. So healthcare costs are growing everywhere, but the U.S. is unfortunately the extreme case.

    Can you name any major institution and/or institution in the United States, roughly but similarly situated, that is efficient? If so, how has it managed to be different from US Healthcare.

    I have heard Kaiser Permanente has attracted the attention of the British NHS for its efficiencies and outcome-based practices. Specifically, it appears they have much more integrated care (co-located services, integrated IT, integrated primary and specialist teams) that contrasts with the fragmented nature of care in most of the U.S. system.

  8. Izz0 –

    Too many people today use numbers and statistics to:

    1/ say nothing of consequence, and/or,

    2/ obscure an otherwise obvious fact(s), turning it into a needle in a useless haystack, and/or

    3/ they use numbers to twist the truth out of shape, or into an outright lie(s).

    You, on the other hand, have a knack of using numbers to illuminate larger and smaller truths, making powerful statements otherwise hidden. That is a precious commodity in today’s world!

    As for those many who, unlike you, follow their darker angels, recall for example:

    the endless and loud argument that paperless medical records digitized would lessen the cost, and greatly increase, the efficiency of, healthcare. There was a logical rational behind that argument.

    But what happened?

    Well, what happened is that it turns out that the world is not prefect. And that human beings are not angels, but instead typically look out for their own selfish interests at the expense of others, even those who are their patients and/or insureds and/or students, those whose interests they are morally and/or contractually, bound to serve. But who they screw nevertheless.

    Hence, while technology often is a wonderfully good thing for some patients, especially for the rich, the very vigilant, the highly skilled, and smart, technology can be, and is often used, by immoral service providers within today’s massive medical establishment to screw the living hell out of patients four ways to Sunday. (Add to that students, clients, welfare recipients, taxpayers, voters, constituents, whatever group or individual you like. as mentioned below briefly.)

    So for example”

    So, far too often, digitized health records are a powerful tool used to overcharge patients, providing costly but useless and often harmful tests in order to maximize profits for the few in control, at the expense of the many.

    Of course this massive malpractice is not limited to healthcare. It infects all of our institutions today – architecture, law practice, higher education, big infrastructure contracting, politics, military procurement, government, research, social media, journalism, identity social engineering, you name it.

    Technology is a great tool for massive benefit and concurrently, for massive fraud, thief, and totalitarian control the others, putting the levers of power, into the hands of few at the expense of the many. And, ironically, for liberation, too.

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