Patients as Consumers - Harvard Law School

MLR 106-4 Edit Format Document Hall Mich L Rev.doc
perverse and destructive, because competition spurs higher prices. 117
In short, “effectively, there [is] market failure” in pricing
uninsured hospital services. 118
Weird pricing might not matter if hospitals charged the rich more
so they could charge the poor less. 119 Hardly. All uninsured patients—
rich and poor alike—face staggering markups. When patients don’t pay,
hospitals rush their accounts to collection agencies that
belligerently exploit their legal weapons, including home foreclosures
and personal bankruptcies. 120
Perhaps this is changing. Faced with Congressional hearings and
class-action litigation, some hospitals advertise “patient-friendly”
pricing they claim is clearer, saner, and fairer. 121 Some hospitals
give uninsured patients discounts 122 in reaction to criticism of
117. See supra text accompanying notes 44–45. Thus, hospitals’ markups
of charges over costs and over insurers’ payments are much higher in urban
areas with a greater concentration of hospitals than in rural areas.
Anderson, Soak the Rich, supra note 64, at 782 ex.1. For instance, the states
with the greatest markups are California, New Jersey and Pennsylvania, and
those with the lowest are Idaho, Montana, Vermont and Wyoming. In high markup
states, hospitals’ charges average more than four times their costs, or 3.5
times their net receipts. In low markup states, charges average less than two
times costs, or less than 1.7 times gross receipts. Id. at 783 ex.2.
(Maryland is also among the group of low-markup states, but that is because
it is the only state in the country with strict regulation of hospital
charges. See Gerard F. Anderson, All-payer Rate Setting: Down But Not Out,
Health Care Financing Rev., Supp. 1991, at 35, 37 [hereinafter Anderson, Allpayer
Rate Setting].)
118. Anderson Testimony 2004, supra note 70, at 20.
119. Arguably, higher charges to uninsured patients might be fair if
richer patients paid them in full and hospitals used the surplus from very
high markups to offset losses from uninsured patients who can pay little or
nothing. Hospital administrators report that they collect only about ten
percent of their charges to uninsured patients. E-mail from Terry Rappuhn,
Project Leader, Patient Friendly Billing Project, to Mark A. Hall, Professor
of Law and Public Health, Wake Forest University (Feb. 16, 2007 11:59:00 EST)
(on file with authors); see also Joel S. Weissman et al., Bad Debt and Free
Care in Massachusetts Hospitals, 11 Health Aff. 148, 154 ex.2 (1992)
(reporting that Massachusetts hospitals in 1988 wrote off as bad debt 93% of
their charges to self-pay (uninsured) patients). This suggests that hospitals
forgive much of what uninsured patients owe, but usually only after billing
these patients in full and sending bills to collection, sometimes causing
bankruptcy.
120. See supra text accompanying note 8.
121. Andrea B. Staiti et al., Balancing Margin and Mission: Hospitals
Alter Billing and Collection Practices for Uninsured Patients, Center For
Studying Health Sys. Change Issue Brief, Oct. 2005, available at
http://www.hschange.com/CONTENT/788/788.pdf.
122. Id. A few states require these discounts in order for hospitals
to maintain their charitable, tax-exempt status. See John D. Colombo, Federal
and State Tax Exemption Policy, Medical Debt and Healthcare for the Poor, 51
St. Louis U. L.J. 1, 4 (2007); Jacoby & Warren, supra note 8, at 541–42.
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