Why Hospitals Overcharge the Uninsured

By Kari Lydersen
July 23, 2003

Editor's Note:  Did you ever suspect that after you fork over $1,000 for your "20% co-pay" share of the hospital tab, the insurance company doesn't really have to come up with $4,000 to pay the remainder?  Well, you were right.  This piece reveals one of the many dirty little secrets of the hospital and insurance industries. Another little secret that most people don't ever think through is that with the intricate web of inter-ownership, the hospitals,  the pharmaceuticals interests and the insurance companies are owned largely by the same bunch of rich guys.  If you'll think through this,  you'll understand that when the insurance company weeps bitter tears about the high medical and drug costs it must bear, it isn't telling you that it pays for these items at a fraction of the stated price, nor is it telling you that "paying" really means taking money from one pocket and putting it into the other. --Hardly Waite, Pure Water Gazette.

Rose Shaffer is a homecare nurse and grandmother of seven who lives on Chicago's south side. Though she spends all day caring for the health of others, her job doesn't provide her with health insurance.

Advocate is one of the largest chains of hospitals in Illinois, with 10 hospitals in the Cook County area and profits of $108 million in 2001.

But Shaffer -- and millions like her around the country -- are actually subsidizing Advocate and other major hospitals, according to a report recently released by the Service Employees International Union (SEIU). That's because the approximately 41.2 million Americans who don't have health insurance today not only have to pay astronomically high healthcare bills out of their own pockets, but they actually pay around 50 to 70 percent more than insurance companies do for health coverage.

When an insurance carrier foots a hospital bill, the company "negotiates" a price with the hospital that is usually about half the original billing price. Yet when an individual without insurance is forced to pay for healthcare, they don't have this bargaining power. So they end up paying the "full" rates, making up the slack for the deals the insurance companies have gotten (as well as the uninsured individuals who never pay their bills).

"If you look at it from the insurance company's perspective, they are a big group who can make a deal with the hospital," said Marianne McMullen, communications director of the Service Employees International Union (SEIU) Hospital Accountability Project, a relatively new initiative aimed at linking workers' and patients' rights. "But from the perspective of the uninsured, it's really gross. The hospitals are making their biggest profit off them."

The full rates uninsured people end up paying are usually vastly inflated from the actual cost of providing service. For the past 20 years healthcare bills have risen at twice the inflation rate. In 1993 the U.S. General Accounting Office reported that 99 percent of hospital bills have overcharges, which can include "phantom charges" for services that weren't actually given, markups, duplicate billings and charges for unnecessarily long hospital stays or unneeded services.

Hospital administrators argue that many uninsured individuals never pay their bills, so hospitals have to keep costs high to avoid losing money. But that doesn't make it any easier for those who do pay. And most hospitals don't just write off the unpaid bills. It is common practice for hospitals to sue patients for tens of thousands of dollars, money they often just don't have. After Shaffer had a major heart attack in October 2000, she couldn't pay the bills. She noted that even though she told her doctors she didn't have insurance, she was never given available financial aid forms to fill out for her treatment.

So Advocate South Suburban Hospital where she was treated sued her for the amount of her bill -- $17,760. Never mind that if Shaffer had had health insurance, the company would only have been billed about $8,500. Shaffer said she could have handled the $8,500. But coming up with over $17,000 was impossible. So she put her house in foreclosure and declared bankruptcy. Meanwhile the stress this has caused isn't helping her health any.

"I'm grateful to the hospital for the care I received -- they saved my life," Shaffer said. "But now they are trying to take it away from me again."

A study by the SEIU project found that at Advocate hospitals in Cook County, Illinois, uninsured residents like Shaffer were charged an average 139 percent more than the charge insurance companies ended up paying for the same services. That equals out to $13,854 compared to $5,805 on average for inpatient services -- funds an average uninsured person can hardly spare. This amounted to a total gap of $58 million between charges for the insured and uninsured at Advocate hospitals in 2001, the SEIU said.

McMullen said that while virtually all hospitals overcharge the uninsured, Advocate is the current target of the overpricing campaign because they have the area's highest average charges for uninsured people and also because they are a non-profit, religiously affiliated chain which is supposed to have the mission of helping the needy. Advocate is affiliated with the Illinois Conference of the United Church of Christ and the Evangelical Lutheran Church of America. In 2001, the SEIU report says, Advocate made an $8,460 profit on the uninsured patients who paid their full bills.

"This just incredibly wrong," said Toure Muhammad, communications director for the SEIU. "Advocate is a religiously sponsored non-profit institution that is getting tax breaks that the community pays for."

Advocate spokesman Ed Domansky said that Advocate's billing practices are mandated by federal law, as are the billing structures of all hospitals. He thinks the SEIU is singling out Advocate since they are trying to unionize the hospitals, in what has turned into an extremely contentious campaign.

"They're exploiting the uninsured with this study and they're singling out Advocate because they want to unionize," he said. "It's pretty clear what this is about. It's just another tactic they're using to mislead the public." He added that Advocate has "one of the most generous charity care programs in the country."

The SEIU alleges that overcharging also allows non-profit hospitals like Advocate to inflate the amount of charity care they provide -- Advocate claimed to provide $32.7 million in charity care in 2001, but the SEIU pegged the true cost of the care at only $12.7 million.

Members of the SEIU project hope that by drawing attention to Advocate's practices, hospitals around the country will be forced to change their ways. Already, McMullen noted, two national for-profit hospital chains -- Columbia HCA and Tenet -- have promised to stop charging more to uninsured patients. In response, Domansky said, "Whatever the SEIU has pressured Columbia HCA and Tenet into doing, they will find that the federal government doesn't allow them to use that pricing structure because it hasn't yet been improved."

Meanwhile between the tough job market and the rising costs of coverage for employers, the number of uninsured in the country is likely to keep rising. While the ranks of the uninsured include the unemployed and homeless, the majority of uninsured people are employed, working everything from service industry and blue collar jobs to professional jobs with temporary agencies, small businesses or non-profit organizations. Minorities are also more likely to lack health insurance, as are immigrants. For example in Illinois 28.9 percent of Latinos and 22.8 percent of African-Americans are uninsured, compared to 11 percent of whites.

In June the Hospital Accountability Project held a widely attended Town Hall meeting in Chicago on the topic of overcharging, and they have staged numerous protests outside Advocate hospitals as well as advocating on the behalf of individual patients.

They hope a victory in ending or reducing the overcharging of uninsured people will aid both low income people in general and health care workers themselves -- workers who ironically are themselves often uninsured or underinsured. The Hospital Accountability Project also plans to undertake other campaigns linking the rights of workers and patients, noting that healthcare workers' rights are inextricably linked to patient safety and vice versa.

Already the SEIU is on the verge of winning passage of Illinois state legislation that requires hospitals to make public their staffing levels, infection rates and other crucial data, which can both help people choose what hospital to go to based on these indicators of quality of care, and help unions fight against understaffing and other workplace issues. Legislation that is similar, though not as comprehensive, already exists in Wisconsin and California and is in the works in other states.

"We're working on behalf of the patients, workers and the community in which [the hospitals] operate," said McMullen. "Unions usually just work on the behalf of employees, but here we're working on behalf of the whole community. It's part of the new direction unions have to go in."