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Health Care Charges Under the Knife

As health care reform swirls around who pays and not what they pay, health insurers point fingers at medical providers for charging exorbitant prices that few know are negotiable.

If you paid sticker price on the last new car you bought, you might expect to pay about 15 percent more than you would with some negotiating.

If you paid full price on a recent knee surgery, you could pay 500 percent more than market rate. And who knew you could even negotiate?

Such is the nature of health care pricing where charges are determined by hidden costs and who's paying.

Facing the brunt of reform efforts in Congress, health insurance companies pointed a collective finger at doctors recently with a survey by America's Health Insurance Plans, an industry trade group, which detailed a series of exorbitant physician charges. The survey examined out-of-network bills where — as opposed to in-network services — contracts do not exist between the provider and insurer. Also known as full-billed charges, it's what the uninsured face every time they see a doctor.

In some cases, patients received charges 34 times what Medicare pays for the same procedure in the same location, the AHIP survey found.

For example, one doctor billed $4,500 for an office visit when Medicare would have paid just $134. Another doctor billed $14,400 for removal of a gallbladder when Medicare would have paid $656. And a hip replacement cost $40,000 when Medicare would have paid $1,558.

"In discussions about health reform you hear an awful lot about what health insurers pay for procedures and what should be the appropriate level of cost sharing for patients," said Susan Pisano, AHIP spokeswoman. "But there's been virtually no discussion of what the charges are. The question about what consumer protections there are for patients that may receive an exorbitant bill has not been part of the discussion."

Elusive pricing
Charges for in-network services result from negotiations between providers and insurers where providers agree to charge a certain amount in exchange for participating on the insurers' provider panel. Such insurers are known as preferred provider organizations. With health maintenance organizations, such as Kaiser Permanente, in-network refers to care received within the HMO.

Most health plans cover out-of-network charges at a reduced rate, typically 10 or 20 percent less than they pay for in-network care — which means the patient gets stuck with more of the bill.

Out-of-network charges typically represent less than 10 percent of overall health care bills, said Dr. Jeffrey Rice, a former health insurance president who created the Web site to help consumers determine average market rates.

"For historical reasons, providers make their billed charges really high because they expect to get paid a reduced amount," Rice said. "You could even get a lower rate than in-network if you negotiate. But you have to do it on the front end and before you get treatment, because otherwise when you get a bill you're legally obligated to pay, and they don't have an obligation to reduce it."

For emergency care, negotiating rates is out of the question. But typically only 10 to 20 percent of hospitalizations and doctor visits are emergencies, which many health plans protect against exorbitant prices.

Rice said people should know they have a choice even when their insurance company is paying the bill. "Everyone knows you don't buy a car without knowing what the Blue Book value is. Well the same should be true in health care," he said.

Even those with insurance face similar exorbitant pricing with in-network services, Rice said, when it comes to out-of-pocket expenses based on deductibles, co-pays and co-insurance.

A man recently contacted Rice about a surgery for his wife. The surgeon wanted to perform the procedure at a hospital that charged $6,000, but the couple found another facility that charged less than $1,000, and their surgeon was more than happy to accommodate.

"If you need an MRI for your knee and you're driving down the road, you might take a left turn and they'll charge you $3,000," Rice said. "If you go two blocks down the road and take a right turn, you'll find it for $500."

Uninsured affected most
For the uninsured, every trip to the doctor could result in full-billed charges, which represent inflated rates to cover the cost of collections and uncompensated care.
A Families USA study earlier this year called this the hidden health tax, and it estimated the average impact to health insurance premiums in 2008 on families at $1,017 and for individuals at $368. The figures were compiled with the help of Kenneth Thorpe, a professor at Emory University's Rollins School of Public Health.

Out of $116 billion of care delivered to the uninsured in 2008, $42.7 billion went uncompensated. The report gets at who pays the true cost for that remainder.

"There are so many distortions within our system," said Kim Bailey, Families USA senior health policy analyst. "With so many payers paying different rates, the negotiated rate is driven by a number of factors. The question becomes what does something cost. It's a very tough question to be asking within a fragmented system."

Previous research published in 2007 in the journal Health Affairs showed the "uninsured and other 'self-pay' patients for hospital services were often charged 2.5 times what most health insurers actually paid and more than three times the hospital's Medicare-allowable costs." The study by Gerard Anderson also found the "gaps between rates charged to self-pay patients and those charged to other payers are much wider than they were in the mid-1980s."

Rice agreed there's been virtually no discussion of largely arbitrary pricing in health care.

"It's very unfortunate because it's one of the crucial problems that would be easier to solve than some of the political fights we've been seeing," Rice said. "Most Americans would agree we should all pay the same for an MRI of our knee. Who would say that the people without insurance should pay the highest cost? The people without insurance get billed charges all the time."

Out-of-network fix
As reported earlier at, multiple nationwide insurers relied for a decade on skewed data from Ingenix, a company owned by UnitedHealth Group, in determining the "usual and customary" rate commercial insurers paid for out-of-network services.

The program collected in-network charges paid by commercial insurers and manipulated the average to lower what insurers paid, typically 70 to 80 percent of the average. The result left patients to pick up the remainder of the tab, amounting to hundreds of thousands of dollars in extra charges. Several insurers settled with the New York attorney general earlier this year.

This latest survey was an attempt by health insurers to punch back.

A recent Lewin Group report examined the problem of out-of-network charges in Medicaid, the program that serves low-income and disabled Americans. (Although Lewin is owned by Ingenix, the health care consultancy says it operates with editorial independence and is impartial.)

"Federal legislation has successfully addressed this problem in the Medicare Advantage program [private plans that administer Medicare] and with Medicaid emergency care," said Evelyn Murphy, the Lewin study's principal author. "Our study finds that it is important to fix this loophole for all remaining Medicaid out-of-network care as well."

Another possible solution is a buzzword policymakers throw out often: transparency.

"We need providers to make their pricing available to consumers, and we need consumers to care about how much they're getting charged," Rice said. "Just because your employer or the government pays it, you should still care because at the end of the day your premium or your taxes are going to be higher or your salary is going to be lower."

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