NORA JOHNSON: First of all, the billing and reimbursement system for hospitals is based on medical coding—and that’s one reason why it’s so complicated. Without understanding the codes or without an ability to apply the laws of government billing systems, the average person will never be able to understand a hospital bill.

If you go one step further than the vast majority of people and actually request an itemized bill, that bill will give line-item charges, supposedly for every cost you incurred while you were in the hospital. But the deal is that our system works one way for Medicare, and another for everybody else.

Medicare says, “This is what we will pay the hospital for this procedure”—taking into account things like where the hospital is located and that hospital’s costs. And then they pay this hospital a rate tailored specifically to cover all its costs, plus they give them, on average, a one-percent profit over cost. Medicare may say, “If you want to note all of the supplies you had to use, you can do that—but we’re not paying you for that.”

But when it’s not Medicare being billed, totally different rules apply or buyer-beware rules apply. For instance, let’s say that you’re paying $60 per minute for an operating room. Now the hospital will bill, in addition to that, what we call routine services, supplies, and equipment. “Routine” means that every time that procedure is done, you need to use the same supplies and equipment. It’s not billable because it’s part of the hospital’s cost of doing business, and routine supplies and equipment are already factored into the operating room per-minute charge. But in fact, that’s exactly what they do—they bill all of those items and equipment as well, and that constitutes duplicate charging. And it’s become standard in the industry.

If a hospital says that they don’t charge me any more than they charge Medicare, that’s true. The difference is what you or I have to pay. And that difference is significant!

LII: Can you give me an example?

NJ: Certainly, and this is a real case. A woman was in the hospital for 19 days with a broken femur. Medicare would have paid that hospital $18,453 for that lady’s nineteen-day stay. And that number would cover all of that hospital’s costs in caring for her for 19 days, plus a small profit over cost.

Now let’s say that this woman had Blue Cross. Blue Cross would have a per-diem arrangement with the hospital; the per-diem is a daily charge. Our patient would be in a surgical bed, so the insurer would pick up a daily charge for someone occupying a surgical bed. And Blue Cross, paying this same bill on a per-diem arrangement, would pay roughly between $25,000 and $34,000. Now you’re looking at a nice little profit, since $18,453 more than covered the hospital’s costs.

Okay—but that’s only the beginning.

Suppose that our patient does not have health insurance (and, in reality, she did not). She would receive—and did receive—total-bill charges from that hospital of $201,831! Hearken back to the $18,453 that covered all their costs… so what kind of profit are they making on the backs of uninsured patients?

LII: Hundreds of percent, apparently.

But if Medicare is at one end of the spectrum and Blue Cross is pretty close to that… and at the other end you’ve got the uninsured patient with the $200,000 bill… where do other health insurers fall?

NJ: There’s a commonly-used arrangement called Discounted Fee for Service. It’s simply a discount—on that total-bill charge of $201,831—that can range anywhere from 20% to 80%, depending on how large and powerful the insurance company is. And the fees that they would reimburse, for that same bill, would range from $40,000 to $141,000. Then there are insurance companies that will access what we call network discounts. Let’s say that an insurance company has an insured that used an out-of-network facility and that the company did not have a contract with that hospital. So the insurer will access a discount from total-bill charges through a network discounting company. They typically give a discount to an insurance company that they get from a hospital of from five percent to a high of twenty percent, and charge a fee to the insurance company to access this discount. Going back to the bill we are discussing, that would mean that the insurance company would be paying $171,000 to $191,000 for the procedure. So, insurance companies and third-party administrators who access discounts from these networks are being ripped off as well… and they know it.

LII: All right, I understand the numbers. What I’m not sure I understand is how the charges go from $18,000 to $200,000 for the same bill.

NJ: That’s a good question. And we could start with the billing of non-billable items I talked about earlier, where the hospital is charging the customer for things that are part of its normal cost of doing business. And that’s in direct violation of federal billing guidelines. Then there’s duplicate charging, which violates federal law and state consumer law. Let’s expand on that a little further.

One way hospitals can do this is to bill for equipment. Well, in fact, Medicare says that if you depreciate your equipment—if it’s the same equipment used on multiple patients for multiple procedures—you may not bill for it. But they’re billing that patient as if the patient bought that piece of equipment, even though any use of that equipment is already covered under, say, the per-minute charge for the O.R.

Another method of duplicate billing is what is called “unbundling.” Say that I get my tonsils out. I get a bill from the doctor and he’s got a code for “Removal of Tonsils”—and charges, say, $3000. But, since he also removed my adenoids, there’s a code for “Removal of Adenoids”—another $3000. So I should be billed $6000, right? Wrong, because there is yet another code for “Removal of Tonsils and Adenoids”—and that’s, say, $4000, and when the procedures are done together (which is very common), that’s the code that should be used. But they don’t report that one, they report the other two to deliberately increase their income.

How do we get from $18,000 to $200,000? How about this? One thing this particular hospital did was, they billed for disposable non-sterile latex gloves—the same kind you can buy in boxes of a hundred for maybe a couple of bucks. Well, on Sally’s itemized bill (and not detectable on the UB-92 bill that insurance companies pay from) the hospital is billing her $53 per pair. That’s almost $6000 worth of disposable latex!

So, insurance companies and third-party administrators who access network discounts from total billed charges are also paying $53 per pair of latex disposable gloves—less 15%—and using up the insured’s lifetime maximum in the process. No wonder premiums are out of sight.

LII: You’re kidding.

NJ: And that’s not all. Another thing this hospital did that I throught was egregious was that they charged for pill cups. Those little white paper or clear plastic cups that they give you with medicines? That’s what we’re talking about here. Ten dollars. And they’d bill her for ten of them a day.

I hate to say it, but this has become standard operating procedure. Just today I was looking over a bill from a famous cancer-treatment center. And guess what? There’s a $160 charge for a 50-ml bag of I.V. solution that cost them approximately ten cents. And it’s not just one bag—the bill is just littered with them, hundreds of dollars’ worth of these bags.

Recently I nailed another hospital for billing for nursing services. Medicare says that you cannot bill for nursing services; nurses’ salaries are incorporated into the room or unit charge. A nurse cannot bill Medicare, right? Yet at this hospital they’re billing their room charge per day, and then they’re billing another couple of thousand a day for nursing services!

LII: So the hospitals are billing these things in clear violation of the law. You’d think that the insurance companies wouldn’t let them get away with it, since it’s money coming out of their pockets…

NJ: Here’s where it gets really interesting.

Even though the insurance company pays all this stuff, they’re as culpable, if not more so, than the hospitals. They’re in this thing together.

People like pointing the finger at malpractice insurance as being one of the major culprits for healthcare costs. Absurd. That’s so off the mark that it’s not even funny. The highest healthcare dollars are spent on hospitals and hospital bills. That is where the money is going down the tubes, and that’s what’s bankrupting the country, bankrupting uninsured individuals, and bankrupting the government.

For instance, at a conference I recently spoke at (the National Health Care Anti-Fraud Association), there was a lawyer and a fraud investigator from an insurance company. And they gave a talk on the kind of hospital bill fraud that they see with some of their providers with whom they have contracts. So what do they do about it? Well, first thing is to call the contracting department, [the insurance company’s] legal department, and ask: “Okay, given the contract we have with this hospital… we’ve caught them in fraudulent billing. How does our contract read?” Because they want to assess the political climate!

LII: Political climate?

NJ: Here’s what I mean: These insurance-company investigators explained that it’s very hard to get contracts with hospitals; hospitals, they say, have a very powerful lobby and they’re assessing those interests… and, basically, the next time they renegotiate their contract with that hospital, they hammer them over the head with this fraud that they’ve caught them engaged in, they make them give the insurance company a better contract deal. And that fraud never gets reported, as it should be.

So, as you can see, the insurance companies are not taking a hit on any of this. The hospitals are making out like bandits on this. The only ones taking a hit are the consumers.

LII: You paint a pretty depressing picture. Is there a way to put the patient back in the driver’s seat? Or at least to make things more manageable, more reasonable?

NJ: For one thing, I’d get the insurance companies out of the mix; they’d be the first to go. The country existed just fine until the twenties or thirties, when insurance came into its own.

And then there’s the other thing: It’s very hard [for insurance companies] to go after hospitals for unconscionable charges when they’re routinely negotiating with them. And of course, the hospitals will never go into court to defend those charges because they know they’re not defensible. Still, when you try to go after them for egregiously charging $160 for a ten-cent bag of I.V. solution, that’s a hard row to hoe. The hospital will just say, “Well, those are our charges.”

You know, ethics plays no role in the whole scheme of things. Back in the twenties and thirties it was a different story. Businesses depended upon their reputation for integrity. And there is no relationship between integrity and profit. Not today.

Nora Johnson is Senior Director of Medical Billing Advocates of America

Image credit: BBC Health