Cash Up Front or Else -- Why Hospitals Are Gouging Their Patients

Last Updated Apr 28, 2008 12:27 PM EDT

doctors-warm-reception-image-300px.gifPeople who've just been diagnosed with a life-threatening disease already have plenty of things to worry about. Now comes one more unexpected concern: Many large hospitals are demanding up-front payment before they'll admit patients for cancer treatment and other expensive care.

This WSJ story is a classic of the genre, here told mostly through the story of cancer patient Lisa Kelly. Diagnosed with leukemia, Kelly went to the renowned M.D. Anderson Cancer Center in Houston, but was told she wouldn't be treated for her leukemia until she paid $45,000 up front -- a sum that ballooned to $105,000 the day she turned up for her first appointment. The hospital continued to bombard her with payment requests throughout her treatment, one time sending a business-office representative to one of her doctor's appointments. Another time, nurses refused to hook her up to a fresh chemotherapy infusion until her husband presented a payment receipt, according to Kelly.

There's plenty to chew on here, starting with the fact that this is yet another excellent example of our whack-a-mole healthcare system, in which the primary goal of hospitals, insurers and patients is to shift escalating healthcare costs onto someone else. It's a nasty, zero-sum game that's responsible for much of the economic inefficiency -- not to mention substandard care -- that we see throughout the system.

There's also the question of whether financially secure nonprofit hospitals like M.D. Anderson, whose net income was $310 million last year, should be turning the screws on sick patients simply to reduce their own cost of uncompensated care. Nonprofit hospitals get generous tax breaks in return for serving their communities, with indigent care traditionally a big part of that mission -- although many hospitals have recently reneged on that bargain.

But the WSJ buries the most interesting nugget from the story, which is that hospitals like M.D. Anderson are free to reject a patient's insurance if they don't think it provides sufficiently comprehensive coverage. This happened to Kelly, who had a limited-benefit plan that should have covered about $37,000 worth of treatment. Since that was less than 30 percent of the estimated total, M.D. Anderson refused Kelly's insurance, forcing her to pay cash and then file for reimbursement from her insurer.

The reason this is a big deal isn't just the fact that it forces sick people to tap their life savings and to fight with insurers for payment (hospitals are obviously a lot better at the latter than are most individuals). The real problem is this: Almost all hospitals charge far higher prices to the uninsured than to those with insurance, and while the WSJ story doesn't exactly spell it out, Kelly was apparently on the hook for a much larger bill once M.D. Anderson rejected her insurance. Once Kelly moved to a more comprehensive health plan, for instance, the cancer center immediately knocked 25 percent off her bills.

In other words, nonprofit hospitals actually stand to benefit by declining their patients' insurance, because it helps them sidestep the discounted rates they negotiate with insurers. (Those negotiations, of course, are simply another form of cost-shifting, in this case involving insurers pushing off costs onto doctors and hospitals.) This particular move is attention-getting largely because it amounts to gouging sick people, but it's really just indicative of the countless ways in which the pursuit of medical excellence and patient health often runs completely counter to the pursuit of cash in today's healthcare system.

Photo via Flickr user pingnews.com, CC 2.0

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    David Hamilton is the assistant managing editor of CNET News. He has been writing and editing business and tech coverage for about two decades -- the majority of that at the Wall Street Journal in both Tokyo and San Francisco. He is a two-time winner of the Overseas Press Club award and has written for numerous magazines and blogs, including Slate, Science, VentureBeat, CBS Interactive's BNET, California Lawyer and the New Republic.