The Facts of Health Care: The Uninsured Are Billed Sharply More

NEW YORK -- Dreams of a bright career in a big city lured Rebekah Nix here from the western plains of Texas two years ago. An appendectomy sent her home.

But not because she was ill. Ms. Nix, 25 years old, was fleeing the nearly $19,200 in medical bills that had piled up on her bedroom dresser. The college graduate and former magazine fact-checker couldn't fathom how two days in a hospital could cost so much, until she learned that people like her -- who don't have health insurance -- often are expected to pay far more for their medical care than large insurers, health-maintenance organizations or even the U.S. government.

The hospital where Ms. Nix was treated, New York Methodist in Brooklyn, typically bills HMOs about $2,500 for an appendectomy with a two-day stay, compared with the $14,000 -- plus doctors' fees -- that Ms. Nix was billed. The hospital gets paid about $5,000 from Medicaid, the state and federal health program for the poor, and about $7,800 from Medicare, the federal program for the elderly, for the same procedure.

"Why does a single person get stuck with the whole bill?" Ms. Nix asks. "An uninsured person would have a lot less money than those government agencies or insurance companies."

Ms. Nix stumbled onto a troubling fact of health-care economics: Most major U.S. hospitals are required to set official "charges" for their services, but then agree to discount or even ignore those charges when getting paid by big institutions such as insurance companies or the government. As a result, almost no one but uninsured individuals ever faces the official charges. In some ways, hospital charges are like automobile "list prices" or hotel "rack rates" -- posted prices that everybody knows nobody pays. But in the case of hospitals, the pricing disparity isn't publicly known and falls most heavily on the vulnerable. America's 41 million people without health insurance tend to be young, working-class and unaware that they are being billed more than everyone else for the same services.

At the same time, charges at virtually all hospitals have soared in recent years. That's partly due to the rising costs of new procedures and drugs. Also, deregulation of the hospital industry removed limits on charges in almost all states. But some hospitals say they are raising charges to offset what they view as overly harsh reductions in their reimbursements by HMOs, insurers and the government. That would mean hospitals are effectively subsidizing their lower income from patients who are insured or have a government safety-net by boosting fees paid by the uninsured.

"It is a reflection of the insanity of the system," says Bruce Vladeck, a hospital-policy expert who ran Medicare in the 1990s. "The most vulnerable members of society" are being asked to "pay cash at list."

In many areas, hospitals have cranked up their charges far beyond the cost of providing treatment. Before deregulation in 1997, hospital charges in New York state couldn't be more than 30% above costs. They now are an average of 87% above costs, says the Greater New York Hospital Association, an industry trade group, citing federal data. In California, charges have ballooned to 178% above costs. By contrast, in Maryland, where hospital charges are still strictly regulated, charges average only 28% above costs, says Hal Cohen, a Maryland health consultant.

At many hospitals, the practice of cutting prices for big insurers, HMOs and the government has become so routine that the discount is calculated automatically and appears on bills alongside the original charge. The amount of the discount usually depends on how aggressively a particular insurer bargained with the hospital, or on terms struck with a government program, or how much other hospitals in the area are discounting. But uninsured patients aren't told that big institutions get these reduced rates. Some hospitals then retain collection agencies to pursue the uninsured with hard-nosed tactics such as suing, garnisheeing wages and slapping liens on homes.

"Hospitals have a choice as to who will bear the costs," says Elizabeth Warren, a Harvard Law School professor who is studying the effects of health-care costs on the uninsured. "There is someone to negotiate on behalf of the insurance companies. There is someone to negotiate on behalf of the state ... . But there is no one to negotiate on behalf of people without insurance."

Hospitals say they have no choice but to give steep discounts to powerful payers, even if that means uninsured patients end up being faced with higher bills. Mark Mundy, president and chief executive of New York Methodist, says his private, not-for-profit hospital looks to competitors in setting its charges, and must offer discounts to HMOs and insurers or they won't do business with it. As for the government, it pays whatever it wants. "Pricing makes no sense, we all know that," Mr. Mundy says.

Hospitals also point out that most uninsured patients don't pay their bills -- the rate of default varies across the country -- yet hospitals are required by law to treat all emergencies. "Anybody that shows up in my ER, the first question isn't, 'Can they pay?' The question is, 'What are we going to do,' " to care for them? Mr. Mundy says. "If I had 5,000 Ms. Nixes, how do I handle them and keep this place alive?" Mr. Mundy says many uninsured patients, especially those who aren't indigent, could afford insurance and should bear at least some responsibility for their care. He adds that New York Methodist, unlike many hospitals, doesn't charge interest on unpaid bills.

Advocates for the uninsured say poor people without insurance should be charged the same, low rates that Medicaid pays. Instead, they are asked to pay "what the Emir of Kuwait pays," says Elisabeth Benjamin, a health attorney with the Legal Aid Society in New York. Royalty and other wealthy foreigners flock to U.S. hospitals, where they're among the few uninsured patients who can afford to pay full freight.

Ms. Nix's billing problems started on a Saturday afternoon last April when she arrived in agony at New York Methodist. The previous night, she had felt stabbing pains in her abdomen while celebrating her 25th birthday with friends at a Manhattan bar. She had left early, staggered home to Brooklyn, and went to bed figuring she had food poisoning or the flu. When she awoke to the same unrelenting pain, her boyfriend's mother, a registered nurse, insisted she go to the nearest hospital. As she sat in a hard metal chair in the emergency room, she began to worry: How much is this going to cost?

Ms. Nix had arrived in New York a little less than two years earlier, fresh from graduating Phi Beta Kappa from Southwestern University in Georgetown, Texas. Growing up in Midland, Texas, she saw her hometown as a "desolate wasteland" where social gatherings often revolved around high-school football. Her ticket out was a summer internship at Ms. Magazine in Manhattan, which she loved. "This is the greatest city to be young in," she says. "I had no intention of ever leaving."

But the internship paid just $150 a month. Ms. Nix helped support herself by working as a waitress while sharing a basement apartment that cost her $350 a month in rent. The magazine soon hired Ms. Nix as a full-time fact-checker with an annual salary of $30,000 and health benefits. But it was struggling financially, and Ms. Nix was laid off after the Sept. 11 terrorist attacks. The magazine, as required by law, offered to maintain her health insurance if she paid $330 a month, but Ms. Nix demurred. She figured she couldn't afford it on unemployment payments of $1,122 a month, and thought she could land another job with benefits. Besides, she thought, she was young and had always been healthy.

In the months before her illness, she tried offering her fact-checking services as a free-lancer, but jobs were sporadic. She was determined to be independent, so she didn't want to tell her divorced parents that she'd lost health coverage. Her mother, who runs a small medical-supply business she founded near Midland, might have been able to help. Her father, an independent oil consultant, struggles financially. By going without coverage, Ms. Nix became one of the estimated 39% of uninsured Americans who are between the ages of 19 and 34, according to the Kaiser Commission on Medicaid and the Uninsured in Washington.

In the emergency room at New York Methodist, someone asked her to collect a urine sample in a paper cup. She kept it at her side for six hours, until at last she was admitted to the clinical area of the emergency room and asked to wait on a gurney. Ms. Nix remembers telling nurses and doctors that she had no money and no insurance. No one seemed to mind, she says. Still, she'd heard horror stories about how costly a hospital could be and decided to try to leave as soon as possible.

When she woke up on Sunday morning, she was still on the emergency-room gurney, and the pain seemed to have subsided. "Maybe I am going to go home," she told a doctor. "I don't have health insurance." According to Ms. Nix, the doctor responded: "It is $1,000 to come to the ER, and it is another $1,000 to come in again." Ms. Nix resigned herself to staying. But while undergoing two CT-scans, she recalls telling doctors, "I don't want any extras."

Tests confirmed she had appendicitis. Her surgeon, Piotr Gorecki, removed her appendix using laparoscopy, a method that requires a shorter hospital stay than traditional invasive surgery. The one-hour surgery went smoothly. Ms. Nix was recovering in her room when an attending doctor ordered that she be given a nicotine patch. She regularly used one to control a smoking habit, but she balked at it now, worried about the cost. The doctor insisted, she says.

Ms. Nix left the hospital on Monday afternoon, 42 hours after being admitted. She had a prescription for painkillers but decided not to fill it because of the expense. She also decided to skip a follow-up visit that Dr. Gorecki had recommended. Two weeks later, she received a letter from the hospital offering advice on how she could apply for Medicaid. The letter also gave the first hint as to how much she would be billed: "Note: hospital bill is $12,973."

In mid-June, she learned that Medicaid had turned her down because her income was too high. New York's Medicaid rules say a single person's income can't exceed $352 a month, unless she's certified as disabled. The hospital urged Ms. Nix to appeal at a hearing before a state administrative-law judge, and she arranged to do so.

In July, Ms. Nix received her hospital bill. It showed charges for two days at $1,550 a day, even though she spent the first night on the emergency-room gurney. It also listed operating-room charges of $5,340, a charge of $540 for the recovery room and a charge of $850 for the emergency room. Every test administered in the emergency room was charged separately. Her two CT-scans together came in at $2,120. One charge, which showed up in a more-detailed bill, brought a wan smile to her face: $8 for the nicotine patch. Lyn Hill, a spokeswoman for New York Methodist, says Ms. Nix was admitted at 10 p.m. Saturday and remained through Monday, so it was appropriate to charge her for two nights, regardless of where she slept.

The total: $13,110. Soon after, she received $5,000 in separate bills from Dr. Gorecki, an anesthesiologist and other doctors who had seen her at Methodist. Much like hospitals, some doctors also routinely accept lower payments from insurers, HMOs and government programs. Dr. Gorecki, whose charge to Ms. Nix was $2,500, says Medicare typically pays him only $589 for a laparoscopic appendectomy, and Medicaid usually pays an even skimpier $160. The New York Health Plan Association, an HMO trade group in Albany, N.Y., says Brooklyn surgeons get an average of $600 for a laparoscopic appendectomy.

Ms. Nix's bank account held less than $2,000. She tossed some of the bills on her dresser, unopened, and tried not to think about the debt. But often she could think of nothing else. "I knew that I was going to be in major trouble financially," she says.

Her last hope was the Medicaid hearing, which was held on a sweltering July morning at the city's Medicaid headquarters. The building was jammed with applicants standing in lines and sitting in rows of plastic chairs, waiting to see case workers. Judge Michael Vass sat at a desk facing Ms. Nix. She recalls his telling her: Your case "is bad, but there are people who come in here and they have cancer and they make too much for Medicaid. Unless you are over 65 or under 18 or deaf or blind, you are not going to get Medicaid." Ms. Nix burst into tears.

She wasn't sure what to do. Her parents offered conflicting advice. Her mother, whose work has familiarized her with the medical system, told Ms. Nix to get tough with the hospital and negotiate a deal to pay a few dollars a month. Her father told her she should repay the debt she'd incurred, whatever the hardship. Without Methodist's care, he reminded her, she could have died.

In late August, a new hospital bill arrived, listing the total amount due as $14,182. The hospital had added an additional charge of $1,072 earmarked for the Bad Debt and Charity Care Pool, a state fund that compensates hospitals for caring for the uninsured. Ms. Nix was stunned by the irony. "Tack on another grand I can't pay, but use it to help someone else!" she says.

The inequity in health-care pricing is rooted in a policy that was designed to prevent it. Rules dating back to the establishment of Medicare in the 1960s require hospitals participating in the program to set uniform charges for all procedures. The idea was to prevent hospitals from charging some classes of patients, such as Medicare beneficiaries, more than others. Hospitals were free to set charges -- typically kept on voluminous lists called charge masters -- as they wished, depending on costs, local competition and state regulatory limits.

In the early years of the program, charges roughly correlated to hospitals' costs plus a modest profit, and reimbursements closely tracked charges. Then, in the mid-1980s, Medicare started pegging most payments to standardized diagnostic codes rather than to hospitals' charges. As HMOs became more powerful in the late 1980s and early '90s, they negotiated their own rates with hospitals.

Ms. Nix contacted the hospital and the doctors who had worked on her, seeking a break. Dr. Gorecki, the surgeon, immediately slashed his fee to $1,000 from $2,500 -- a break he often gives to the uninsured. Ms. Nix says she has sent him two checks for $20 each. The hospital was somewhat less obliging. It offered to reduce her bill by 20%. Ms. Nix says the hospital demanded that she agree to pay within a month or two, but Ms. Hill, the New York Methodist spokeswoman, says the hospital gave Ms. Nix a full year to pay. Under those terms, she would have faced monthly payments greater than $900 a month.

Ms. Hill says three or four uninsured inpatients a month, out of an average of about 90 uninsured inpatients treated, call with concerns about their bills, and they are routinely offered a 20% discount off charges before the bill is assigned to a collection agency. Even so, Ms. Hill says, uninsured patients "almost never pay." New York Methodist says that it racked up $50 million last year in "bad debt and charity care," or about 14% of its annual budget.

However, those figures are based on the hospital's charges, not its costs. Also, the hospital is able to mitigate some of these losses by tapping into the New York Bad Debt and Charity Care pool. In 2001, the latest year for which figures are available, Methodist collected $13 million to $14 million from the pool. A state health-department spokesman says the pool on average reimburses hospitals for their costs at about 50 cents to 70 cents on the dollar.

On Oct. 21, Ms. Nix sent a letter to the hospital. "I understand that I am indebted to Methodist hospital," she wrote. "The staff was so kind to me during my stay." But, noting that her bills for the surgery totaled nearly $19,200, she wrote: "This is more money than I will make this year, almost twice as much." She added: "I do not wish to pay nothing for the life-saving services I received," but she said she couldn't pay what Methodist wanted. She had consulted bankruptcy lawyers and was considering returning to Texas.

The hospital didn't respond to the letter. Ms. Nix soon started telling shocked friends that she was leaving. On Nov. 5, she stuffed everything she could into two suitcases and flew home on a ticket her mom had given her.

After The Wall Street Journal contacted New York Methodist about Ms. Nix, the hospital told her it would reduce her bill to $5,000 -- essentially what Medicaid would have paid, says Methodist's Ms. Hill. The hospital also said it would give Ms. Nix one year to pay, provided she pay $3,000 up front, which she has yet to do. She says she hopes to start paying the hospital back within a year.

In Midland, she has taken over her younger brothers' old bedroom. Life is slower, and she has gone to some high-school football games. "I miss the glamour of the city," she says. For the past few months, she has been working part-time at her mother's medical-supply firm, where she earns $7 an hour for filing and filling out forms. She also has been doing unpaid research for her father. Her mother's company couldn't offer her health benefits because they were too expensive to provide. Two weeks ago, Ms. Nix finally purchased health insurance.

See more articles about Food, Health and Environment