MILLER REPORTING COMPANY
PRICING PRACTICES OF HOSPITALS
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
JUNE 22, 2004
SERIAL 108-49
Printed for the use of the Committee on Ways and
Means
|
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
|
PHILIP M. CRANE, Illinois
E. CLAY SHAW, JR., Florida
NANCY L. JOHNSON, Connecticut
AMO HOUGHTON, New York
WALLY HERGER, California
JIM MCCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHIL ENGLISH, Pennsylvania
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia |
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM MCDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. MCNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
EARL POMEROY, North Dakota
MAX SANDLIN, Texas
STEPHANIE TUBBS JONES, Ohio |
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
SUBCOMMITTEE ON OVERSIGHT
AMO HOUGHTON, New York, Chairman
|
ROB PORTMAN, Ohio
JERRY WELLER, Illinois
SCOTT MCINNIS, Colorado
MARK FOLEY, Florida
SAM JOHNSON, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia |
EARL POMEROY, North Dakota
GERALD D. KLECZKA, Wisconsin
MICHAEL R. MCNULTY, New York
JOHN S. TANNER, Tennessee
MAX SANDLIN, Texas |
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published in
electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce unintentional
errors or omissions. Such occurrences are inherent in the current
publication process and should diminish as the process is further refined.
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C O N T E N T S
Advisory of June 15, 2004, announcing the hearing
WITNESSES
Adventist Health System, Richard Morrison
American Hospital Association Board of
Trustees, David Bernd
Center for Studying Health System Change,
Paul B. Ginsburg
The Commonwealth Fund, Karen Davis
Hal Cohen, Inc., Harold A. Cohen
Harvard Business School, Regina E.
Herzlinger
Harvard School of Public Health, Department of
Health Policy and Management, Nancy Kane
Pacific Business Group on Health, Peter V. Lee
Southern Medical Health Systems, Inc., Randy
Sucher
SUBMISSIONS FOR THE RECORD
Catholic Health Association of the United States, Michael D. Place, statement
Community Catalyst, Boston, MA, statement and attachment
Mitchell, Geoffrey C., Columbus, OH, statement
Palmer, Pat, and Johnson, Nora, Caldwell, WV, statement
VHA, Inc.,
statement
PRICING PRACTICES OF HOSPITALS
Tuesday, June 22, 2004
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:05 a.m., in room 1100, Longworth
House Office Building, Hon. Amo Houghton (Chairman of the Subcommittee)
presiding.
[The
advisory announcing the hearing follows:]
Chairman HOUGHTON. Good morning, everybody. Thanks for being here today, an
important meeting.
During our hearing today we will look at nonprofit hospitals and also the larger
issues of hospital pricing. I particularly want to thank the members of the
panel for being here this morning.
As we all know, or most of us know, there are 300,000 501(c)(3) organizations
ranging from universities to blood donor organizations. Hospitals make up a
significant part of total expenses in this category. As a part of our oversight
agenda, it is important that we review topics such as tax-exempt hospital
prices, charity care, quality of care, and the services offered by for-profits
versus not-for-profits.
Relating to the financial situation by hospitals in my district, just to give
you an example, Standard & Poor's has recently reported that New York hospitals
still have some of the weakest access to capital in the Nation, attributed in
part to the former government-mandated rate regulation. Despite their
finances, our local hospitals also provide charity care, and I am sure this is
true in many other hospitals in different parts of the country.
At Arnot Ogden Medical Center in Elmira, New York in upstate New York, the
Community Care Program provides discounts up to 300 percent of the Federal
poverty level. Information on the policy is publicly posted.
Another example, F.F. Thompson Hospital in Canandaigua has a sliding fee policy
that provides discounts up to 100 percent for persons with wages below 200
percent of the Federal poverty level.
Still another example, at Jones Memorial Hospital in Wellsville, a small town in
our area, a financial aid counselor will confidentially visit patients who are
admitted with no health insurance, to make sure the patient knows that free or
discounted care is available for patients in need.
One topic we are going to be exploring today is hospital pricing. I have before
me what is called a "charge master." This makes for fascinating reading.
[Laughter.]
I thought the Tax Code was complicated, but it is nothing
like this. Hospitals seem to be stuck with a broken billing system and no one
knows the cost of services in advance. So, people receive bills for services
where the charges appear too high for a hospital gown or even an aspirin, and
they do not understand that these amounts are not what insurance is going to pay
for. People without health insurance individually negotiate payment with
hospitals, a process that creates anxiety and a lot of uncertainty. If we could
do it all over again, I am sure this is not a system that anyone in his right
mind would dream up.
Appearing before us today on the first panel are experts who can describe how we
got where we are, and what we might do to change. On the next panel we have
distinguished representatives from hospitals, as well as an expert on government
pricing, who are able to bring real world experience to bear on this very
difficult problem.
I welcome you all. Thank you for being here, and I look forward to your
testimony.
I am now pleased to yield to our ranking Democrat, my distinguished associate,
Mr. Pomeroy.
[The opening statement of
Chairman Houghton follows:]
Mr. POMEROY. Mr. Chairman, thank you very much, and I am delighted to be
participating in today's hearing.
I do think that our work might have been achieved perhaps more successfully had
the focus of this morning's hearing been a little more straightforward. I am not
entirely clear whether we are exploring tax-exempt status or whether we are
exploring hospital pricing practices, and I believe they are somewhat distinct
points of inquiry. I think each represents an interesting area for us to
explore, but to look at the pricing practices of tax-exempt hospitals seems
unnecessarily confusing, leaves open the question of whether or not we are
concerned about the pricing practices of non-tax-exempt hospitals, and leaves us
somewhat wondering where this is going in the first place.
I think that, as I mentioned, there are some interesting things we can pull out
of it. Transparency in pricing has got great value, and not just for hospitals.
Actually, we have to think about that a little more, in government as well. I
voted for a Medicare prescription drug bill (P.L. 108-173) I thought cost $400 billion. Come to
find out it cost $536 billion. You know, some might think I should not have
voted for that bill. I just wished I had known the price, and made a
determination in light of the true price, not the price that was represented,
that maybe some representing it knew wasn't the actual price. So, transparency in
pricing is an important business.
I also think the business of how we establish pricing specifically in hospitals
is quite interesting, because most of the people accessing hospital services
have some kind of third-party coverage. Obviously, Medicare sets prices for the
part covered by Medicare. Private insurance companies negotiate prices for the
people that access care under their health insurance coverage, for the portions
of copays are now Health Savings Accounts (HSAs) first-tier exposure. They will
still get the discounts negotiated by their insurance companies, and then that
leaves the uninsured, Mr. Chairman, as you note, without someone negotiating
those discounts, and they are subject to the charge master. I think that for a
second, 1 second, for anyone
to suggest that the problems of the uninsured are really pricing practices
misses the point. It is not whether there is transparency behind those prices,
it is the reality that if you are uninsured you have pretty significant
prospects. You cannot afford the cost of medical care in this day and age, and
the problems of the uninsured deserve its whole additional focus.
The pricing issue, in and of itself, is a creation of the fact that we have
several different ways people are covered for health insurance, and some not
covered at all. If we are going to really get to the bottom of that one, we
might want to take it back to the Subcommittee on Health, the subcommittee jurisdiction on this matter, and proceed an investigation of the uninsured.
That might have some significant value as well.
These are all kinds of questions swirling around in my mind. The tax-exempt
status is another issue. If there is indeed a significant record to establish
that institutions, charitable in construct, tax-exempt in status, are not
meeting what is expected of them under the code to achieve that status, that is
an inquiry I think would have broad interest across the full Committee on Ways
and Means, and I look forward to getting to the bottom of that. Again, trying to
get to the bottom of that in a hearing on pricing practices, to me puts us on a
circuitous route to that important question.
In summary, Mr. Chairman, even though I feel like I am kind of climbing in a
car I don't know where it is going, I am not even entirely sure why we are
taking this trip, as long as I know you are along, Mr. Chairman, I am happy to
be along for the ride. I yield back.
Chairman HOUGHTON. That is a pretty weak reed to lean on, I can tell you that.
Mr. Thomas, the Chairman of the Committee on Ways and Means, would you like to make
a statement?
Chairman THOMAS. Just briefly, Mr. Chairman. Thank you for the beginning of what
I hope is a long process, since this is the Subcommittee on Oversight, the
Subcommittee correctly charged with reviewing for the Committee issues and
items already on the code, or the manner in which we should change differences in the code.
I listened with interest to my friend from North Dakota, Mr. Pomeroy, and the
verbal statement that he delivered as his opening statement deviates from his
written statement in referring to the $400 billion versus $500 something billion from the
Administration. I guess that was necessary to insert in this hearing, but it
really does underscore why hearings like this need to take place.
The $400 billion was the number determined by the Congressional Budget Office (CBO).
Those individuals and institution under the law, which we are required to rely
on to provide us with estimates, not once, but twice. After reviewing the
legislation, CBO said that it was going to cost $400 billion. The gentleman is
referring to another branch of government, the Executive Branch, which makes its
own estimates, and I find it ironic that at times when they are arguing about
particular policies or budgets, they prefer to hang on to CBO, rather than
Office of Management and Budget (OMB). In this instance somehow, OMB is now the yardstick, and CBO is not.
I find that when people choose different partners at different dances, it tells
me something.
In addition, I invite all of you to read the article in The Hill newspaper on
Thursday, June 17, only to illustrate that it is possible to be consistently
wrong over time. The gentleman who writes the article refers to me and my
relationship on this issue to the late 1990s. Someone needs to know I have been
involved with this since the early 1980s, and it seems to me that once every 20
years is not outlandish to review an area of government policy that involves
billions of dollars.
If you will go back and look at the history of the 501 or so-called charitable
or nonprofit portion of the Tax Code, you see significant shifts in the '30s and
in the '50s, and really no significant difference since the '50s.
I have asked Chairman Houghton, and I hope the gentleman from North Dakota will
be a willing partner, to investigate the entire 501(c) section. When
examining the entire 501(c) section, it seems prudent that you would look at
those areas that involve themselves most extensively in the expenditures which
occur under 501(c). Hospitals comprise 41 percent of the expenditures in this
area. Why wouldn't you start with the group that gets the biggest, largest
break?
The second reason I think it makes sense to go with hospitals is that when you
look at other activities that are covered under 501(c)(3), there probably isn't
as good an example, although 85 percent of the hospitals in the United States
are not-for-profit. If I blindfolded you, took you into a hospital, took the
blindfold off you and led you around to look at the hospital, you would be hard
pressed to determine whether it's a 501(c) not-for-profit or a
for-profit. In other words, here are two institutions structured fundamentally
differently in the Tax Code, carrying out virtually identical duties,
the responsibilities and functions as a hospital. The Chairman, in his opening
statement, illustrated some things that not-for-profits do, which used to be
called charitable--now it is called community benefit--in nature. We don't
know if for-profits do that either, and if in fact there are as many for-profits
that can be shown to give a break to low income as not-for-profits, then that is
not really a difference for receiving that tax benefit. What is it that they do
differently than people who pay taxes? We owe it to the taxpayers to
explore that question.
When we were debating Medicare, a portion of Medicare that we talked about and
got to know real well is a portion called bad debt. It is payment to hospitals
in lieu of hospitals not being able to collect money from people who can't pay.
Hospitals can't collect their bills, so taxpayers pay the money. If you
pay the same amount to for-profit as not-for-profit since not-for-profit gets a
tax break that for-profits don't which is supposed to be under a community or
charity concept? We don't know. I do not understand the resistance in the
community to getting some knowledge to the Members of Congress who are charged
with the responsibility of overseeing the Tax Code, and that if this hearing
does not provide us with sufficient understanding of how someone who in one
situation is not-for-profit and the other one is for-profit, and there is no
real difference between the two, why the expenditures? If there is a difference,
where is the difference? How is it a difference? How, in going through the
rest of the 501(c) can we begin to build a case to see if others merit, if in
fact not-for-profit hospitals do, the differential that is in the Tax Code?
Mr. Pomeroy, your concern about the pricing goes right to the heart of our
problem to differentiate between not-for-profits and for-profits, because you
would at some time and under some circumstances, the not-for-profit aspect would
display a different behavioral profile than the for-profits, and that is
basically what we are going to try to do. We started with hospitals because they
are the biggest chunk. They also give us an example to compare, ostensibly, to
similar operations that are structured significantly differently under the Tax
Code. So, I think it is most appropriate that we start with this area. One of
the most confusing areas of hospitals, whether they are for-profit or
not-for-profit is the pricing. So, if you are going to investigate how they are
different or similar, it makes all the sense in the world to begin to talk about
pricing.
With those opening statements, Mr. Chairman, I want everyone to know that
this is the beginning of a very long series of hearings dealing incrementally,
moving down the tax expenditure amount structure, to a number of institutions
that are in direct competition with for-profit institutions in this society for
which they receive significant tax benefits under the 501 category, and what is
it that taxpayers are getting for the billions of dollars that are forgiven
because of the categorization one way or another.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you, Mr. Thomas.
Mr. Stark, would you like to make a statement?
Mr. STARK. Thank you, Mr. Chairman. Thank you for inviting me to join with you
today.
I too am confused. I have reviewed the testimony, and there is nobody that talks
about the difference in prices except Ms. Davis, who happens to be our witness,
and I am not sure she has any charts. So, if this is a hearing to determine
whether there is a difference in pricing between profits and nonprofits, we
should send the witnesses home and ask them to come back with some examples.
There is a lot we could do to improve our health system, but I think we need to
talk more about coverage for 44 million uninsured, not how to lower hospital
bills. I think it is a given that patients don't select hospitals, their doctors
do. Even if you had price transparency it would be foolish for people to choose
a hospital on price alone without information as to what the quality of care is,
and what happen--and most of us who are not physicians, don't have the foggiest
idea of what is going to happen to us when we enter a hospital, so we wouldn't
know what to ask or how to compare. It is one thing to compare a Chevrolet with
a Ford with the help of the Internet, I suppose, but I would ask any of you to
tell me what the difference is in a pap smear or a proctoscopic examination
unless you have gone through it. Until we can determine the quality of services
and combine that with cost, it seems to me we are wasting our time.
As to whether or not we ought to give tax exemption to hospitals, that seems to
me to be a whole other issue and I would suggest that the real burden is to
define, which we have been unable to do, certainly in the 30 odd years I have
served on this Committee and the previous experience on the Committee on
Banking,
which used to have jurisdiction over the nonprofits, there is no definition of
charity care for hospitals that a Certified Public Accountant (CPA), that
Financial Accounting Standards Board (FASB) has. Is it a bad debt forgiven
or is it a scholarship when you walk in the front door? Absent that, which
happens to drive the disproportionate share of discounts, it is an important
thing for us to know.
I would hope, Mr. Chairman, that we could look at that some more, so that we
were able to define as to who gives charity care and who just doesn't have such
good debt collectors, and that would be very useful to us in the future,
but I hope maybe we can, in questioning, elicit some of that on some suggestions
as to how we proceed from the witnesses. Again, thank you for allowing me to
join you.
Chairman HOUGHTON. Thanks, Mr. Stark.
Mrs. Johnson, would you like make a statement?
Mrs. JOHNSON. I thank you, Mr. Chairman, and indeed, I
congratulate you on this hearing, and I am starting out on this thoughtful trek
in terms of what does nonprofit status, which is a tax subsidy, gain us for
those who enjoy it, and what is the relationship between those institutions that
enjoy a privileged tax status and other institutions that provide like services
that don't enjoy a privileged tax status.
I am here not because I am a member of the Subcommittee on Oversight, but because I am
Chairman of the Subcommittee on Health, which has a different responsibility. One of our responsibilities that we are having great difficulty managing was
well reflected in the Medicare Modernization bill. It asked for a number of
studies and efforts for experts to better define that the information that we
rely on in setting rates, and indeed, this afternoon we have a seminar of our
Subcommittee with the Medicare Payment Advisory Committee (Med PAC) on their first report of how difficult it is to find
data that will tell us what your financial circumstances are, and this issue of
your having a defined amount that you charge people, that then varies all over
the place, is one of the reasons it makes it very hard for us to figure out what
your financial circumstances are. There is enormous conflict between what we
call the Medicare margin and your total margin. This conflict has been so great,
you can't make logical policy any more without better understanding these
differences.
We are going to be taking on a lot of the issues associated with how do we
evaluate whether or not our hospitals are financially stable, doing well, and
fairly rewarded, and part of that is the nonprofit benefits for those that are
nonprofits versus the for-profits. So, this is a different angle on something we
are interested in. We do not have time nor researchers to do it. I am glad they
are doing it. I am here to listen to that. There are going to be many
aspects to hospital financing that we are going to look at, and the reason we
are going to look at them is that if we don't community hospitals are going to
be destroyed by the public and private reimbursement systems that are supposed
to support them.
You look at what surgi-centers have done to hospitals in terms of taking out the
simple programs, the simple cases. You look at what boutiques hospitals are
positioned to do. You look at what competition for lab services are positioned
to do, and you can't believe that community hospitals will be here for
charitable or any other purpose if we don't get more honest and clear headed
about what it is we are paying for and under what circumstances.
So, this hearing, to begin to sort out what is the nonprofit subsidy that goes to
hospitals and what is it related to, and what do we think of it, and what is it
costing us, is all a very, very important piece of the program, and then we need
to look at not only hospitals as nonprofits but the nonprofits across the board.
I don't know what other Members are finding, but I am deluged with applications
for 501(c)(3) status, and we need to understand as a tax writing committee what
is the effect of the nonprofit tax subsidy structure that we put in place many
years ago with a very simple rationale, but which has absolutely exploded in
multiple directions.
I commend Chairman Houghton and Mr. Pomeroy for starting out this series
of hearings which I think is extremely important for our tax writing committee,
and I am pleased to be here as the Chair of the Subcommittee on Health because
these issues are always interrelated.
I thank the Chairman for the courtesy of being able to make this comment on the
record. Thank you.
Chairman HOUGHTON. Thanks, Mrs. Johnson.
Unless anybody has a burning desire to make an opening statement, I think we
will go right to the panel.
Mr. KLECZKA. Mr. Chairman, I don't have a burning desire except to insert two
articles into the record at this point. Mr. Chairman, I would ask unanimous
consent to put this hearing into perspective, that two articles be entered into
the record. The first is The Hill article dated June 17, and it is entitled,
"Congressional Inquiry Triggers Hospital Angst." The second is a
BusinessWeek article from June 7, and the article is entitled, "Making
Hospitals Cry Uncle."
Chairman HOUGHTON. Fine. We will put them in the record. Thanks very much, Mr.
Kleczka.
[The information follows:]
Congressional inquiry triggers hospital angst
By Bob
Cusack
In a move that has attracted attention on K Street, a powerful House lawmaker with
a long memory has launched an investigation into the financial practices of
the hospital industry.
Hospital lobbyists fear that the scrutiny could eventually
lead Congress to make changes to the industry’s tax-exempt status.
Some healthcare experts believe it is no coincidence that
House Ways and Means Committee Chairman Bill Thomas (R-Calif.), who is
spearheading a broad review of all 501(c)(3) tax-exempt entities, picked
hospitals as his first target.
Thomas and the hospital sector have had a complicated,
roller-coaster-like relationship. In the late 1990s, Thomas protected the
industry from proposed Clinton administration cuts in Medicare reimbursements.
But in 2002, the relationship soured after a draft of the
House Medicare reform bill was leaked to the media. Thomas believed then —
and believes now — that hospital Medicare payments have become bloated and
need to be curbed.
Hospital groups rallied against the 2002 measure, claiming
that it could slash billions of dollars they receive from Medicare. The
intense lobbying effort worked, and an infuriated Thomas was forced to
rewrite the legislation.
At the time, sources close to Thomas vowed that the lawmaker
would get his way eventually — most likely in a nonelection year.
“Thomas remembers everything,” an industry lobbyist said,
adding that hospital groups are nervous that Thomas is laying the groundwork
to scale back hospital payments next year.
“He may tell [hospitals], either accept Medicare payment
changes or lose your tax-exempt status,” the lobbyist said.
A hospital lobbyist agreed, saying, “That’s Thomas’s style.”
On Tuesday, the largely inactive Ways and Means Oversight
Subcommittee will hold the first of a series of hearings on tax-exempt
issues. In announcing the hearing, the committee took some veiled shots at
the industry: “Hospital charges are not transparent. So consumers, including
the uninsured, do not have access to information on the costs of medical
treatment across hospitals.”
The release cited Medicare figures, claiming that
“hospitals’ charges exceed their average costs by 118 percent.”
There are more than 300,000 reporting tax-exempt 501(c)(3)
entities. Hospitals represent 1.9 percent of total reporting charitable 501(c)(3)s,
but accounted for 41 percent ($337 billion) of total expenditures, according
to the Ways and Means panel.
ne healthcare expert estimated that 80 to 85 percent of all
hospitals are tax-exempt.
Thomas last month defended the inquiry, saying that
taxpayers deserve to know what they are paying for. He told reporters, “I
know a lot of people don’t want me asking these questions, but we are talking
about billions of dollars.”
Earlier this year, the hospital industry suffered a
public-relations hit when it claimed that government regulations were causing
it to charge uninsured patients higher-than-normal prices. In a rare move,
the Bush administration in February released the full text of its response
letter to the American Hospital Association (AHA) disputing the contention
government rules dictate hospital charges for the uninsured.
Hospital lobbyists are anxious that Ways and Means aide
Deborah Williams is taking the staff lead on the investigation. Williams, who
helped draft the new Medicare drug law, is very familiar with the ins and
outs of the hospital sector, having previously worked for AHA.
But to the industry’s dismay, Williams is a vocal proponent
of slowing the growth of hospital reimbursements.
Making Hospitals Cry Uncle
Has insurer J. Patrick Rooney found an unorthodox way to turn up the heat?
Conservative
millionaire J. Patrick Rooney is on a mission from the Almighty: Bring down
crushing and "ungodly" health-care costs. For more than a decade, he
has worked to replace traditional insurance with tax-free health savings
accounts (HSAS), which people can use to pay for their own medical care. "I'm
doing the right thing, and I think the Lord will be pleased about it," he says.
Using his fortune to open doors in Washington, Rooney has relentlessly preached his gospel.
Last year, Congress saw the light: GOP lawmakers inserted a $6.4 billion tax
break for HSAs into a Medicare prescription-drug bill. And a recent survey by
Mercer Human Resource Consulting says 75% of employers are likely to offer the
accounts by 2006.
A courtly 76-year-old, Rooney has never hidden the fact that he stood to profit
from his crusade. After pioneering HSA sales with his old company, Golden Rule
Insurance, he sold out to UnitedHealth Group Inc. (UNH
) for $893 million just before Congress passed the tax break. He promptly
founded Medical Savings Insurance Co. to sell more HSAs.
PR HARDBALL
But Rooney isn't relying on just the power of his ideas and political
connections to make his company profitable. The Indianapolis-based insurance
entrepreneur also is backing a nonprofit group that uses hardball tactics to
get hospitals to cut prices. The nonprofit, called Consejo de Latinos Unidos,
campaigns on behalf of uninsured Hispanics.
Last year, Consejo pressured the nations' No. 2 hospital system, Tenet
Healthcare Corp. (THC ), to cut rates for uninsured patients and
revamp its collection practices. At the same time, Rooney's Medical Savings won
about $2 million in debt forgiveness from Tenet.
Now, Consejo's leader, Republican strategist K.B. Forbes, has turned his
attention to Florida. Hospitals being
pilloried there say Rooney's company owes them millions in unpaid bills, too.
And Rooney has suggested that a new Consejo target--HCA Inc. (HCA
), America's largest hospital operator--could take a lesson from Tenet and
shake its bad press by cutting a deal to forgive Medical Savings' debts.
Rooney, who pledged seed money to Consejo and hired a Washington public relations firm
to draw attention to its cause, says he doesn't control Forbes. "K.B. has
to paddle his own canoe," Rooney says. Besides, says Rooney, his drive to
cut health-care costs, especially hospital fees, is about more than money: It's
a moral crusade. As such, he makes no apologies for unorthodox methods.
ARM-TWISTING?
That includes backing Forbes, a onetime Medical Savings employee. "Forbes
presents himself as an advocate of the consumer," says Linda S. Quick,
president of South Florida Hospital & Healthcare Assn. But Consejo
"seems to be initiated and financed by Rooney and others selling
individual insurance."
With his folksy demeanor, Rooney comes across as an endearing do-gooder. He is
also one of the most powerful voices on the Right. Since he pioneered HSAs in
1990, Rooney, his family, and employees have poured more than $5 million into
Republican causes.
Rooney's new model of health coverage, which has won support from President
George W. Bush, replaces traditional insurance with tax-free health savings
accounts and high-deductible policies. The argument: If patients must pay
out-of-pocket for, say, the first $1,000 in bills, they will seek more
cost-effective care. That, Rooney maintains, will unleash market forces to hold
down costs. Big insurers, including Aetna Inc. (AET
) and many regional Blue Cross Blue Shield Assn. plans, began rolling out HSAs
this year.
For hospitals, the plans pose a threat: bad debts. Patients accustomed to
first-dollar coverage find they must pay before insurance kicks in, and many
don't. In April, HCA blamed a rising tide of unpaid bills for its soft first
quarter.
It's not just patients who aren't paying. Medical Savings routinely marks down
its policyholders' hospital bills by as much as 80%. "Yes indeed, we're
making unilateral decisions," Rooney says. "But by God, we have to
hold the hospitals down to a reasonable price." Medical Savings tells
providers to accept its checks as full payment--or collect from patients.
But as Forbes has demonstrated, hospitals pursuing low-income patients are
vulnerable to attack. Last year, Consejo stoked press coverage of poor patients
being hunted down by bill collectors. "Nobody wants these cases where
someone was sick and the big, bad hospital is suing them," says Richard
Morrison, a vice-president at Orlando's Adventist Health System, which says Medical Savings owes
it some $1 million.
Consejo zeroed in on Tenet in 2001 after Forbes uncovered examples of
bare-knuckle collection practices--such as a lien on a Louisiana patient's beat-up
mobile home. His timing was perfect. Tenet was trying to acquire hospitals in
four cities and had drawn fire from the feds over its Medicare billing. At
critical junctures, Forbes would trot out patients to portray Tenet as intent
on gouging the poor. Tenet lost three of the acquisition deals.
Behind the scenes, Tenet was in talks with Medical Savings over its unpaid
bills. In January, 2003, Tenet caved. It forgave nearly all of Medical Savings'
debt and lowered prices for the uninsured. In return, Consejo dropped 10
lawsuits. The deals with Consejo and Rooney were "contemporaneous and
simultaneous," a Tenet executive says.
Like Tenet, HCA has sought a truce. In mid-2003, Chairman and CEO Jack O. Bovender
Jr. set up a meeting with Rooney to explain HCA's discount policy in hopes that
Rooney would persuade Forbes to back off. But prior to the meeting, Rooney
forwarded a memo to Bovender from Medical Savings President Randy Suttles that
drew parallels between HCA's situation and Tenet's. In the memo, which HCA made
available to BusinessWeek, Suttles notes that Tenet had shaken some of
its bad press after making a deal with Medical Savings. "HCA is in similar
circumstances," Suttles wrote. A livid Bovender canceled the meeting.
When asked about the e-mail to Bovender, Rooney says: "The one thing
hospitals can't afford is a loss of public trust." And he isn't afraid to
get in their faces. "If we go to the hospital and beg, they'll say: 'We'll
give you 20% off,"' says Rooney. "Well phooey--that's still an
outrageous price. And we're not going to pay it." Indeed. More than 20 Florida hospital groups--including
HCA--are suing Medical Savings for some $7 million in overdue payments.
HCA and other Florida hospitals figure they have better odds of bucking Forbes and
Rooney than Tenet did: They're not under serious regulatory scrutiny, and
they're moving to help the uninsured. Rooney paints a different picture, saying
hospitals are lining up to deal: "Tenet is not the only one." Both he
and Forbes--independently, of course--predict victory.
By Lorraine Woellert in Washington
Now, going to the panel. Nancy Kane, Professor at the Harvard School
of Public Health in Boston; Paul Ginsburg, President of the Center for
Studying Health System Change; Peter Lee, President of the Pacific Business
Group on Health in San Francisco; Karen Davis, President of the Commonwealth
Fund; and Regina Herzlinger, the Nancy McPherson Professor at the Harvard
Business School in Boston.
Please begin your testimony, and Dr. Kane, would you start?
STATEMENT OF NANCY KANE, PROFESSOR OF MANAGEMENT, DEPARTMENT OF HEALTH POLICY
AND MANAGEMENT, HARVARD SCHOOL OF PUBLIC HEALTH, BOSTON, MASSACHUSETTS
Ms. KANE. Thank you. I just want to correct. I am a Professor at the Harvard
School of Public Health, not the Harvard Business School.
Mr. Chairman and Members of the Committee, thank you for inviting me to come and
talk about medical bad debt and hospital tax exemption under the guise of
hospital pricing practices.
I think I wanted to start by talking a little bit about medical debt because it
is a growing public health problem. Besides causing an enormous financial burden
on some of our most vulnerable citizens, including personal bankruptcy and the
loss of their homes, and the garnishment of their wages, it causes these people
to be at an enormously greater health risk. The people who incur medical debt do
not follow up on life threatening conditions such as getting the lump out of
their breast for breast cancer and then not going back for the chemotherapy or
the radiation therapy. People with less critical conditions don't go to the
physician and do not fill needed prescriptions, and people who have incurred
medical debt don't let their children participate in sports and do not undertake
physical activity for fear of incurring an injury that might add to their
medical debt. If we are concerned about obesity in this country, it doesn't help
to have people afraid to undertake physical activity.
Medical debt is related to the fundamental flaws in our health care financing
system, which is both voluntary and extremely expensive, and increasingly out of
the reach for a growing number of people in this country.
Hospital pricing practices make a flawed system even worse by charging people
who are self-pay, and therefore usually uninsured or at risk for a deductible or
a coinsurance, it charges them the highest prices available. The hospital
pricing system is now based on market-based negotiations, and the self-pay are
not in a very good bargaining position when they arrive at the hospital door, or
when they try to seek information on the Web, they are not asked what they would
like to offer for that care when they are seeking care.
So, the self-pay and only a few indemnity carriers are left paying on the basis
of hospital charges, the charges are set indeed to cover the negotiated
discounts of everyone else. Historically that made some sense, back when the
discounts were around 16 percent, back in 1982, and many more payers were indeed
paying on the basis of charges, and in fact, many hospitals were encouraged to
do that by the rate setting systems in various States. However, rate setting has
disappeared and negotiated pricing has taken place.
Negotiated pricing now has brought those discounts up to 46 percent in
2002--that is the median, by the way, not the average, which is probably
higher--therefore, the markup of charges over hospital costs has grown from
about 120 percent of cost to 180 percent, and again, that is the median. Fifty
percent of hospitals are at or below, and 50 percent are above 180 percent
markup of their hospital charges over cost. Obviously, charges are wildly
unrelated to cost, and other activities that hospitals undertake to specifically
set charges to discriminate against either charge payers or Medicare outliers
has made the charges even more wildly unrelated to cost.
Now to talk a little bit about the medical bad debt and the free care. Free care
is only about 1 percent of hospital charges. That is the amount that is forgiven
by hospitals. The determination of who is eligible for free care is generally up
to the hospital's board and the hospital's management. A few States regulate a
minimum amount of eligibility in terms of a person's income level, and I believe
one of the Members described some of the range in eligibility--actually, I think
it was the Chairman. It is wildly variable from State to State and hospital
to hospital whether an individual will be eligible for free care. You can be at
100 percent of Federal poverty level and still not be eligible for free care in
some States and in some hospitals.
Even if you are eligible, you may not be aware that free care is available.
Bad debt is another 3 or 4 percent of hospital charges, and from the information
I have gotten on some small surveys, definitely not a national database, about
half of the bad debtors in hospitals are insured people trying to deal with high
deductibles and coinsurance and copayments.
The tax exemption, as I have just heard from the Members of the Committee ,
hasn't been reviewed in a long time, and clearly is not tied to the provision of
charity care of community benefit, and it led to the kind of attitude that I got
back in the years that I have been involved with local communities charging
tax-exempt challenges, a former hospital Chief Executive Officer (CEO) informing me that it is just as
charitable to serve a rich man as a poor man.
Most of the challenges are coming from State and local authorities. The
Federal Government, the Internal Revenue Service (IRS) is really pretty weak in terms of encouraging
greater charitable on the part of nonprofit hospitals.
I see my time is up. In terms of transparency of pricing, you can see I don't
think it is going to have a huge impact on the uninsured. Many of them are not
allowed into the hospital until their care is an emergent condition. Therefore,
shopping around for a price is really not going to help them, and I will end
there.
Thank you.
[The prepared statement of
Ms. Kane follows:]
Chairman HOUGHTON. Thanks very much, Ms. Kane.
Dr. Ginsburg, you may begin your testimony.
STATEMENT OF PAUL B. GINSBURG, PRESIDENT, CENTER FOR STUDYING HEALTH SYSTEM
CHANGE
Mr. GINSBURG. Mr. Chairman, Mr. Pomeroy, and Members of the Subcommittee, I
appreciate the invitation to be here to present testimony on hospital pricing
issues.
I am President of the Center for Studying Health System Change, which is an
independent nonpartisan health policy research organization funded principally
by the Robert Wood Johnson Foundation.
After a respite in the 1990s, health care costs are rising rapidly again. In 2003
hospital price increases were an important factor behind the increases in costs
faced by those who were privately insured. Employers have been changing their
health benefit plans to emphasize patient financial incentives to use less care
and to be sensitive to prices. With hospital pricing extremely complex, it is
fortunate that at least insured people have more effective mechanisms to
purchase hospital care than by attempting to compare incredibly complex hospital
charge masters for the services that they are likely to be provided when they
are hospital patients.
Uninsured people do not have such advantages and unless the hospital offers a
lower price on the basis of the patient's income, they pay the highest prices,
as Nancy Kane pointed out.
Consumers who are insured benefit enormously from relying on an intermediary to
(a) negotiate prices with hospitals, and (b) analyze differences in negotiated
prices among competing hospitals. Managed care plans negotiate prices with
hospitals through formation of a network of hospitals that have agreed on rates.
When the number of people enrolled in managed care plans expanded during the
1990s, managed care plans were able to negotiate more favorable prices from
hospitals. Pressure for broader hospital networks, increasing hospital
concentration and capacity constraints have weakened plans' negotiating position
with hospitals in recent years.
In order to engage market forces while maintaining broad hospital networks,
health plans have developed a new product, tiered hospital networks. Some of the
hospitals in the network are labeled as preferred, and consumers are given
financial incentives, usually lower copayments, to use them. High priced
hospitals risk the loss of some patients, increasing incentives to agree on a
lower price. This mechanism reflects a more refined device to incorporate
patient financial incentives than say, deductibles, because tiered network
incentives are aimed at situations at which patients have choices. Tiered
networks accommodate both consumers who do not want their provider choice
restricted, as well as those who want to avoid large out of pocket expenses.
Nevertheless, tiered network products have grown slowly due to the complexity of
the products, hospital resistance, and employer caution.
Consumer-driven plans and HSAs have similar issues concerning
hospital pricing. In most situations hospital prices are handled by Preferred
Provider Organization (PPO)
mechanisms through negotiation. Health savings accounts, I expect, will have networks of hospitals
with negotiated prices, and these negotiated prices will apply to the deductible
as well, which will be very important to those enrolled in HSAs and
consumer-driven plans.
When coinsurance is used, there is a need for the plan to communicate to its
enrollees the relative costliness of hospitals. Some plans have been pioneering
this by providing ratings like Zagat's ratings of how expensive different
restaurants are. For example, California Blue Cross giving from one to
five dollar signs for each hospital in its network. Rating hospital costliness is
better than revealing negotiated prices. For one thing they are easier for
consumers to use, and second, I am concerned that disclosure of negotiated
prices will lead to higher prices because of how hospitals will use that
information.
The bottom line for consumer-driven health plans, as well as for Health
Maintenance Organizations (HMOs) and PPOs
is that consumers are better off using their insurer as an intermediary to
negotiate lower prices and inform them of the financial implications of choosing
Hospital A over Hospital B.
A closing thought: making consumers more sensitive to prices and providing
better information on prices and quality can contribute to slowing health care
costs, but we should not oversell the potential. In the long run we know that
new medical technology is the dominant driver of increasing health care costs.
Much of the new technology is terrific, but the lack of careful consideration of
clinical effectiveness of new treatments in relation to existing ones leads to
more waste and poor outcomes than should be the case. Increased public resources
for developing information on effectiveness is critical to the long run slowing
of cost increases.
Thank you.
[The prepared statement of
Mr. Ginsburg follows:]
Chairman HOUGHTON. Thanks very much, Mr. Ginsburg.
Mr. Lee?
STATEMENT OF PETER V. LEE, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, PACIFIC BUSINESS GROUP ON HEALTH,
SAN FRANCISCO, CALIFORNIA
Mr. LEE. Thank you very much, Mr. Chairman, and Members of the Committee for
having me join you today on behalf of the Pacific Business Group on Health,
which represents some of the Nation's largest purchasers of health care. Our
members represent over 3 million Americans in our efforts to
both improve health care quality while moderating cost.
Rising hospital costs are a problem nationally, but events in California have
underscored that there are three industry-wide issues that reinforce Chairman Thomas's note about the blindfolded nature of walking into
hospitals, we can't necessarily tell the experience between nonprofit or
for-profit. The three issues are first, staggering cost increases, second, huge
variations in cost and quality of hospital care, and, third, the failure of the
market to address these issues effectively.
While there are multiple issues for the reasons for rising cost, two in
particular are the lack of transparency differentiating hospital quality and
efficiency, and hospital consolidation, which in many markets has stifled
competition. We see variations in cost between and within communities
that defy any rational explanation and signal insufficiently competitive markets
for hospital services. Gall bladder and heart surgery costs three times as much
in Sacramento as it does in San Diego. Cesarean sections cost twice as much in
Sacramento as in Los Angeles. The problem is not just high cost. It is also
there is a total disconnect between cost and quality. There is no indication
that cost differences have any relation to quality. A patient is about twice as
likely to have a wound infected in the bottom 25 percent of hospitals as in the
top 25 percent; a similar likelihood for getting pneumonia after surgery. Other avoidable complications, and there is no correlation between those quality
indicators and cost.
Purchasers do look to their health plans they contract with to ensure that the
hospitals are not getting overpaid, and are being rewarded for performance, but
also that they provide valid tools so consumers can make better informed
choices. Nationally we should have the same expectation of the Center for
Medicare and Medicaid Services (CMS) and its
administration of Medicare, and I think the good news is we have seen CMS step
up to this challenge in important ways.
There are four things I think that we need to look at to improve hospital
quality and the efficiency with which our care is delivered in our Nation's
hospitals.
First we have to expand the availability of standardized performance
information. We currently have a Tower of Babel of conflicting and incomplete
measures to report on hospital performance. The path to resolve this problem is
to support and accelerate the efforts of the National Quality Forum. At the same
time, CMS should be not only applauded for its focus on the importance of
transparency, but urged to accelerate its efforts to make sure that there is
usable information on hospitals and physician performance, and that the
information is in the hands of consumers, purchasers and providers. One key
element of that transparency is that we must have standards for measuring the
relative efficiency with which care is delivered, looking beyond mere unit price
to assess the full associated health insurance cost or the longitudinal
efficiency with which care by hospitals and doctors is delivered. That is a key
measure to be able to understand the difference between
for-profit and nonprofit hospitals.
Second, we need to reward better hospital performance. There are large-scale
pay-for-performance initiatives in the private sector for medical groups and
physicians, and CMS has a new initiative for incentives at the hospital level.
Those efforts are promising. Center for Medicare and Medicaid Services (CMS) should not only continue that innovation, but
should look actively at how to innovate in partnership with private and
State-based public purchasers.
Third, information must be provided along with incentives to consumers to make
better choices. Across the country there are a growing array of tools and
insurance products provided to health care consumers to help them choose and
understand the differences between hospitals, physicians, and treatment options.
Consumers want and need this information. Our task is to make sure that that
information is valid.
Finally, we have to allow the market to function. We need to be sure that
comparative performance information can be used in local markets. There is a
danger that in communities that have had hospital consolidation, such efforts
will be hindered. Hospitals creating networks is great if that consolidation will
help the market to work. It is dangerous, however, if conglomerates of hospitals
prevent individual hospitals from having their quality and efficiency show
through separately. Conglomerates are dangerous if they prevent separate
contracting arrangements with individual hospitals in local communities. I will just note that consumers need to have the information to make
informed treatment choices. They don't. Providers need to be paid differently
for better performance. Today they aren't. Without those two changes, we will
never have a working market to reform hospital delivery.
Thank you.
[The prepared statement of
Mr. Lee follows:]
Chairman HOUGHTON. Thank you, Mr. Lee. Ms. Davis?
STATEMENT OF KAREN DAVIS, PRESIDENT, THE COMMONWEALTH FUND, NEW YORK, NEW YORK
Ms. DAVIS. Thank you, Mr. Chairman.
Hospitals play a pivotal role in making health care accessible to those who
cannot pay, but they also need to be financially viable. Nonprofit hospitals do
charge patients less and collect lower payment rates than for-profit hospitals.
I cite in my testimony a meta-analysis that summarizes all of the studies over
the last 40 years, and they do conclude that net collected prices are lower in
nonprofits.
Nonprofits admit more uninsured patients and they provide more uncompensated
care than for-profit hospitals. Pricing uncompensated care and bill
collection practices do vary widely across nonprofit hospitals, and the financial
stability of hospitals also vary widely. About a third are in serious financial
difficulty, a third are on the margin, and a third are doing well. Hospitals
that do the best are not necessarily the most efficient or the highest quality.
They are the ones providing the most uninsured care.
On the issue of price transparency, some witnesses on the panel today support it
because they think it will improve cost conscious behavior by consumers. I agree
that the real issue is not individual prices, but longitudinal efficiency, as
Mr. Lee has said. It is the total cost over your hospital stay, really over the
episode of your illness. That is what you want to know, not how much it is per
day of intensive care.
I am more skeptical than my fellow panelists about whether consumer financial
incentives can really drive improved quality and efficiency performance, but I
think there are other compelling rationales for transparency in health care
financing and reasons why we need information on quality and efficiency. For
example it
would help providers improve. It is hard to improve if you don't know how you
stand. It would help, as Mr. Lee says, for purchasers to financially reward
hospitals, health systems, and group practices that provide higher quality care
more efficiently, and I think it is important for public accountability.
Why am I skeptical about consumer-driven health care? One form of this, for
example, is called tiered cost-sharing. What that means: if you are burned
in a major fire, or if you have a heart attack, if you have a stroke, and you go to
the wrong hospital--you don't go to the cheapest hospital or the best hospital,
you go where you are taken-- you can be charged $400 a day extra for every day
you are in that hospital. That is not humane, and it is not going to make those
hospitals higher quality or more efficient.
Having said that, I think there are solutions to trying to make care higher
quality and more efficient. We can look at international examples. We can look
historically at what has been tried in the United States, and the basic lesson that comes
from those experiences is that government leadership matters. When government
establishes a payment framework for purchasers and uses collective purchasing
power to obtain better prices from providers, the rise in hospital costs is
slowed, there is greater equity and there is better access to care for the
uninsured.
The greatest
promise for improving the performance of the health care sector lies in public
information of quality and longitudinal efficiency, so I am very much for
Medicare. The Federal Government needs to take a leadership role and really put
together the information on longitudinal efficiency over time, over the course
of an illness in the following categories (by provider, by hospital, by medical
group, by health system, and by private and public purchasers). As a result,
Medicare, Medicaid, and private insurers have incentive payments that reward
hospitals and other providers who demonstrate superior quality and efficiency.
Purchasers are in a far better position to promote better quality and efficiency
than are patients.
It also might be considered to set at least limits or bans on how much
discounted prices can vary across payer source or patient. Certainly, it is
reasonable not to charge uninsured patients more than other patients.
I think it is important to preserve and strengthen a predominantly nonprofit
hospital and health care sector, and think it would be reckless to undo tax
preferences for nonprofit hospitals, given that they are a major source of
uncompensated care and community benefit.
I think we need more creative ideas about how to create new financial incentives
for the provision of charity care such as the idea of a Hill-Burton Act to
provide capital funds for information technology in exchange for charitable care
or better targeting of disparate proportionate share allowances. Ideally what we would have is a system of automatic and affordable health
insurance coverage for all.
Thank you.
[The prepared statement of
Ms. Davis follows:]
Chairman HOUGHTON. Thanks very much.
Dr. Herzlinger.
STATEMENT OF REGINA E. HERZLINGER, NANCY R. MCPHERSON PROFESSOR, HARVARD
BUSINESS SCHOOL, BOSTON, MASSACHUSETTS
Ms. HERZLINGER. Thank you so much. I am honored to be here. It is very nice to
see you again, Chairman Houghton. I last saw you at the 2000 Harvard Army
Reserve Officer Training Corps
induction ceremonies, and you gave a very moving and eloquent speech there, and
my son, Captain Alexander Herzlinger, is now with the 101st Mountain Division in
Iraq.
I would like to talk about how we get to this position. In most of our economy
prices continually go down, quality continually goes up, and people have good
access, so whether you are Jane Doe or a Member of this Committee, the elite of
the United States, you have the same kind of access.
Why don't we look at those sectors and compare them to health care and see what
they have that health care does not? Let's look at the automobile sector where
prices have gone down, quality has gone up, and even poor people can buy very
good automobiles. What happened?
First of all, consumers are in charge so the market is tailored to them and not
to intermediaries like insurers. Secondly, providers are free to price as they
want. Right now, for example, it is a good time to buy an Impala
because the Chevrolet company has over produced its Impalas and it is cutting
the prices. Thirdly, those markets have terrific information, so even though
Congressman Stark may have ease in buying an automobile, I find it terribly
complicated, but I have great information about the quality of cars that comes
from sources like Consumer Reports and J.D. Power.
What happens when we have this kind of consumer-led system in health care? There
are great things for the uninsured. For example, there is a company called
Health Allies, which is a subdivision of United, which is the largest health
insurer in the United States. Health Allies offers insurance from $500 to $3,000
for the uninsured, and the insurance is very good insurance. It is called
essential coverage, and Health Allies negotiates on behalf of its individual
members, and it gives them the market power that big insurers bring to their
enrollees.
Congressman Stark asked why there were no data on prices. In fact, getting the
price of a hospital procedure is akin to getting the battle plan for Iraq, it is
very difficult right now, but there are private sector companies like Ingenix
that make such data available. It is again a subdivision of UnitedHealthcare.
So, what is the role of government in solving the problem, the terrible problem
that people who lack health insurance face when they enter hospitals? I think it
is to enable a consumer-driven system that makes it possible for everybody to be
on the same footing. Through the leadership of Congressman Thomas and
Congresswoman Johnson, we have gotten HSAs and tax credits. Those are huge
benefits for uninsured people, and give them tax support to buy health
insurance.
The providers must be free to price just like other providers in the United
States are free to price, and the micro-management that we now have of provider
pricing can't be anything but harmful.
The third and most important is to shed some sunlight in this market. A very
good model is the Securities and Exchange Commission. When President Franklin
Delano Roosevelt was elected
President there was no transparency in the capital markets. There were no annual
reports. There was no information that shareholders had. President Franklin
Delano Roosevelt was urged, like you
are, by various Members of this Committee, to regulate the business community
more closely. He very wisely and presciently demurred, and what he chose to do
was foster the Securities and Exchange Commission Act, and he said,
approximately, "Sunshine is
the best disinfectant."
What does the Securities and Exchange Commission do? It has fostered the lauded
transparency and efficiency of our capital markets. It does not dictate what is
to be measured. It does, however, require disclosure and dissemination of data.
I hope and urge you that this model is followed in health care because sunshine
is the best healer.
[The prepared statement of
Ms. Herzlinger follows:]
Chairman HOUGHTON. Thank you very much, Dr. Herzlinger.
I would like to yield to Mr. Thomas.
Chairman THOMAS. Thank you very much, Mr. Chairman.
Dr. Kane's statement is just classic, that it is just as charitable to charge a
rich man as a poor man, which may be the theme of why we are looking at pricing
under the 501(c) section of the code.
Ms. Davis indicated that she could quantifiably differentiate between a
not-for-profit and for-profit in terms of charitable activities. I am going to
ask each of you if you believe you have seen sufficient data in which you can
create a clear separation between not-for-profit and for-profit hospitals broken
along a charity of a community service line. If you don't have that information,
that is fine. I just need to know if everyone agrees with that particular
position based upon the data and the evidence that you are familiar with.
Dr. Kane, yes or no?
Ms. KANE. Yes, I have seen a difference. Generally the nonprofits do provide
more free care, although the uncompensated care totals can be quite similar. The
problem with nonprofit, it is hard to generalize about them. I think there are
quite a few more of them, and so you will see a wider range in behavior.
Chairman THOMAS. I agree, and I have additional questions to follow up on
that.
Dr. Ginsburg, yes or no, in terms of a differentiation, in terms of charitable
or community service between not-for-profits and for-profits?
Mr. GINSBURG. Yes. My recollection of the research literature is similar to
Dr. Kane's, that we do see charitable care by for-profit hospitals, but we see
more by nonprofits.
Chairman THOMAS. Mr. Lee?
Mr. LEE. Defer to my research experts up here. It is not an area that we have
looked at closely.
Chairman THOMAS. That is fine.
Dr. Herzlinger?
Ms. HERZLINGER. I think the question is: do nonprofits give enough charitable
care--
Chairman THOMAS. That is my next question.
Ms. HERZLINGER. To render their tax exempt--
Chairman THOMAS. That is exactly the next question.--
Ms. HERZLINGER. I think that is--Ms. Davis is quite correct. Nonprofit
hospitals do give more charitable care, but of course they should. They are tax
exempt. We give them major tax subsidies to provide charitable care. We don't
give those to for-profit hospitals.
Chairman THOMAS. Doctor, thank you for the bridge. That is exactly the
question that I now need to ask, because all of you felt fairly comfortable, and
one of you deferred to the others on the information that is available, that
there is a difference between the not-for-profits and the for-profits.
My next question, obviously, then is: do you think it is measurable enough to
deal with the significant difference in the way not-for-profits and for-profits
are handled under the Tax Code? I will start again with Dr. Kane. Yes, no, or
not enough information to make a decision?
Ms. KANE. Could you rephrase your question, please?
Chairman THOMAS. If in fact we all agree that not-for-profits do carry out
charitable or community services that give us an ability to differentiate,
perhaps not across the board, but substantially between the not-for-profit
hospital group and the for-profit hospital group. Do you believe we have
sufficient information, or are you comfortable in saying, yes, you can
differentiate between the two, and the not-for-profit status of the 501(c)
tax-preferred status of the not-for-profits is therefore appropriate, given the
difference in the charitable services of the not-for-profits versus the
for-profits?
Ms. KANE. You don't have enough information. First of all, I don't think you
can even tell what the value of tax-exempt status is for a lot of these
hospitals, and then again, the transparency issue, the lack of reporting and
information, makes it very difficult right now to tell. In the research I have
done, most nonprofit hospitals do not earn the value of their tax exemption
through the provision of charity care. They do provide other community benefits.
It is differential. It varies a lot across the population. We do not know how to
properly value some of those services, so we don't have the information.
Chairman THOMAS. Dr. Ginsburg?
Mr. GINSBURG. I don't have anything to add to what Dr. Kane said.
Chairman THOMAS. Mr. Lee?
Mr. LEE. I don't have an answer relative to the specific qualification, but I
would add one other element to your question if I could, Mr. Chairman, which is
to consider not just the relative contribution to charity care, but also how
nonprofit hospitals play in the market as they too, may act as over-consolidated
entities which look very similar to for-profit entities, and that is another
element to consider.
Chairman THOMAS. I can assure the gentlemen we are going to get there.
Mr. LEE. Okay.
[Laughter.]
Chairman THOMAS. Ms. Davis?
Ms. DAVIS. There is evidence that charity care is being increasingly
concentrated in fewer and fewer hospitals, not all of them do it. Certainly
there is evidence on other community benefits that are provided in the form of
standby capacity like--
Chairman THOMAS. The focus of the question was do you have enough information
to say you feel comfortable that the difference between the tax treatment of
not-for-profits and for-profits is justified based upon the charity or community
work they do?
Ms. DAVIS. We do have quantitative estimates of community benefits for medical
education, standby capacity and charity care.
Chairman THOMAS. In your opinion, is it enough to justify the tax difference?
Ms. DAVIS. Yes, on the whole.
Chairman THOMAS. Okay doctor, I understand where you are.
Very quickly. On page 6 of your testimony, Dr. Ginsburg, I do have to
fundamentally disagree with you, where you say that over the long haul
advancements in medical technology are far and away the biggest factor in rising
costs.
One of the difficulties I have had is assuming that somehow medical technology
is always a cost driver and not a cost saver. I really believe the problem is
that you are introducing medical technology in fundamentally a cost plus
structure. In a cost plus structure, medical technology will always cost
more, but if you deal with a comprehensive payment in which you have accepted
responsibility and your profit is what is left over, that cost structure is a
significant driver to use medical technology to save money, i.e., increase your
profit, and so I am very concerned that people automatically dismiss medical
technology as though medical technology itself was the problem. It is not.
In my opinion, it is the payment structure in which medical technology is
introduced. I just wanted to clarify that because people so often say medical
technology is the reason costs are going up. No, it isn't. It is the structure
and the mechanism by which we pay and utilize medical technology.
Mr. GINSBURG. I would differentiate between the capitated environment which
has the incentives to use only valuable technology, and the fee-for-service
environment, which unfortunately is our dominant payment mechanism, which tends
to accept almost all technology.
Chairman THOMAS. Doctor, I accept that correction, but your statement is a
stand-alone flat-out statement. That is all, and I just said that I would have
some concern with that statement as a stand-alone statement.
Mr. GINSBURG. I think the other point I want to make is that there is so much
dynamic in medical care, so that the services that people are getting over time
are changing. People are getting more medical care, much of it valuable, and
this is the key reason why spending per person increases.
Chairman THOMAS. I agree. Increased usage isn't necessarily medical
technology. It is awareness, availability, education. All of those are factors
that have dollar values to them. I was just focusing on the medical technology
statement that you made.
I also have to say that your statement, disclosed prices will lead to higher
prices, is about the most anti-market statement I have heard in a long, long
time, because what hospitals receive and what third-party payers, the primary
function of paying, is a negotiated price. When you talk about disclosing
prices, those are mainly out there to make sure you get more payments from the
government, not that they are any real standard of what the prices are. In
attempting to determine the initial statement that I asked, whether or not there
was a differential that could be seen and value gotten from the tax treatment,
prices are fundamental to what we need to focus on.
Let me ask only one additional question. Thank you, Mr. Chairman, for the time.
Mr. Lee, when you looked at the differential in quality and cost on a quintile
or a quartile structure, did you break it down between not-for-profit and
for-profit as well as the structure that you outlined?
Mr. LEE. We have not done a full review of that, but we have that information,
and right now when you look at this quartile mix, it is really sort of a scatter
all across the map of where hospitals fall on efficiency and quality. I will look
at it more closely and follow up with you, Mr. Chairman. My recollection that it
is a mix among nonprofit and for-profit,
where they are scattered amongst this mix of efficiency and quality.
Chairman THOMAS. Mr. Chairman, as we examine the question, we shouldn't just
focus on community or charitable care as it may be defined. It seems to me that
given the significant tax break that not-for-profits provide, we should see to a
certain degree discernible differences among a number of axes that you would
examine the materials, and I would submit that that is not the case now, or we
don't have enough evidence to make that decision, and I would hope people don't
believe as a general position that transparency and knowledge to consumers is a
dangerous thing. It is the most important thing to getting some rational payment
and quality structure in this area as far as I am concerned.
Thank you very much, Mr. Chairman.
Chairman HOUGHTON. Again, I turn to Mr. Pomeroy.
Mr. Thomas, I thought we would have a second round with the exception of
you, because you had two positions here. Is that all right with you?
Chairman THOMAS. I am under the complete control of the Chairman.
[Laughter.]
Chairman HOUGHTON. Okay, Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman. Well, we have a rich stew of health
policy ideas bubbling in this hearing, not really leading any direction, but we
got a rich stew on our hands. I guess to the extent it relates to this issue of
not-for-profit and their role in providing charity care, the panel is in
agreement that there is a distinction in the market practices of not-for-profit
versus proprietary institutions. There also seems to be agreement that
not-for-profit, the basis for not-for-profit status as a hospital, ought to be
considered beyond the issue of charitable care or uncompensated care, role in
the community, community service, or other things appropriately considered. Any
objection with those kind of general conclusions so far?
[No response.]
All right. I think a third point of consensus that I understood
is more data to the public in understandable ways involving cost, but very
importantly, also involving quality would be of great value.
[No response.]
Consensus again. All right.
Well, let us kind of wade into areas where we might have some differences of
opinion.
Ms. Herzlinger, first of all, congratulations on raising a fine son, and our
full support is with Captain Herzlinger and his important responsibilities on
behalf of all of us in Iraq today.
Ms. HERZLINGER. Thank you.
Mr. POMEROY. It seems to me that you place a very important role on market
dynamics. If we could get market dynamics into health care providing, it would
be a big step forward. Do you believe abolishing employer-based health insurance
for some other kind of comprehensive coverage is then a step in that direction?
Ms. HERZLINGER. I think it is very important that people have access to money
that enables them to buy health insurance. Right now that money comes from
employers, but it is really paid by employees. They just get paid in the form of
health insurance rather than getting paid in the form of salaries.
Mr. POMEROY. Although there are some marketplace dynamics that captures. I
mean distribution, discounts.
Ms. HERZLINGER. Perhaps. Although if the distribution were so powerful we
would have our employers buying our cars for us, they would buy our food
for us, they would buy our housing for us.
Mr. POMEROY. I am not sure of this car deal. I mean I kind of think, I like my
car, Ford Escort, runs fine, but I think quite differently about health.
Ms. HERZLINGER. Yes, but that is--
Mr. POMEROY. I buy a cheap car because it gets me around. When it comes to my
health, I don't want cheap. I want good.
Ms. HERZLINGER. You want value for the money.
Mr. POMEROY. I think that this analogy just didn't quite go all the way, but I
was trying to get to what you imagine as a perfect coverage scheme.
Ms. HERZLINGER. Correct.
Mr. POMEROY. Would it be government provided?
Ms. HERZLINGER. My point was, Congressman, that the idea that big is
beautiful, that big buyers create efficiencies in the market. If that were so,
then all consumer goods would be purchased through big buyers rather than
through consumers. Yet, most consumer goods are purchased, you and I buy our
own clothes, we buy our own house, we buy our own food. We buy many things for
ourselves, and we get good values for the money.
Mr. POMEROY. This is an interesting discussion in economics. I don't quite
understand its application to what we have before us as a point of inquiry.
Ms. HERZLINGER. Well, you--
Mr. POMEROY. I really don't have time, unfortunately, to ferret it all
out, because there is a couple things I want to get to beyond that.
Probably, Dr. Kane. It seems like our pricing, it has had an evolution.
Hospitals are, from the beginning of time, I suppose, they get paid by some, not
for others, got to provide care for all. So, over time they developed a pricing
way of making sure they recovered enough from those who paid to cover those who
didn't pay, and in the era that we are in, be it Medicare on one hand or
third-party payers on the other, they have been pretty effective at ferreting
out where the cross-subsidies are for those not paying, and they don't pay for
them anymore. They pay cost, not this cost plus a subsidy for those not paying and at the end of the line is the hospital, therefore, as you point out,
charging the private uninsured more, because there is no discounts attached,
than the others now pay.
However, as this has evolved where those with coverage used to pay more to cover
those without coverage, now the uninsured are billed more than those with
coverage. The difference for a hospital is that they are very unlikely to
recover from those without coverage. So, although they are billed more, they are
not paid more from this group; is that correct?
Ms. KANE. I think the average amount you recover from your people who would
classify as uncompensated care is around 20 percent of cost, and that is the
hospital's side of the experience. If you are a medical debtor, you have a
very different experience even if you don't pay your full bill. You still can
get harassed. You can still lose your house. You can still have your wages
garnished. You can still be afraid to go back into the health care system for
the next round. So, even though they don't pay their full costs, most of those
who are eligible for medical bad debt or free care don't pay their full cost,
they are still, particularly the bad debtors, experiencing financial angst.
Mr. POMEROY. Absolutely. In North Dakota, where I am from, I mean it is our
leading cause of bankruptcies among farmers. It is a big deal.
I will look forward to the second round, Mr. Chairman. So, much more to cover.
Chairman HOUGHTON. Thank you very much.
I would like to ask a question of Dr. Ginsburg. I think you mentioned two things,
one, using the insurers more to determine the pricing strategy, and also you
talked about the hospital networks. Do you want to elaborate on those two
things?
Mr. GINSBURG. Yes. I think one of the most important innovations associated with
managed care has been in purchasing, in a sense by developing a network of
providers who have come to an agreement with the insurer about rates. This is a
very effective mechanism for obtaining a lower price for the policy holders, and
probably a lot better than they could do on their own even if they had a lot
more price information than they do.
Chairman HOUGHTON. Any more?
Mr. GINSBURG. I would say that the--obviously the--
Chairman HOUGHTON. You don't have to go on. That is fine.
Mr. GINSBURG. Well, let me say that the one other point is that the network
tool starts breaking down to the degree that consumers or employers demand that
all hospitals be in the network, then that removes the leverage that the health plan would have with the hospital, and that issue is what the tiered network is
trying to respond to.
Chairman HOUGHTON. All right.
Mr. Stark, would you like to inquire?
Mr. STARK. Thank you, Mr. Chairman.
Dr. Kane, in your review of foregone taxes, I guess, are you taking into account
only Federal income taxes, or do you take into account real estate taxes paid
locally, or forgiven locally?
Ms. KANE. The study I did it about, using '95 data, so it is old, was property
tax, sales tax, State income tax, and Federal income tax, not including the value
of tax exemption, the value of donations, the overall value of research grants
and other tax-exempt benefits that come from being a charitable, the market
value of the reputation of being charitable, none of that is in there, just the
quantifiable numeric values.
Mr. STARK. I am just guessing here, but were the real estate and sales taxes
the largest?
Ms. KANE. Yes. The real estate was the largest.
Mr. STARK. By far?
Ms. KANE. By far, yes.
Mr. STARK. So, that in effect, in the community, if you let the Federal income
tax go away, which I don't think is very significant, if the local community,
for example, were to apply real estate taxes to the institution, and then give
them a voucher for every local resident that they treated who was indigent, say,
and if they got enough vouchers, they could pay their real estate taxes. We
would have a little bit more accurate way to measure what we in our respective
communities were getting out of these hospitals, would it not?
Ms. KANE. It would help to be able to at least quantify the value of the real
estate taxes. I just want to point out that when local tax authorities do
challenge a hospital's tax exemption, as in Pennsylvania, what they ask for
instead of vouchers for free care, is they ask for dollars to support highways
and schools, so it doesn't get translated back into health care.
Mr. STARK. Okay. I suppose that happens with all of our real estate taxes, and
squeaky wheel theory that I am sure you all teach in your various Ph.D. courses.
Mr. Lee, are you acquainted with the Maryland Hospital Plan at all?
Mr. LEE. I am not sure what you are referring to, sir.
Mr. STARK. Well, Maryland has, I believe now, a unique system for reimbursing
hospitals that I think would put many of your fears or your concerns to rest.
Free advice, it is worth what you pay for it. We did have the California
Hospital Association Board of Trustees here to review what they do in Maryland.
It probably would help California, but it is something you might want to take a
look at just to get an idea of how some of the concerns that you have might be
addressed.
I guess this is just in the way of disclosure here, but do any of you have
either a financial interest in, or a large consulting contract with any
for-profit plans, any large ownership, contractual--you sit on any boards? None
of you?
[No response.]
You are all pure as the driven snow. Good.
[Laughter.]
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you very much.
Mrs. Johnson, would you like to inquire?
Mrs. JOHNSON. Just briefly, what do you know about another
aspect of the issue of charity care and nonprofits? One of the key differences
between a nonprofit and a for-profit is that the for-profit is more agile and
can simply close up and move out if the charity care is overwhelming their
bottom line. We have some indication, at least I have seen some evidence that
for-profits are doing better in part because they have rebuilt hospitals in the
suburbs and left the inner cities.
I would guess that part of the reason they have done that was because of the
overwhelming concentration of charity care in the inner cities, though I don't
know that.
What do you know about this subject? Are mergers, are for-profits moving to
avoid high volumes of charity care and leaving for-profits with greater charity
responsibilities? Anyone of you who would like to respond that.
Mr. GINSBURG. Well, actually, I could say from our visits to communities
around the country, we see both for-profit and nonprofit hospitals focusing
their expansions in suburbs where there are large numbers of privately insured
patients. It seems as though there are market incentives out there, and they are
being responded to by both for-profit and nonprofit hospitals in many cases.
Mrs. JOHNSON. With no differentiation? There is no predominance
of one versus another in their movement?
Mr. GINSBURG. Well, I am sure there is a differentiation. In a sense, I think
the shareholders of a for-profit company wouldn't forgive them if they located
new hospitals in areas where most of the people were uninsured. Some nonprofit
hospitals that have good assets have that option of focusing more on their
mission to provide care to the uninsured and other community services.
Mrs. JOHNSON. Anyone else? Ms. Davis?
Ms. DAVIS. If you look at the major provider in inner cities, those are either
academic health centers or public hospitals. Historically, that has been the
case, and they are the ones that wind up with large proportions of uninsured
patients, large proportions of Medicaid patients. They are the dominant
provider in those communities.
Mrs. JOHNSON. Anyone else care to comment? Yes, Dr. Herzlinger?
Ms. HERZLINGER. There is an interesting example of the hospital system in
Milwaukee, a nonprofit hospital system which is the main provider of charity
care in the inner city. It has formed a for-profit joint venture with its
cardiologists to open a heart hospital in the suburbs. The cardiologists control
the majority share, so they are, as you so aptly put it, nimble and responsive
to the market.
The hospital owns the minority--and the rest of the community, the minority
share, and the hospital uses--the nonprofit hospital uses the profits from its
for-profit venture to subsidize charity care in the inner city. I think it is an
important and an instructive example.
Mrs. JOHNSON. Thank you very much.
Dr. Ginsburg, just one comment on your technology issue. You know, the current
payment system rewards expensive technology for diagnosis or treatment. It does
not reward systemic technology that would reduce overhead costs or improve
quality or eliminate duplicate care. So, I think right now we see technology as a
big cost driver, but it is because the system is selecting the most expensive
technology, and the technology most easily subject to overuse.
Mr. GINSBURG. That is right, and I think we have a problem just as far as
medical services of inadvertently overpaying for some services, usually the
newer ones where there are still productivity increases and underpaying the
others. When it comes to things like information technology, which I believe
has enormous potential to improve care and quality, often the business case is
negative, that because of the fee-for-service payment system, often what
hospitals or physician practices can do to avoid complications and errors hurt
them financially rather than reward them.
Mrs. JOHNSON.
Thank you, Mr. Chairman, for your courtesy.
Chairman HOUGHTON. Thanks very much, Mrs. Johnson.
Mr. Kleczka?
Mr. KLECZKA. Thank you, Mr. Chairman.
Ms. Herzlinger, I happen to represent Milwaukee.
Ms. HERZLINGER. I know that.
Mr. KLECZKA. I think your analysis of what is going on with the boutique
heart hospitals is not really accurate. In fact, since they are investor owned,
there is not that much coming back to the hospital. It is going to the
physicians who are the owners in part of the specialty hospital.
I should point out that we have two in Milwaukee, and I do not think it is a
model to brag about for a profit hospital care, because what they are doing is
not only from the nonprofits but also the for-profit hospitals, they are taking
or cherrypicking not only the patients, but they are also taking out of these
hospitals that provide charity care one of the big profit centers, and that is
the heart.
I am happy to relate to you that both are doing very poorly in Milwaukee, and,
in fact, they are having a problem getting patients and are today they are running
specials. You can get a Magnetic Resonance Imagery (MRI) for $49.95. So, let me just say for those of you who
shop at Kmart, come to Milwaukee and, even though you do not need one, we can
get you a real cheap MRI for $49.95. So, you all come down, hear?
[Laughter.]
The problem I am having with this hearing is that we need this
to find out more information on what is going on, and I guess that is fine, if
the Committee were consistent on that. Know full well that last week we
passed a tax bill which contained a $9 billion tobacco buyout for the tobacco
farmers of the country, and this Committee never met and had a hearing on it.
The full Committee never had a hearing on it, so we passed this blindly with
no input from the public and it went through Congress--it went through the
House, anyway, by a vast margin.
Today, we read in the Washington Post that the bulk of that $9 billion is going
to go to the big, big, big tobacco producers, and the Ma-and-Pa farmer who has
10 acres or so of tobacco, they are going to get $1,000 a year. For the Chairman to come here and say, gosh, we have to do this, the
Committee is so knowledgeable, we were not last week when we took $9 billion of
your money and just dumped it down the ashtray.
I have a real problem, Mr. Chairman, with equating health care with buying a
car, because when I bought my Jeep, I could kick the tires, but when I went for
my colonoscopy last week, I couldn't kick my colon. I had to have someone who is
an expert in that to do that, Dr. Herzlinger, so when you say that we have to
provide the system in the country for health care consumers to get things
cheaper, well, we have that for consumer goods. I can go buy a Digital Video
Disc (DVD) for $39.95, pretty cheap, but where am I buying it from? I have to go
to Kmart for that, who buys DVDs by the zillions from China and sells them
cheap. However, if I go down to my local electronics store two blocks away from
home, I am going to have to pay $129 for the same DVD because they don't volume
purchase and things of that nature and that is our current health care system.
Ellen Bradley from Milwaukee has 5,000 employees and they go either to the
hospital and the health care system and say I want to make you a deal, I have
5,000 people I want insured. Or they can go to a third-party insurer like Blue
Cross or Aetna. That is where I as the consumer get my deal, through volume
purchasing. I do not think we are going to see this through this much-touted HSA problem. In fact, it is going to probably add to the bad debts for the
hospitals because until I have my account established, my high deductible has to
be paid out of my pocket. For someone who is living on the edge and, you know, bought that car that
you talked about so cheap, the Impala that they are giving away, they are not
going to have money after they pay their Impala monthly payment to pay the
hospital the $2,000 for the one visit or one episode. What we are looking at is destroying the employer-based insurance system
of the country, and we, my friends, are going to live to regret it.
Now, if, in fact, we want nonprofit hospitals to do things on the cheap, as Dr.
Ginsburg pointed out--and it was disputed by the Chairman, but I do not believe
the Chairman or agree with the Chairman--a lot of the hospital costs and doctor
costs are related to new technology, which we all want. So, we are going to
say to the nonprofits, We want you guys to do it on the cheap so you can give
more health care away and forget the new MRI because you should not be having
that because you are billing these patients as Dr. Herzlinger said in her
statement--in fact, what she referred to in the statement is price gouging of
the uninsured. Well, that has not been proven by any of the panelists today. It
is a nice thing to say. Again, I have to refer you to the article I put in
the record, and this was the one I asked you to read, and it is a Business Week
article, and it is entitled "Making Hospitals Cry `Uncle.'" If you ask me,
it is not the nonprofit, tax-exempt status that is up today for a hearing. It is
this article here which talks about a large contributor to the Republican Party
and what he is doing to hospitals by grabbing them by the neck and shaking them
until they call "Uncle."
Thank you.
Chairman HOUGHTON. All right. Uncle Ryan, would you like to--
[Laughter.]
Mr. RYAN. What was the question?
I, too, represent Milwaukee, Milwaukee County, seven suburbs in Milwaukee and I
would argue that there is a different story behind these specialty hospitals.
The MRI center in question, they are providing a service to the Milwaukee area
residents, same MRI, same General Electric MRI device, same kind of skilled MRI
radiologists, and they are doing it at lower cost. They are actually on radio
and television saying, "If you want an MRI and you want it today, if you need it, or you
want it the next day or the day after, we will give it to you instead of having
to have the long waits that you have at hospitals, and we will do it at a
fraction of the cost."
Mr. KLECZKA. Will the gentleman yield?
Mr. RYAN. So, I only get 5 minutes, so, no, sorry, Jerry, not this time.
Mr. KLECZKA. I will tell you the rest of the story when you are done.
Mr. RYAN. Okay. The point is that that is injecting competition in the
marketplace, and those people in the Milwaukee area who have these
consumer-directed plans are actually saving money. What we are finding with HSAs, one of our big Milwaukee insurance companies that is selling these things
has shown that 42 percent of the people who bought their HSAs, many of whom are
from Wisconsin, are people that did not have health insurance before. We are
finding that people care about cost because they now have products that allow
them to save money, and then we have competition in the marketplace where we are
getting the same quality or better quality delivered to people at a faster time
frame at lower cost. So, this form of competition is actually working, and we see
it in Milwaukee. I did not want to give a speech. I wanted to ask a question.
Ms. Davis, I wanted to ask you a quick question, and then Dr. Herzlinger. You
stated that other countries had a greater role for the government in
establishing hospital budgets or pay rates. Moreover, other countries have done
more to rationalize costs than the United States has, as you have mentioned.
You know, I have seen so many cases, in the United Kingdom, in Canada, where we see these
global budgets in place, we see rationalized costs, but they are accompanied
with long waiting lists and higher mortality rates and lower-quality care.
Could you comment on that?
Ms. DAVIS. In terms of waiting lists, you are right. Waiting times for elective
procedures in the United Kingdom are much longer than in other countries. They
are longer in Canada, and the United States is very low on waiting times for surgeries
that are
elective procedures.
In terms of quality and outcomes, we just recently released a report that was
put together by an international working group on quality indicators, and they
looked at 21 different quality indicators across the United Kingdom, Canada,
Australia, New Zealand, and the United States. The United States is kind of in
the middle. It is better on some things, and worse on other things. We are the
best on breast cancer of those five countries and 13 percent better than the
United Kingdom. On 5-year survival rates for kidney transplantation, Canada is
the best, and the United States is the worst. Canada is 14 percent better than
the United States.
It is a narrow difference, 10, 15 percent. We are usually in the middle, better
on some things, though not on everything. Certainly in terms of convenience and
waiting time for hospital care, we are better. On waiting times for physician
care, we are actually not better. The United States and
Canada are toward the bottom. In other places, you can get physician care the same day if
you are sick and need care. Here, you wind up waiting a week, 2 weeks, to get--
Mr. RYAN. Well, is it not true that the average waiting time in Canada is 6
weeks for primary care and 7 weeks for a specialist on top of that?
Ms. DAVIS. The U.S. waiting time for physician appointments are long also,
which is surprising to me--
Mr. RYAN. In HMOs or PPOs or every instance?
Ms. DAVIS. Well, for most, the non-elderly population, they would be in
managed care.
Mr. RYAN. Okay. Just because I am running out of time, Ms. Herzlinger, I want
to ask you, you know, I think one thing that we are all probably agreeing on
here--and Congressman Stark and I had a hearing on this in our other committee,
the Joint Economic Committee--is transparency on price. I think that is
something that everybody here, every witness from all different sides of this
debate spectrum have agreed, let's have transparency on price. That is something
that I think we can get consensus on, and I have always said to my hospital
friends that either they are going to come up with a way of doing it or,
unfortunately, the government is going to have to do it for them. I would hope
that the industry would figure out a way of doing it. My question to you, Ms. Herzlinger, is:
does the current lack of price
transparency benefit hospitals? Since this is the tax status hearing, how
does that play into their hands on pricing strategy, if it does at all? Could
you comment on that?
Ms. HERZLINGER. I think lack of transparency in a market always hurts
consumers. If people do not know what something costs, they are not going to be
good shoppers and when they are not good shoppers, we have misallocation of
resources. So, whether it hurts or helps hospitals, I do not know, but it
certainly hurts consumers. If I needed to have a mastectomy, I would know more
about my tomato sauce, my car, my pantyhose, than about the quality and the cost
of the surgeon and hospital in which that mastectomy is to be done right now.
Mr. GINSBURG. If I could add something, I am certainly in favor of consumers
having as good, accurate, and accessible price information as possible when they
have incentives to choose lower-cost providers. We have to realize that in
most markets, there is a lot of concentration on both the insurer and the
hospital side. This is oligopoly and oligopsony, and it is not clear that
actually announcing the results of negotiation between large insurers and
hospitals is necessarily going to be better for the consumer. You know, if you
think of cartel theory, public prices, it is a way of having--it facilitates the
workings of a cartel. So, we need to be very careful that while we do want to
provide a lot of relevant price information to the consumers, we do not want to
also broadcast it around to make negotiations come out differently.
Mr. RYAN. Thank you. That was insightful.
Chairman HOUGHTON. Thanks, Mr. Ryan.
Mr. Sandlin?
Mr. SANDLIN. Thank you, Mr. Chairman, and thanks to each of the witnesses for
coming today.
Dr. Kane, in reviewing your testimony, do you think that the cost of the
preferred tax status of the nonprofits outweighs the benefits that those
hospitals provide to the communities?
Ms. KANE. I think I mentioned we do not fully know how to value some of the
benefits, some of the community benefits that hospitals do provide, including
stand-by capacity, or some of the things that--
Mr. SANDLIN. Stand-by capacity and, of course, saving people's lives and
treating people and taking care--
Ms. KANE. Well, nonprofit and for-profit hospitals save people's lives, so it
is pretty hard--I hope.
Mr. SANDLIN. Well, my point--
Ms. KANE. It is a little hard to--
Mr. SANDLIN. My point is--
Ms. KANE. Just attribute that to tax-exempt status.
Mr. SANDLIN. My point is this: it is not all about business and dollars.
Ms. KANE. Absolutely.
Mr. SANDLIN. It is about treating people in health care; isn't that correct?
That is the first obligation. Isn't that right?
Ms. KANE. Both for-profit and not-for-profit hospitals do treat people and
hopefully do the best they can.
Mr. SANDLIN. Now, the Tax Code, I was looking at the 501(c) requirement, and
it says that the hospitals have to provide a health benefit to the community at
large, these nonprofits. Is that correct?
Ms. KANE. Yes, they are expected to provide a health benefit, which is about
the same thing that a for-profit does.
Mr. SANDLIN. I understand that. My question to you is: does a 501(c)(3)
nonprofit, are they required under the law to provide a health benefit to the
community at large? That is my question.
Ms. KANE. Well, I believe so. I am not a lawyer.
Mr. SANDLIN. Okay. Thank you.
Now, these hospitals are providing a health benefit to the community at large,
are they not?
Ms. KANE. The nonprofit and the for-profits are both providing a--
Mr. SANDLIN. My question is: are the--
Ms. KANE. Health benefit to the community at large.
Mr. SANDLIN. Nonprofits providing a health care benefit to the community at
large as required by the law? That is--
Ms. KANE. I hope so.
Mr. SANDLIN. Thank you. So, they are following the law, aren't they?
Ms. KANE. Again, I think you are asking me the question in a way that is
probably inappropriate--
Mr. SANDLIN. No, ma'am. Here is my--
Ms. KANE. In respect to the issue around tax exemption.
Mr. SANDLIN. My question--no. My question is: they are following the law, are
they not?
Ms. KANE. As far as I know. I think some hospitals do not necessarily follow
the law, but most do try to provide a health benefit to--
Mr. SANDLIN. Do you think that nonprofit hospitals should provide a specific
amount of charity care?
Ms. KANE. I think they should provide a specific amount of community benefits,
as more specifically defined than is currently defined in the Federal law.
Mr. SANDLIN. Okay. Now, I have noticed that you have used some of your
research, it says, and the materials we have to challenge the tax-exempt status
of hospitals in Texas and Massachusetts and Idaho and Virginia, Ohio, Maine, and
New Hampshire. Is that correct?
Ms. KANE. I am sorry. What was the question?
Mr. SANDLIN. Have you been involved, have you used research to challenge the
tax-exempt status in those States that I listed?
Ms. KANE. I have not actually been the challenger. Usually, the Attorney
General or a local tax authority is the challenger, and I am hired as an expert
witness to assist in those challenges.
Mr. SANDLIN. So, basically you are an advocate for challenging the tax-exempt
status--
Ms. KANE. No. I am usually the expert witness for those who have already
challenged the tax exempt status of a hospital, in general because even though
it is providing health care for the good of the community, they have a bad habit
sometimes of telling people who do not pay full charges or were not insured that
they cannot get care in their emergency room until they are really, really,
really sick and that is when they get challenged.
Mr. SANDLIN. Okay.
Ms. KANE. There are some pretty egregious examples of that. I hope you are
not trying to--
Mr. SANDLIN. Well, that is a charming--
Ms. KANE. Defend those.
Mr. SANDLIN. Story, but that was not my question. Now, you said that you are
not an advocate for challenging the tax-exempt status of the hospitals, so could
you tell me, in all the areas that you have worked to support or maintain the
tax-exempt status of a hospital? What States have you done that in?
Ms. KANE. There usually are not challenges to support the hospital's
tax-exempt status.
Mr. SANDLIN. Have you--I did not--have you taken a position contrary, have you
taken a position on the other side of the issue to say, no, the tax-exempt
status should be maintained in any State?
Ms. KANE. I have written about hospital tax--the whole article that I wrote
that is cited in my testimony talks about the hospitals that do maintain their
tax-exempt status through the virtue of providing charity. So, I do believe that
most of my work is on measurement and reporting fact, and then--
Mr. SANDLIN. My question is--
Mr. MORRISON. If it happens to be useful to those who make a challenge, that
is who calls me.
Mr. SANDLIN. Well, thank you again, and you have a nice report. Here is my
question: you said that your research has been used as an expert witness to
challenge the tax-exempt status of certain hospitals. Has that research been
used or have you been an expert witness on the other side to support nonprofits
hospitals? In what States would that be?
Ms. KANE. No, I have not.
Mr. SANDLIN. Okay.
Ms. KANE. Generally, people do not challenge hospitals if they think they
are--
Mr. SANDLIN. That was not my question--
Ms. KANE. Already acting charitably.
Mr. SANDLIN. I think we understand what you are saying.
Now, in Texas, are you aware of what the Texas law is on the requirement for
charitable--
Ms. KANE. The Texas law was passed partly as a result of the challenge that I
was involved in in Texas back in 19--somewhere between 1989 and 1991 or 1992, I
believe.
Mr. SANDLIN. In 1993--well, the first I think was 1985 on indigent health care.
In 1993, it was SB 427 and that requires charity care and government-sponsored
indigent health care provided in an amount equal to at least 100 percent of the
hospital's or hospital system's tax-exempt benefits, excluding Federal income
tax, or charity care and community benefits are provided in a combined amount
equal to at least 5 percent of the hospital's or hospital system's net patient
revenue. Do you feel like that is an adequate amount?
Ms. KANE. I felt that was a fair law. They had to define "community benefit"
in a way that leaves out things like Medicare contractual adjustments and
medical bed--
Mr. SANDLIN. One final question. I notice there are lawsuits filed against
East Texas Medical Center Regional Health Center in Tyler, Texas. Are you an
expert witness or consultant in that particular litigation?
Ms. KANE. No.
Mr. SANDLIN. Have you been consulted or talked to in any way about that
particular litigation?
Ms. KANE. No.
Mr. SANDLIN. Did you know that system provided $91 million in charity benefits
in 2003 and will pass $100 million in 2004?
Ms. KANE. I am sorry. I did not hear what you said about the--
Mr. SANDLIN. I said were you aware that--you do these studies, and I just
wanted to know if you were aware that that system provided $91 million in
charity care in 2003 and will pass $100 million in 2004.
Ms. KANE. No, generally the data I get has to be nationally available, and
that may not be something that is in one of my data sets. It is pretty hard to
get that data unless you are involved in a lawsuit in Texas.
Mr. SANDLIN. Okay. Well, thank you for that.
It just seems to me, Mr. Chairman--I am finished rather than attacking the
hospitals, we should focus on coverage and if we focused on coverage, we could
take care of these issues. Thank you, Mr. Chairman, and thank you, witnesses.
Chairman HOUGHTON. Thank you.
Mr. Johnson, Mr. Sam Johnson?
Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate that.
I would just like to say that we have specialty hospitals, numerous in our area,
and they are all doing a great job. It seems to me that physicians do not
get away from the regular hospital when they get into the specialty business.
They still maintain their status with the regular hospitals. Would you think
that the patient should or shouldn't have the ability to choose between a
specialty hospital and a regular hospital if the physician operates at both of
them? Anybody.
Ms. DAVIS. The basic problem is that there are very different profitable returns
on different services. So, the real problem is that you can make so much money on
orthopedic care and cardiac care, yet you can lose so much money on burn
care, and neonatal intensive care. If we had a more rational pricing structure,
we would not have services being skimmed off into separate hospitals. It reduces
the ability to cross-subsidize both patients who cannot pay and important--
Mr. JOHNSON. Okay. Let me ask you this question: why do you think
they skimmed off to specialty hospitals? Because they were not getting the
service at the hospital, which mostly are not-for-profit. My view.
Excuse me. I interrupted you.
Ms. HERZLINGER. Not at all, Congressman Johnson. I think that the specialty
hospitals, just like specialization in the rest of the economy, make things more
efficient and more effective. That is why General Motors spun off Delphi because
it couldn't do everything. There is tremendous data to show that the
patients are very satisfied and they are lower cost.
The core problem is why do they set up specialty hospitals in heart and
orthopedics owned in the Milwaukee area, to my knowledge, by the cardiologists
in the area and the nonprofit charitable hospital system in the area. The
reason is that we have these third-party payers who are setting the prices.
Sometimes they set them too high, as in cardiology and orthopedics, and
sometimes they set them too low, and sometimes they set them so that they stop
the innovation, which is the key to raising productivity in the U.S. economy.
For example, Ralph Snyderman, the CEO of the Duke Medical Center, innovated a
new treatment for congestive heart failure. Congestive heart failure costs $56
billion. In 1 year, by focusing, by specializing on congestive heart failure, he
reduced the cost by 20 percent in 1 year. The way he did it is, because
he was specialized on congestive heart failure, he made people healthier. When they were healthier, they used the hospital less and they stayed for
shorter amounts of time.
In a normal marketplace, this kind of innovation would reap large rewards. Ralph
Snyderman lost virtually all the savings because under a large third-party
system, which is not agile and not responsive to innovations, he gets paid for
treating sick people and the healthier they are, the more money he loses. That
is the problem with a volume-based model that says, well, the big insurer can
get big discounts. Perhaps that is so. The big insurer can also stifle the
innovation, which is the heartbeat of the productivity in America.
Mr. JOHNSON. Let me interrupt you. I am about to run out of time.
Ms. HERZLINGER. Sorry.
Mr. JOHNSON. I want to hear from Dr. Ginsburg as well. Thank you.
Mr. GINSBURG. Yes, I wanted to first say that I think the problem is not big
insurers. It is fee-for-service payments. When you pay for delivering more care,
it is never a hospitable system for excellence, for doing better with fewer
resources.
I just want to say something about specialty hospitals. There certainly are
cases where specialty hospitals have innovated in care, but because of our
financing system, because our reimbursement rates do not adequately reflect
costs--and the Medicare program needs to pay attention to this--because of the
fact that we have different insurers paying different amounts, there is a
potential that the technical success of the specialty hospital could cause
irreparable harm to community hospitals, not because the specialty hospital is
better, but because it is agile enough to concentrate on the inadvertent
incentives that have been placed in the system to treat more cardiology and
orthopedics, to treat privately insured patients instead of Medicaid patients.
I am also concerned about the conflict of interest that physician owners of
these facilities have.
Mr. JOHNSON. Can he answer? Go ahead.
Mr. LEE. Congressman Johnson, I want to build on one other point about the
issue both with specialty hospitals but also it goes to Congresswoman Johnson's
question about the expansion of hospitals to suburbs, et cetera. One of the key
problems we have driving hospital costs is supply-driven demand. Where you have
more hospital beds, more people use them. We had in Northern California,
Redding, which got a lot of attention, a Tenet hospital, it was not just an
issue of its outlier payments. They were having too many people getting cardiac
care, and it is because if you have docs that want to fill up their portfolio,
with all due respect to physicians, people will get more care--physicians will provide
more care. One of the issues we have to get to consumers is information not just
about whether this hospital doing a good job or not, but are they doing the right
care at the right time. That is one of the concerns that I have about
specialty hospitals.
Mr. JOHNSON. Well, I will ask another question later, but it seems to
me the not-for-profits are building more hospitals than the for-profits. You
might answer that next time.
Thank you.
Chairman HOUGHTON. All right, fine. Thanks, Mr. Johnson.
Mr. Portman?
Mr. PORTMAN. Thank you, Mr. Chairman, and I thank the witnesses today. We have
had a very interesting dialogue about health care, haven't we? We have gotten to
talk about costs and technology and its challenges as well as its opportunities.
We have talked about pricing and transparency, and I do take some comfort, Mr.
Chairman, in the fact that at least this panel, and I believe the panel that I
am sitting on--perhaps there is not a consensus on this, but a majority of us,
at least, seem to be focused on the fact that more transparency and more
information will make not just a more efficient health care system, but a
higher-quality health care system and that is encouraging. I do think that is a
general direction that we should be able to move on a nonpartisan basis.
Then the final issue is the tax-exemption issue, and they are all related, of
course. Since that seems to be more of the focus of the hearing, let me
focus my questions on that.
I will start by saying I represent the greater Cincinnati area. We have three
nonprofit health care networks who do a terrific job in our community. They are
all involved in charity care, uncompensated care, but also community benefit.
They are also businesses, and they are run more like businesses today than they
were 10 years ago, even than they were 2 years ago. As a result, they have
gotten over some very significant financial challenges. Mr. Lee talked about
excess bed capacity and so on, and, we have gone through a pretty
aggressive managed care revolution really in Cincinnati and back and forth. My
point is they are businesses and they have a bottom line, and they must compete,
and they do.
Having said how important it is that they provide that community benefit--and it
is--I also think it is appropriate for us to review and clarify the rules. We
are basing most of our discussion today on, incidentally, a 1969 IRS ruling with
regard to what, in fact, is a community benefit, which was a change from the
charity definition and you know, probably once every--what would that
be--35 years, it is time to review where we are, not that that has not been
done periodically in the interim period, but I think it is appropriate that we
talk about where we are.
So, my question would be whether this panel would have any specific
recommendations as to what the standard ought to be. Do you believe the
community benefit standard is appropriate, again, dating back to 1969? Do you
believe that there should be more specific standards? Which is something Dr.
Kane alluded to earlier and if it is all right, I will just start with Dr. Herzlinger and go across the panel. The mother of Captain Herzlinger.
Ms. HERZLINGER. Also Dr. Herzlinger, my daughter.
I think businesses provide community benefits as well. They do provide
employment. They pay taxes into the community. Nonprofit hospitals not only have
tax subsidies; they also have capital market subsidies. They are entitled to
issue municipal debt, which businesses cannot, and raise the cost of capital
elsewhere in the economy.
When we talk about community benefits, I think it is very important to
identify those community benefits that are unique to nonprofits and that
for-profit businesses, which, after all, are the cornerstone of our great
economy and our great country, also generate.
Mr. PORTMAN. Thank you.
Ms. Davis?
Ms. DAVIS. I think it is hard to quantify all of the community benefits, like
the value of stand-by capacity. So, when you set an explicit quantitative goal,
you wind up focusing on charity care because it is easier to measure. So, I think
there are some problems with trying to set a specific quantitative goal.
I do think one could work on better practices, for example not charging American uninsured
patients more than the discounted rate you would give
to an insured patient; not having certain kinds of collection practices, like
liens on homes; and publishing the availability of charity care. So, I think that is
kind of the area where I think the best improvement could be made in the near
term.
Mr. PORTMAN. Interesting suggestions. Just as an aside, the three major
nonprofit networks in Cincinnati have just come up with a draft billings and
collections principles and guidelines statement which they shared with me
yesterday. In fact, I was going to ask it be made part of the record later, if I
could ask unanimous consent, Mr. Chairman, to make it part of the record. It is
currently being subject to a comment period, but it gets at those very issues,
Ms. Davis, you talked about, including collections.
Mr. Lee?
[The information follows:]
DRAFT
UNTIL
PUBLIC COMMENT PERIOD ENDS 7/1/04
Billing & Collections Principles and Guidelines
for Low-Income,
Uninsured Patients
Principles
All patients should be treated fairly, with dignity,
compassion and respect.
Hospitals have a
financial responsibility to seek payment from patients in cases where the
patient does not qualify for charity care and where the patient’s income or
other assets clearly indicate the ability to pay for the health care services
provided.
Each hospital should have clearly articulated,
understandable financial assistance policies consistent with its mission and
values, and which underscore the hospital’s commitment to provide financial
assistance to low-income patients.
Financial assistance policies should be clearly communicated
to patients and must be applied consistently to all patients.
Financial assistance policies should apply to patients who
cannot pay for any or all of the care they receive, and should balance the
patient’s ability to pay with the hospital’s need to be fairly compensated for
services rendered to ensure its on-going financial viability.
Hospitals should assist
patients with enrolling in Medicaid and other government- sponsored programs.
Debt collection policies of the hospital and its debt collection
agencies and attorneys must reflect the mission and values of the hospital.
Financial assistance policies do not preclude the patient
from personal responsibility. Patients must communicate their financial
situation to hospitals, must work together with hospital staff to receive
financial relief, and must be expected to meet their financial responsibility
based upon their ability to pay.
Hospitals will not be able to reinvest in plant, equipment
and new technologies to continue to provide the highest quality of care without
being compensated for their services. Financial assistance from hospitals must
be complemented by efforts of government, employers and others to expand access
to health care coverage for all Tristate residents.
Financial Assistance Eligibility
Each hospital should maintain, and update as appropriate,
written financial assistance policies for low-income, uninsured patients
including those eligible for charity care.
Absent regulatory
prohibition, hospitals should develop discount programs for low-income
uninsured patients who do not meet Federal Poverty Guidelines (FPG) to qualify
for charity care. These discount policies should be reevaluated periodically.
Hospitals should work with
patients who do not qualify for charity care to establish extended payment
options including low interest loans that are appropriate given the patient’s
income and assets. Consideration should be given to prompt payment discounts
and other means of relieving financial pressure on self-pay patients.
Hospitals should ensure best efforts to apply policies
consistently to all patients, and hospitals should clearly define the type and
scope of services eligible for assistance.
Hospitals should assist patients in determining eligibility
for government-sponsored aid.
Hospitals should continue to provide financial assistance to
patients who have exhausted their insurance and who exceed financial
eligibility thresholds for extraordinary medical costs, although hospital
financial assistance is not a substitute for employer-sponsored, public or
patient-purchased insurance.
Communicating Financial Assistance
Eligibility
All financial assistance applicants should be treated with
dignity, respect and with cultural sensitivity. Free interpretation and
translation services should be made available as necessary.
All patients regardless of income level or payment status
(i.e. insured, Medicare, self pay) will receive access to the same information
regarding services and charges.
Hospitals should ensure
that patient financial services personnel and financial counselors are fully
trained on the hospital’s financial assistance policies and can communicate
those policies clearly to patients. Receptionists and switchboard personnel
should be able to direct callers to hospital staff trained to provide financial
assistance.
Communications to patients regarding financial assistance
should be written in reader-friendly terminology and in a language the patient
will understand.
Financial assistance policies must clearly state eligibility
criteria and the process used by the hospital to determine whether a patient
qualifies for financial assistance. Eligibility requirements related to FPG
should be clearly enumerated for patients, and patients should also be told how
assets may be used in determining eligibility for financial assistance.
Hospitals should have adequate, easily visible signage in
appropriate areas of the hospital (i.e. Emergency Department,
Admitting/Registration) informing patients and their families of the
availability of financial assistance. Signs should include brief instructions
about how to apply for financial assistance including contact information.
Information regarding the availability of financial
assistance should be included on hospital bills including who to contact to
begin the eligibility determination process.
Patients should be clearly informed about their obligations
to complete eligibility documents and to provide financial documentation as
necessary, as well as potential financial obligations they may incur.
When applicable, patients should be referred to an enroller
to apply for Medicaid or similar programs to assist in offsetting some or all
of the patient’s financial liability and to ensure that the hospital is fairly
reimbursed for its services.
Hospitals should share their financial assistance policies
with appropriate health and human services agencies and other organizations
that assist such patients.
(The financial assistance and communications guidelines
listed above apply to a hospital’s treatment of patients seeking charity care,
financial assistance, or discounts, as applicable. To receive such assistance,
patients must comply with hospital financial assistance application
requirements, including providing documentation as needed. Patients must also
cooperate with hospital staff and provide needed information in a timely manner
to enroll the patient in Medicaid or other programs as required.)
Collections Guidelines
Hospitals will provide their mission statement and their
billings and collections guidelines to their collection agencies and attorneys,
and hospitals will secure their agreement to adhere to the same high standards
incorporated in the hospital’s policies. (Collection agency is defined as an
outside agency engaging in bad debt collection services on behalf of a hospital
as opposed to an outside agency contracted to manage the hospital’s day-to-day
billing activities.)
No collections effort will be made by the hospital or its
collection agency for patients who have completed the financial assistance
application process and established their eligibility for charity care. If
such a patient is mistakenly billed, hospital staff will apologize for their
error and correct the mistake.
Legal action, including the garnishing of wages, may be
taken by the hospital only when there is sufficient evidence that the patient
or responsible party has the income and/or assets to meet his or her
obligation.
Hospitals will not force the sale or foreclosure of a
patient’s primary residence to pay an outstanding medical bill.
If a patient is cooperating with an agreed-upon extended
payment plan to settle an outstanding bill with a hospital, the hospital should
not send the unpaid bill to a collection agency if the hospital is aware that
doing so may negatively impact the patient’s credit rating.
(The above guidelines apply to a hospital’s collections
practices. However, patients who are financially obligated to pay for a
portion of their care must cooperate with the hospital on establishing the best
method of payment and then demonstrate good faith efforts to abide by that
agreement.)
In conclusion, these guidelines largely reiterate current
policies and procedures of GCHC member hospitals. However, these guidelines
may require some members to enact changes in their policy, which may require
operational changes including, staff training, changes on invoices, contract
revisions with collection agencies, etc. The Greater Cincinnati Health Council
endorses these guidelines and encourages its acute care hospital members to
ensure that their billing and collections policies are consistent with these
guidelines as soon as possible.
Mr. LEE. Also, Congressman Portman, California hospitals have come up with the
same set of standards around billing practices for the uninsured.
The only thing that I would add that is easily quantifiable is how nonprofit
hospitals play in the market. As I noted in my
remarks the concern is that hospital consolidation creates negotiating leverage
that preclude insures from seeing differences in cost quality. Cost and
quality do not show through
because it is a take-one/take-all on the same price basis. There is a problem in
the market.
I am concerned with having a separate set of standards for nonprofits, and I have the
exact same concerns with the for-profit systems. This is an element that I
think is worth looking at.
Mr. PORTMAN. Dr. Ginsburg?
Mr. GINSBURG. My organization studies markets and the implications for
consumers, but we do not take positions on policy, so I would just as soon pass
on this.
Mr. PORTMAN. Dr. Kane?
Ms. KANE. I think there are new guidelines out by the IRS that correspond more
closely with what Karen Davis just mentioned around practices that hospitals
undertake to show that they have a charitable intent when they are providing
care. I think that is an improvement over what it was historically.
I have tried to quantify these benefits. It is difficult. It is also difficult
to quantify the benefit of the exemption in any meaning--you know, without
missing some large amounts of benefit that you cannot quantify. I do think the IRS is paying attention, and I think a stronger standard that
allow States and local communities to play a role in what constitutes a
community benefit is important. Hospitals in some States now work with their
local community health agencies to say, what is important in our community for
health, and if we do that, will that be considered towards our charitable
status? For instance, in New Hampshire, that was part of their community benefit
law.
I think there is a need to be more clear, perhaps, about what practices and
what types of activities would constitute or count towards tax exemption and
have some flexibility in how the hospitals choose to play that out. I think
just the disclosure and the transparency of trying to do that will improve the
way hospitals behave at this point.
Mr. PORTMAN. Thank you, Dr. Kane.
Just quickly, Mr. Chairman, again, our three networks in Cincinnati are working,
in fact, right now with our City Council, which would represent part of the
population served, and with some of the health care providers for uncompensated
care, health care clinics and so on, to try to determine what some of those
needs are on a more regional basis and be responsive to that. The question
is whether that is happening around the country. I cannot speak to that, but
that is an interesting part of the equation given the fact that it is not just
about Federal income tax; it is about property tax and other exemptions.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you. I am going to ask a question, and then I know
Mr. Pomeroy wants to.
I would like to step back a minute and move away from profits, and return
on investment and community involvement and just take all those very difficult
to generalize in terms of the two categories, the profit and not-for-profit.
When you take a look at the cost structure of medicine, you want to have the
toughest, most able, most precise financial people looking to make sure that the
equipment is there, the care is there, the pricing is right. You would sort
of instinctively go to the for-profit institutions.
Yet at the same time, there is another element in the not-for-profit, which is
community involvement. People feel part of the hospital. They want to play a
part in the whole overall medical element in the community. They feel it is part
of them and I don't know why there is any inconsistency in not having a very
sharp, driving, cost-conscious direction of a nonprofit hospital versus the
profit hospital. Maybe you would have some comments to make on that.
Ms. DAVIS. Well, I think one of the basic differences in just what motivates
nonprofits versus for-profits--and it is something I happened to look at 35 years
ago in an economics doctoral dissertation--is they are motivated to be the best,
to be the best equipped, and often to be the biggest, and, therefore, they will do
things that do not make sense to a for-profit hospital because something they do
may lose money. You have got the very best burn unit. You have got the very best
neonatal intensive care unit. You do the best research. You are there for the
community and always known as, when anything really bad goes wrong, this is the
go-to place that leads nonprofit hospitals to try to do things, even if
they lose money.
Now, in the past, they were able to cover that because they could cross-subsidize it out of charges to privately insured patients.
As
that has come down relative to costs under managed care, they are less able to
provide those kinds of services. For the most part, they are the
ones that will do things that we as a society want done but that are not
profitable. I used the example of a major fire in a nightclub. Those burn patients went
to certain hospitals, and those hospitals provided care. They are not going
to make money on those patients. They are going to lose a lot of money on those
patients. We all want those patients taken care of. That is the sort of
thing that a nonprofit will do because they take great pride in having
responded to that community emergency and were there at a time when patients
need them. Obviously, they get some publicity out of it in local papers, and it
helps their image as an institution. That is one of the reasons the
nonprofit nature of this industry is so important.
Chairman HOUGHTON. If I could just sort of cut in here a minute, to flip my
argument, if you take a look at many of the corporations in this country, they
are enormously generous in terms of what they do and contribute into the
community. So, I just do not understand the consistency here. Maybe you would
like to discuss this.
Ms. HERZLINGER. Well, on the for-profit side, clearly in a well-managed,
socially responsible corporation, its aim is to maximize the return for the
shareholders within the norms of society. So, given a nonprofit and a for-profit,
the for-profit aim is clearly to be as efficient as possible, and for-profits,
especially if they are publicly traded, are much more transparent than
nonprofits. I can get the financial statements of the Hospital Corporation of
America (HCA) just by flicking on my
computer. I would have a great deal of difficulty getting comparable statements
for nonprofit hospitals. That kind of transparency in the market is an incentive
for efficiency.
I think the fair thing to do is to measure the costs and quality of both of them
and let people make their own decisions about which ones gives them the best
value for the money.
Chairman HOUGHTON. That is difficult when you are in a small community. Would
you like to add something?
Mr. GINSBURG. The perspective I would like to point out is that nonprofit
hospitals today account for, I think, upwards of 85 percent of the beds. They
are the core of the hospital system. This percentage has been quite stable over
time, and it seems as though, this is a country where not-for-profit
hospitals are the norm. I think the major success that for-profit hospitals
have had has been, first, in areas where there has not been a lot of local
resources to support the development and expansion of nonprofit hospitals. So,
in a sense, they have provided capital and I think that some of the for-profit
companies have been skilled and effective at identifying failing not-for-profit
hospitals that are failing because they are not managed well and purchase them
and manage them well, and then often sell them back to a nonprofit entity. We have to realize that the nonprofit hospitals have this very dominant
position. Whether it is the tax-exempt status, whether it is people's comfort,
whether it is their philanthropy that leads to it, they are the central system.
Chairman HOUGHTON. All right. Does anybody have any other comments? If not,
then we will go on.
Mrs. JOHNSON. Mr. Chairman?
Chairman HOUGHTON. Yes?
Mrs. JOHNSON. I thought you were closing this panel.
Chairman HOUGHTON. No, no. Go right ahead because I wanted to ask Mr. Pomeroy--go
ahead, please.
Mrs. JOHNSON. I will not be able to stay for the second panel,
but I will review the testimony. I want to mention something that has come out
of this panel, although it is not central to your responsibilities in testifying
here. Ms. Davis, you mentioned the stability that Medicare has
provided to the health care system. I would say that that is absolutely no
longer true. You look at the physician payment law. Talk about creating
instability. It is astounding. You look at our ability under Medicare to
reimburse accurately, and if you take the newly proposed outpatient and
inpatient reimbursements--these are new regulations. They are precipitated by
the big increases we provided in the last Medicare bill and by the census
automatic action every 10 years, and you go through what is the interaction
between the census redefinitions, the increases we gave them, the this is and
the that's and the other things. When I ask the experts, who have spent their
lives on this, "what is the outcome? how many of the hospitals in the rural
areas that we gave big increases are going to get those increases?," they cannot
tell me.
When I ask them, "what is going to be the impact on these small urban hospitals
that, frankly, are most disadvantaged in the reimbursement system?" they cannot
tell me.
How can I make policy when we fight for a 4-percent increase for hospital
reimbursements, and then we do not know whether they get them. My hospitals came
in last week and documented that for the first time under Medicare, in spite of
the big increases that we gave, the work we did on Indirect Medical Education (IME), on market basket, the
first time we have ever given full market basket 2 years in a row, every single
hospital in Connecticut is going to get an absolute reduction. A reduction. When
their malpractice premiums are zooming, when their nursing costs are going up,
when their technology costs are going up, and so on and so forth.
So, what drives me--and I am going to be looking at these pricing issues. I want
you to give me anything you know about what we should do about how we price in
Medicare, because every aspect of the system is wrong. You cannot set a price
and keep it for 20 years. Volume increases; it should be declining. What should
we do about that? What should we do about these special services?
I mean, ironically, we have no cost base. We do not know what anything costs. We
have an arbitrary base that we set in a certain year, and we have adjusted it by
inflation. This is no way to run a railroad.
Whether it is hospitals, whether it is technology, whether it is this,
whether it is that, you know, we are--just when you adopt a transfer policy and
you reduce benefit for short stays in a system based on averages, this is a
travesty. It is a travesty of logic and it is a travesty of fairness to the
hospitals.
So, whether it is doctor payments, whether it is hospital payments, whether it is
boutique hospital payments, whether it is surgery center hospital payments, we
do not know what we are doing. The terrible proof is that this new regulation
that has come out, after the biggest increases we have ever passed across the
board, the first time we have just said the whole rural system does not work
because we cannot deal with low volume so we are just going to increase
payments, knowing that it costs more for low volume. This is--I mean, I cannot
tell you. There is no logic. There is no structure. There is no cost basis from
which we can work. In the oncology area where I am absolutely insisting that
practice expense bear some reality to practice expenses, I am being told, "why
should we do it there when we routinely reimburse at 70 percent of practice
expenses for everybody else?" What a bankrupt logic. What a quick way to destroy
the quality of health care.
So, I am very interested in this nonprofit/for-profit, who is getting paid to
provide uncompensated care. To think that Medicare payments are stabilizing
our health care system is to put your head in the sand. I am sorry, but in every
sector we are destabilizing the system, eroding quality, and driving the
development of boutique hospitals and so on, in my personal estimation.
We do not have time to go into all that, but I invite every one of you to work
with me on how do we change the way we price in Medicare. Because if we do not,
we will destroy community hospitals, we will drive the good-quality physicians
out of the system, and, frankly, it is only because of the Administration's good
sense and forbearance that we haven't acted to destroy key home health providers
who clearly are providing more services for less acute care patients. You would
think we might want to know.
Ms. DAVIS. If I could respond quickly to that, I agree with you. Most of my
focus is on the patient and what is good for the patient.
Mrs. JOHNSON. Right.
Ms. DAVIS. I did testify at the time of the Balanced Budget Act that the
proposed cuts to the health care sector were simply unprecedented and much too
deep. The effect of those cuts and other changes in the late 1990s was to take
over a 10-year period $1 trillion out of the health care sector.
Mrs. JOHNSON. Right, but it is also true--
Ms. DAVIS. So, a lot of the problems we are seeing--and you see it a little bit
in my charts 3 and 5 on pages 25 and 26. Medicare cut, Medicaid cut, managed
care cut, and the cumulative effect of that has not been helpful to the--
Mrs. JOHNSON. I agree that the system is far more fragile than
10 years ago. It is also true that what we did in 1997 was limit the rate of
growth for the next 6 years to the rate of growth of the preceding years.
What we are seeing now, because we limited that rate of growth, because
Medicaid, a publicly funded system, is underpaying dramatically, and because of
managed care's pressure, we are seeing a very fragile system now, and we cannot
keep our head in the sand about the inaccuracy of our payment structure any
longer. So, I invite your input. I know that you are concerned about this, and I
just wanted to note that we are--you know, I see this as the first hearing in
this venue, but we will be hearing these other things that are intimately
related, too much for one committee, and I invite your cooperation and input.
Thank you very much, and thank you, Mr. Chairman, for your indulgence.
Chairman HOUGHTON. Thank you. With all of that good news, I now turn to Mr.
Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman.
Well, we have been at it a couple of hours, and I think so far this hearing has
established that a hearing undertaken without a rational focus is unlikely to
produce a clear record.
That said, I want to respond to the Chairman Thomas charge that we can try to
make some sense of all this. I believe that we have established in this
discussion that pricing alone is not a very effective sole indicator of whether
tax-exempt status for hospitals or not is being appropriately fulfilled in the
exercise of their operations. Is that correct? Is that a consensus across the
panel? Any objection to that suggestion? Okay.
Then let me ask you this: do you think there would be--I have seen--I used to be
an insurance commissioner for 8 years. I have seen all kinds of things in terms
of hospital practices, proprietary and nonprofit. I have seen some wonderful
commitment to the charitable mission of these nonprofit institutions, and I have
seen some exercised, on the other hand, incompetently and less rigorously.
Is there something that ought to happen, that Congress can contribute to the
nonprofit hospital world by way of surveying best practices, establishing a
matrix of things that might be present in an exemplary nonprofit hospital
institution, not to enforce but that maybe a hearing record would contain and it
might provide some guidance to hospital executives and boards of directors in
terms of things they ought to be keeping an eye on to make certain they comport
with what is expected of best practices within the nonprofit hospital status?
Would that have some value? Let's just run right across the table and start with
Dr. Kane.
Ms. KANE. I think if Congress can come to some consensus on what best practice
is, other than simply providing care to the public, it would be helpful. I am
not sure you can come to consensus, having just heard the debate on the panel
here of the members. I think it would be helpful to clarify what Congress
thinks merits tax exemption, at least at the Federal level. It would be
helpful to go beyond that and say, you know, here are best practices and how we
expect you to provide those types of activities, if they are community-based
activities, if they are the way you do billing and collection, if it is the way
you make people eligible for charity care and at what income levels. All of that
guidance would certainly help to make it more standard across the country in
terms of what a citizen can expect if they do need a health care intervention in
their lives.
Mr. POMEROY. So, maybe right topic as we discuss tax-exempt status, but we have
to go far beyond pricing to capture maybe a solution that has value.
Ms. KANE. Pricing is not really the--not where I would go first.
Mr. POMEROY. Dr. Ginsburg?
Mr. GINSBURG. Yes, I think pricing is a different topic. I think that it
really would be useful to have expressions from the Congress about what it
expects hospitals to be doing for the tax-exempt status because the Congress has
not spoken to this for a long time.
Mr. LEE. Congressman Pomeroy, the only thing I would add is a best practice
area that Congress could make advice on is around not just what the hospitals do
but how we pay hospitals. We have heard that one of the other consensuses
here is a dysfunctionality in our payment system, a discussion that we need to
reform. I would actually recommend to this committee the Medical Payment
Advisory Commission's (MedPAC) June
report which actually talks about forward-thinking purchasing practices that is
going to be the driver, I think, of changing hospitals' performance.
Ms. DAVIS. I think you have put your finger on a very good idea. We have
supported a case study of exemplary hospitals, which we will be releasing in
August. It started with a database on hospitals in 21 States and found those in
the best quartile on efficiency and the best quartile on quality measures,
risk-adjusted for different diagnoses; out of that, it identified the 30 best
hospitals and did case studies on four of them.
There are certain characteristics that are common to all of those best
hospitals. It has to do with starting at the top, with the CEO's real commitment to quality. It has to do with something called
true resource management in airlines, but it means that you listen to everybody you listen to the nurses when they say there is
a problem, and you fix it. Everybody is free to speak up when they see a problem,
and it gets addressed. I think that is just the beginning. That was conducted for us by Jack Meyer
at the Economic and Social Research Institute. Other work in that area,
whether it is on quality, efficiency, or access, would be very valuable.
Ms. HERZLINGER. I think it is very important that the Federal Government
insist on measures of quality by provider, by hospital, by procedure for
diseases over the long term. That is what transparency is all about. That is
what the American people are interested in, as well as price data. The
quality data are very important.
However, I think it is very dangerous for the government to get involved in
specifying the processes of care. Best practices are the consensus of the
majority, but the real innovations come not from the majority; they come from
iconoclastic outliers. For example, the--
Mr. POMEROY. I agree. My time is up. By best practice, I mean, you know,
consensus that we ought not attach houses of people that--
Ms. HERZLINGER. Oh, of course.
Mr. POMEROY. Not at all medical--
Ms. HERZLINGER. I misunderstood. Certainly.
Mr. POMEROY. Thank you very much.
Chairman HOUGHTON. Mr. Ryan?
Mr. RYAN. Are we doing a full round?
Chairman HOUGHTON. A very quick second round, please. Go ahead.
Mr. RYAN. Okay. Let me see if I can widen the focus here a little bit from the
beginning statements of this hearing. Do we have good measurement as to the
value attributed to this tax status? Obviously, I think everybody agrees we do
not have that. Do we think that public value comes from this tax-exempt status?
I think so. What is the measurement of that? Who knows? Is that measurement so
great that the costs do not outweigh the benefits? We don't know the answer to
that question. Perhaps with better available data we will get the answer to that
question. It is a question that ought to be asked of all of us in the public for
the public good.
I guess the question is: you cannot get away from the whole uninsured question
when you talk about this. I mean, if we are talking about the system today where
we have to rely on the public charity of nonprofit organizations who have to
cross-subsidized in order to pick up those who do not have insurance, that is
the system we are working in today. So, is this a rational delivery system within
this use of this tax expenditure to get the care to those who are uninsured? Or
should we try and focus on getting insurance into the hands of those who do not
have insurance so that this method of redistribution and cross-subsidization is
not necessary?
I would like to ask you to sort of pull that focus back a little bit and
answer it this way: are we better served, quantitatively, economically, by
fixing this uninsured problem we have in this country so you can focus on
competition, on transparency, on making the market work? Or is the current
system of using a tax expenditure on an ad hoc, individual hospital-by-hospital
basis, cross-subsidizing and picking up the slack better than fixing this
uninsured problem? Let me ask it that way and we will just start left to right,
Dr. Kane and then to the right.
Ms. KANE. I think probably the obvious answer is it would be great if
everybody was insured. This is something that I think--didn't Harry Truman
suggest that? I mean, I am trying to think of how far back--I mean, it was
before I was born, actually.
Mr. RYAN. We have to--
Ms. KANE. I agree that--
Mr. RYAN. Focus on direction of public policy.
Ms. KANE. Absolutely. We would love to see everybody insured in some type of
universal coverage. I don't think you dare leave out the interim steps that we
have in place for the safety net, because we haven't gotten there yet, and I
think in 1969, the IRS and whoever set the laws misunderstood the impact of
Medicare and Medicaid, thinking it would eliminate the uninsured. Guess what?
They have come back.
I think we always have to be aware that, you know, until we are truly
universal, we really will have people who are at risk who are not covered, and
that we do need a system, a safety net for those people. Yes, absolutely, the bulk of public policy in my mind should be towards
insuring everybody.
Mr. GINSBURG. It is really inconceivable that someone can be seen as having
access to medical care today without having insurance and that should be the
first priority.
What I would say is that what we are seeing as our health care system becomes
more competitive, it is becoming more difficult to continue the cross-subsidies
that we have historically depended on to serve uninsured people or low-income
people. As Nancy Kane says, we still have to do it, but in a sense, I think
the priority for taking steps to expand health insurance is that much greater
today because our cross-subsidy mechanisms are breaking down.
Mr. LEE. Congressman Ryan, I think the first step-back point is the tax
benefit relative to uncompensated care distracts a little bit from the fact that
most hospitals, for-profit and nonprofit, are compensated for that care from
commercial private payers. This is one of the dysfunctions of our payment
system. We have a vicious cycle caused by uninsured and underinsured costs in
hospitals being picked up by employers, by those that have insurance, driving
those prices up, driving to more uninsurance.
Mr. RYAN. So, let me ask you this: you are saying that it is the private
dollars from the purchasers of health care that are paying for those uninsured,
not the tax expenditures that are flowing through?
Mr. LEE. I am saying it is both, and I don't know the quantity of which is
bigger, but it is absolutely a huge portion, which is hard dollars being paid by
insured Americans, which is picking up a substantial portion of the
uncompensated care costs in hospitals. Although the question that much of this hearing
is focusing on is the tax status, the issue underlying driving hospital costs
is part of a vicious cycle that is discouraging small employers
from stepping up to the plate and getting insurance because it costs more. So,
that is an important observation, I believe.
The other is in terms of it isn't either-or--
Chairman HOUGHTON. Will you please be quick on this? Because we have got another
panel.
Mr. LEE. That is my main observation on that question.
Chairman HOUGHTON. Fine. Thanks very much.
Mr. Stark?
Ms. DAVIS. I think the answer is hands down it would be better if we would
work on the problem of the uninsured. I mean, it is just a massive problem. It
affects every--
Chairman HOUGHTON. I thought I had cut this off.
Ms. DAVIS. I would like to say, even if we--
Chairman HOUGHTON. Could we come back to you? Thank you very much.
Go ahead, Mr. Stark.
Mr. STARK. I just had a comment for Mr. Lee on the idea of not-for-profits
banding together to set prices. I believe that we certainly saw that in
California. That was a reaction to the original move by Aetna and others to
gouge big discounts out of separate units. So, this was the not-for-profits
pushing back after they had been told that they would lose a lot of their
patient base if they did not subscribe to discounts which were arguably too
deep. So, it is kind of a bounce back and forth as the pendulum swings.
Ms. Davis, of the 30 best in your study, how many were for-profit hospitals?
Ms. DAVIS. Those were nearly all nonprofits, but as Dr. Ginsburg said, most
hospitals are nonprofit and all of the top four studies were nonprofit.
Mr. STARK. They are, and we did our own study to try and find in all of the
for-profits, if any of them--this was just with U.S. News and World Report's
study. The closest we can was one of two of them got a ninth ranking in
orthopedic surgery, and that was about as close as any quality hospital got in
the profit group. None of them are teaching hospitals, to my knowledge, and
then, of course, we have the example set by HCA, HealthSouth, and Tenant, who
are the largest criminals, Tenant in California recently having killed 167
people by unnecessary heart procedures. I don't think you can make a very
good case for the for-profit community based on the record that they have
established in this country to date.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you very much.
Mr. Johnson?
Mr. JOHNSON. Thank you, Mr. Chairman.
You know, since enactment of the Medicare bill last year, many employers have
expressed interest in offering high-deductible insurance plans along with HSAs to their employees. You know, employees will be paying out of
their pocket for their hospitals expenses. How important is transparency to
them? Can you tell me if there is any transparency between doctors' costs,
too?
Ms. HERZLINGER. Health Allies was started for just that purpose. It was
started with the idea that there would be high-deductible accounts with Health
Risk Assessments (HRAs) that the employer, employee, or somebody else funded, for which they could
use the resources to pay part of that deductible. Health Allies, which
is what I referred to in my testimony, does is it makes transparent to the user
what the prices are for different procedures and for different physicians. It also negotiates a discount on their behalf.
So, by aggregating individuals, it
makes these individuals as powerful as a group in seeking discounts.
Mr. JOHNSON. Yes, sir?
Mr. LEE. Congressman Johnson, we have a problem with the lack of transparency
of hospitals. It is a real crisis at the physician level, and generally there is
not good information there. There are a few very small, baby steps. The National
Committee for Quality Assurance has physician recognition programs for
physicians that provide diabetic care or cardiac care, that provides a bundle of
measures to say this doctor is really good for these areas of care.
Among the issues we happen to be working on with CMS is to get to the physician level of
measurement and choice so consumers can get that information of who should do my knee surgery.
We are not there today.
Mr. JOHNSON. Yes, sir?
Mr. GINSBURG. I think a limitation of HSAs, according to the way the
legislation is written, is defining HSAs in terms of a deductible and if you
talk about someone who is being hospitalized, inevitably they exceed that
deductible. So, the only price incentives they face, other than whether to go
into the hospital or not, is just if they have coinsurance where they will bear,
say, 20 percent of the price differences across hospitals or if they have
co-payments.
I think that there is some potential, which perhaps future revisions of HSAs
could address, about some incentives to choose better providers or, in a sense,
to make choices which do not involve a large deductible and which would not
qualify. We published something in December reflecting a conference on what are
the innovative ideas in patient cost sharing. I am concerned that many of
those ideas just would not fit under the way that the Congress has defined HSAs,
and it is an area that you might look at.
Mr. JOHNSON. I alluded to the fact that not-for-profits were building
more buildings, more hospitals--they are in our area, for sure, and you all
nodded yes--over the for-profits. Are those beds going to be usable? Hospitals
where I am are turning those bed into family rooms, for crying out loud, because
they cannot fill them. Do you think that the construction of not-for-profit
hospitals is too high? If they were taxed, they wouldn't be building them,
would they? Does somebody want to respond?
Mr. LEE. I would just respond, Congressman Johnson, that
health care very much is local, and in some communities there is undercapacity
because of lack of building, but in many communities, there is overcapacity. So,
I think that needs to be looked at on a community-by-community basis in terms of
the need for new hospitals beds or not.
Mr. JOHNSON. Yes, but are not-for-profits building more than
for-profits? Because it used to be the other way around, it seems to me.
Ms. KANE. It really is a function of your local market. That is who is there,
perhaps you know, that is where they tend to stay. For-profits can really
cruise the country and look for a location they want to locate. Nonprofits
tend to stay local and look for local opportunities, so they may be more likely
to build in your market because that is where they are.
Mr. JOHNSON. Thank you. I appreciate your comments.
Chairman HOUGHTON. Thanks.
Mr. Sandlin?
Mr. SANDLIN. Thank you, Mr. Chairman. I just have one question.
Dr. Ginsburg, from the information that has been provided to me, most of these
tax-exempt hospitals are currently running at about a 5-percent margin, and if
we change the tax-exempt status of those hospitals, do you think we run the risk
of those hospitals closing or going bankrupt, and then obviously not being able
to provide services to the communities?
Mr. GINSBURG. Yes, well, nonprofit hospitals need to earn a margin if they are
to have capital to expand and replace themselves. So, because they
cannot get equity capital, they have to rely on their retained earnings and
debt. So, just seeing a nonprofit hospital earn a return is not a sign
that it is going awry.
Certainly, anything which took away the tax-exempt status would certainly hurt
the abilities of these hospitals to either continue operating or certainly to
have capital investment to expand.
Mr. SANDLIN. If, in fact, it is only 5 percent, not only would it take
away, but it might drive the stake in the heart to kill the hospital by taking
away the tax-exempt status. Is that correct?
Mr. GINSBURG. I do not have information to be able to agree or disagree about
how important that would be.
Mr. SANDLIN. Would you think that taking away the tax-exempt status is a
larger financial penalty than the 5-percent margin under which they are
currently operating?
Mr. GINSBURG. That is really a quantitative question as to how valuable that
tax--
Mr. SANDLIN. Would you rather have a 5-percent margin or the tax-exempt
status?
Mr. GINSBURG. I am not prepared to speak to that.
Mr. SANDLIN. You do not know if you would rather have a tax-exempt status or a
5-percent margin?
Mr. GINSBURG. No, I do not know and they have both now.
Mr. SANDLIN. Well, I think that answers the question. Thank you.
Chairman HOUGHTON. Well, thank you very much. This is the beginning of a long
process. I appreciate your expertise and your frank discussion. Good luck and
we will be in touch with you later. Thanks very much. I would like to ask the second panel to come up here. That
is David Bernd, who is Chair of the American Hospital Association (AHA) Board of
Trustees; Randy Sucher, Executive Vice President and Chief Operating Officer (COO) of Southern Medical
health System, in Mobile, Alabama; Richard Morrison, Regional Vice President,
Florida Hospital for Government; and also Harold Cohen, Dr. Cohen, a consultant
with Hal Cohen of Baltimore. I am sorry that Ben Cardin is not here, Doctor,
wherever you are, because he wanted to introduce you, but I am sure he will have
something to say when he comes back. He is managing a couple of bills on the
floor.
All right. We are going to try to do this a little more expeditiously because we
do have votes coming up in about an hour. If we could have your
testimony, and I think the panel has thinned out a little bit so we will not
have quite as many questions. I really appreciate your being here, and, Mr.
Bernd, will you begin?
STATEMENT OF DAVID BERND, CHAIR, AMERICAN HOSPITAL ASSOCIATION BOARD OF TRUSTEES
Mr. BERND. Thank you, Mr. Chairman. My name is David Bernd. I am president and
CEO of Sentara Healthcare in Norfolk, Virginia, and Chairman of the Board of
Trustees of the AHA.
Sentara began in 1888 as a 25-bed retreat for the sick and now serves more than
2 million people in the Hampton Roads area. That is a big change, but what has
not changed is the caring and compassion with which our people do their jobs. All the good things that hospitals do are done in the face of mounting
challenges; 44 million uninsured Americans is one of them. It is a fundamental
problem that permeates every aspect of our health care delivery system. We
recognize that hospital billing and collection policies have come under
increased scrutiny. Hospitals, led by the AHA, are taking substantial steps to
demonstrate that their compassion extends from the bedside to the billing
office.
The AHA board recently developed a set of principles and guidelines to help
hospital leaders as they struggle to help patients of limited means. My written
testimony has details, but the guidelines cover topics such as offering
discounts to patients who do not quality for charity care and making sure
patient accounts are pursued fairly and consistently. As of today, over 2,500
hospitals have signed a confirmation of their commitment to follow these
guidelines, and the number is rising.
With recent guidance that we requested from the Federal Government, it is now
clear that fear of violating Federal regulations no longer should impede
hospitals' charity care efforts. At the same time, we know that the transparency
factor is also important. We are attacking this issue on two fronts: we are working with CMS, the Joint Commission, and other organizations on the
quality initiative to make information about hospital quality available in a
useful way to the public. Nearly all hospitals eligible to take part in the
initiative are doing so. A consumer-oriented website will be up early next year.
The important goal of transparency is pricing information. Our principles and
guidelines include this statement: hospitals should make available for review by
the public specific information in a meaningful format about what they charge
for services. The key word, Mr. Chairman, is "meaningful." Publishing our list
of master charges would require patients to sift through a document containing
tens of thousands of diagnostic codes. There are better, more meaningful ways to
do this, and I will outline some of these suggestions in my statement.
Regardless of how prices are displayed, hospitals have always helped patients
who cannot pay. At Sentara, for instance, 63-year-old Cora Brown came to us
without insurance and was diagnosed with colon cancer. Our staff treated her
with the respect and compassion every human being deserves, helped her apply for
Medicaid, and covered most of her medical expenses that were not covered. Cora
is just one example of a patient who received care regardless of her ability to
pay, and we are just one example of how so many hospitals extend their
compassion to the financial side of caring.
Some have claimed that hospitals are subsidized for this kind of care through
special payments from Medicare. This is inaccurate. While every hospital in
every community serves patients who are unable to pay, Medicare's
disproportionate share payments and indirect medical education payments, while
important to the industry, do not go to every hospital. They are targeted only
to specific hospitals, and they are not intended by Congress to offset or
subsidize the actual costs of uncompensated care that individual hospitals
incur.
Finally, let me touch on the tax-exempt status, Mr. Chairman. Hospitals are the
lifeline of many communities, and not-for-profit hospitals, which receive
certain tax exemptions, are governed by the community and exist to meet the
community's needs. Since 1969, the promotion of health has been explicitly
recognized as a purpose meriting tax exemption. In 2002, 84 percent of community
hospitals reported that they work with other providers or public agencies to
conduct community health assessments. They determine what services are needed,
and then they work together to make those services happen. From homeless
shelters to school vaccination programs to free health screenings, hospitals
take medical care far beyond the hospital walls to get at where it is needed--in
the community.
To close, let me again stress that the people of America's hospitals work hard
every day to meet the needs of their communities. They are why our Nation has
the best health care in the world. Making sure all Americans can take
advantage of that health care is a huge challenge. Hospitals are working
diligently to address the specific issues that I have outlined here today, and
nothing will make a greater improvement than all of us working together to
address the real need: health insurance coverage for everyone.
I will be happy to respond to your questions. Thank you.
[The prepared statement of
Mr. Bernd follows:]
Chairman HOUGHTON. Thanks very much, Mr. Bernd.
Mr. Sucher?
STATEMENT OF RANDY SUCHER, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER,
SOUTHERN MEDICAL HEALTH SYSTEMS, INC., MOBILE, ALABAMA
Mr. SUCHER. Thank you, Mr. Chairman. I come from Southern Medical Health
Systems, a small for-profit company in Mobile, Alabama. We operate Springhill
Medical Center, a private for-profit hospital.
Establishing prices for hospital procedures has changed a lot, as we have talked
today, as the practices of insurers and Medicare have evolved.
When Medicare adopted DRGs (diagnosis-related groups) in the 1980s as the basis
for payment, this generally introduced the concept of incentives for hospitals
to control costs. At the same time, it reduced the impact of the line-item as
that became less important because individual prices have a minimal effect on
payments to hospitals except in the rare cases that an insurance company, HMO,
or PPO paid for services based on a negotiated percentage of charges.
So, why do hospitals charge for every item and service? One, we still have to
Medicare cost reports in order to properly allocate our costs. For those
Medicare cost reports, we have to know the detailed charges to prepare those
cost reports. We also identify the usage of items internally for internal
control and internal costing purposes for hospital. We also provide those
detailed items, in providing detailed bills with proper coding for insurance
companies, as often requested by insurance companies or individuals. So, even
though we do not like to, the practice of charging for every individual item
still continues in health care today.
Charges are generally developed based on detailed analyses of prominent payer
fee schedules in the current market. For example, if Blue Cross were to pay us
$2,400 for an outpatient cardiac catheterization and the standard discount for
Blue Cross patients in Alabama is around 50 percent, the standard charge may be
200 percent of that fee schedule amount. Determining the allocation of that
overall intended charge to the components of care is difficult because every
case is so different. As we have already talked today, health care is not like
an assembly line in an automobile manufacturing plant. Every patient is very
different, with varying complications, comorbidities, and severity of illness.
Every physician is also different in their treatment protocols for each patient,
using various supplies, pharmaceuticals, and diagnostic tests. Hospital care is
really much more akin to a chef making seafood gumbo where almost all the
outcomes are successful, but no two taste or cost exactly the same, and there
are very large variations. In fact, hospitals have little control over the costs
since only physicians and not hospitals order the tests and ultimately determine
the cost and what is done for each and every patient.
So, why do hospital charges vary so much from costs? One reason is that every
payer contract we have includes a provision that for any particular individual
patient, the payer will pay the hospital the lesser of the negotiated rate or
the hospital's customary charges. Negotiated rates for each payer are generally
a fixed rate that the insurer pays for an average episode of care across a broad
spectrum of patients. For those patients that require a lot of extra care, like
a heart cath patient requires a lot of stents, hospitals take a terrible beating
when they take that average payment. So, hospitals cannot afford to not make
money on the low-end cases by ever having their charges be less than the
negotiated rates. High charge markups generally help hospitals avoid that
catch-22.
The second reason for high hospital charges, as we already talked about a lot
today, is cost shifting. It has occurred for many years in the industry and will
continue to occur until massive changes occur. To make up for those payers that
often pay hospitals below our actual cost--Medicare and HMOs included--and to be
able to provide some level of free care, hospitals must shift unfunded cost to
payers--generally PPOs, commercial insurance, and the uninsured--that pay some
percentage of charges. In our case, these payers represent less than 10 percent
of our revenue, but they comprise most or all of our profits.
The aforementioned item in the requirements that hospitals charge all patients
the same price for the same services results in high prices for the uninsured.
Until recent proposed changes in regulations, hospitals have been very concerned
with giving discounts to patients other than as the result of contractual
requirements. Now most hospitals, including ours, have a financial screening
preregistration process whereby an uninsured patient can receive a discount
based on ability and willingness to pay.
One thing we have talked a little about is efficiency. A lot has been said about
rewarding hospitals for efficiency. One of the most perplexing aspects of
Medicare, which espouses to reward efficiency through the DRG system, is that
the application of the wage index guidelines actually penalizes hospitals like
those in Alabama for providing a lower cost of care. We actually get much lower
payment than most other hospitals in the Nation, even though we are, in fact, a
low-cost provider State.
Thank you very much.
[The prepared statement of
Mr. Sucher follows:]
Chairman HOUGHTON. Thank you so much.
Mr. Morrison?
STATEMENT OF RICHARD MORRISON, REGIONAL VICE PRESIDENT FOR GOVERNMENTAL AND
REGULATORY AFFAIRS, ADVENTIST HEALTH SYSTEM, ORLANDO, FLORIDA
Mr. MORRISON. Mr. Chairman and Members of the Subcommittee, I am Richard
Morrison. I am with the Adventist Health System based in Orlando, Florida. We
started out in 1908 with one hospital. We now have 38 hospitals in 10 States. We
believe we provide a significant amount of community benefit in the areas that
we have our hospitals and nursing homes. I am not here today to talk
specifically about that. I am appearing today to discuss the relationship
between hospital charges and costs.
In my remarks, I would like to touch upon the relationship between cost and
charges, charges and payment. Do charges differentially impact the uninsured?
What does it cost to maintain a current charge structure? Do charges serve a
purpose? Can the current system be changed? Can transparency be improved?
There is, as has been noted, a very tenuous relationship between cost and
charges in the health care industry. It should be noted, however, that this
relationship did not come about overnight. It has taken place over a 30-year
period and has been in response to changes in a Federal policy as it relates to
Medicare and Medicare reimbursement, industry policy, and responses by the
hospital industry in and of itself.
Hospitals do have charge masters, as, Mr. Chairman, you noted. Some may be as
much as 25,000 items. This is the list from which the bills are created. The bills are not necessarily what gets paid. Everyone gets billed the same
amount. What people pay or what the expectation of payment is is what differs
greatly.
Medicare does not negotiate. It pays a flat amount based on a diagnosis.
Medicaid pays a per diem. Health Maintenance Organizations (HMOs) and PPOs may
pay on a Medicare-based DRG, they
may pay a per diem, or in our case, they pay a discount off of charges. Almost
all of our accounts with managed care companies are a discount off the charges,
with a cap on the amount that we can increase our charges year to year.
The system of payment for the uninsured is a little more complex. For
non-elective care and all admissions that come through the emergency room, we
have the expectation of payment of zero for those with incomes under 150 percent
of poverty or less, and that expectation of payment can rise to 60 percent of
charges for those up to 400 percent of poverty, or about $75,000 for a household
income of four people. Overall, these expected payments are subject to a cap of
25 percent of household income.
We also have methods available that can deal with those people who are above the
400 percent of poverty line so that they are not facing the full impact of high
charges. We will work with these individuals and try to reduce their burden and
can guarantee them a discount of 30 percent or more, depending upon their
individual circumstances.
Charges do have some utility in health care even though there is only a passing
relationship to cost. As was noted, they are still required by Medicare and some
insurance companies and form the basis of payment. Maintaining the complex
charge structure is expensive. We have to have over 300 people to track and
audit the process of billing.
The charging structure also creates confusion for the consumer. This goes beyond
the oft-quoted $10 aspirin. This includes the problem of giving a bill to an
individual that says that the bill is $25,000, your insurance company paid
$12,000, you pay $500. The question is: what happens to the rest? It gives rise
to the issue of charges are too high in health care.
As we go to the high-deductible plans and the consideration of HSAs, hospitals
must give consideration to extending discounts to the HSAs and the insurance
companies themselves must begin to negotiate on behalf of the beneficiary so
that discounts are passed on to the individual.
Modifying our structure is going to be extremely complex. Even if we were to try
to go to a diagnosis-based group, we are still going to have to maintain the
tracking of resource consumption.
If we look at the issue of transparency, I believe we do have transparency in
outpatient services. Where it will become very, very difficult is looking at
price transparency on the inpatient side because there is a tremendous amount of
variation that can take place even for something so simply as a routine
delivery. Cost can vary as much as 25 percent for something that you would
expect to have a high degree of predictability. This is owing to the
idiosyncratic factors of health of an individual as well as to practice patterns
of a physician.
To conclude, hospital charges today are a product of market and regulatory
behavior over the last 30 years. The connection of charges to cost is tenuous.
Charges do have some utility and are still required to be maintained. Hospitals
can deal with the imbalance of cost and charges through aggressive discounting,
particularly to the uninsured. Changing the system to something more understood
and administered will take extensive work and creativity.
Mr. Chairman, Members of the Committee, thank you for the opportunity to speak
with you today.
[The prepared statement of
Mr. Morrison follows:]
Chairman HOUGHTON. Thanks, Mr. Morrison.
Dr. Cohen--and again, I am sorry that Ben Cardin isn't here to introduce you.
STATEMENT OF HAROLD A. COHEN, PRESIDENT, HAL COHEN, INC.,
BALTIMORE, MARYLAND
Mr. COHEN. Thank you, Mr. Chairman, Members of the Subcommittee.
I am here today to testify regarding the experience of
Maryland's Health Services Cost Review Commission (HSCRC), which is the State agency in
Maryland which regulates hospital rates, as well as to answer any questions you
might have regarding the lessons to be learned regarding hospital charge levels
in the rest of the country.
The commission was created by the Maryland legislature in 1971 and began setting
rates in 1974 for all acute care hospitals. In 1977, Maryland entered into a
demonstration with Medicare and Medicaid whereby both government agencies agreed
to waive Federal supremacy and to pay Maryland hospitals on the basis of rates
set by the Health Services Cost Review Commission, subject to a waiver test. That Medicare waiver was later
changed to an operating waiver subject to a payment test with the considerable
support of Senator Mikulski.
In setting rates, the commission's goal is to finance the mission of efficient
and effective hospitals. Hospitals are expected to have missions that include
care to the poor, and some hospitals' missions included teaching and research.
The commission sets rates by comparing costs and making adjustments which are
not all that dissimilar to the kinds that the Medicare system makes.
I want to briefly discuss pricing levels, equity, and access, and, if there is
time, talk about cost containment and data availability.
Since pricing levels are a focus of this hearing, I am going to focus on them
and the statistics that I present in all the exhibits come from the AHA's 2004 edition of Hospital Statistics, which has 2002 data.
The national average markup, as it shows, was almost 131 percent, meaning, on
average, hospitals charge about $23,100 for an admission that costs $10,000.
There is a huge range in markups. Maryland has by far the lowest markup, and
well below the next-lowest, largely because prices mean something. It is what,
largely, everyone pays. In addition, there is a common method for setting rates
in Maryland, along with pooling of uncompensated care, so that the markups of
all hospitals are fairly similar. In other States, there is much greater
variation in markups, with many hospitals' markups being much higher than the
national or State average, some having charges more than 10 times their costs.
For hospital services, the typical markup in
Maryland is about 20 percent. That 20 percent roughly reflects about 8 percent
for uncompensated care, because hospitals have to get paid for the costs of the
care, that they provide to the patients who don't pay; about 7 percent for
approved discounts; and about 5 percent turns out to be for profits. That
Exhibit 2 shows the average charge per case for the Nation and each State.
Again, Maryland has by far the lowest average charge, being $9,945, which is a
little more than half the national average. New Jersey had the highest. The average
charge per case was $18,100 in 2002; it is now over $20,000, which
indicates that, as Paul Ginsburg mentioned in the first panel, that once a
patient goes to the hospital, they are almost certainly going to exceed the
deductible in a high-deductible policy.
I want to discuss briefly--well, I am just about out of time, so you can see the
data. People in Maryland--one example of the low charges in Maryland is that
Medicare beneficiaries in Maryland pay 20 percent of charges, and 20 percent of
charges is about $70 million less than paying the national co-pays, which are
based on 20 percent of national charges--though they are coming down. There is a
huge savings to the beneficiary.
Thank you very much.
[The prepared statement of
Mr. Cohen follows:]
Chairman HOUGHTON. Thank you, Dr. Cohen.
Mr. Morrison, you said in one of your statements something that I think is going
to be hanging over us for years and years and years: the connection of charges
to cost is tenuous. Are we always going to be arguing about that irrespective of
transparency and fairness and the allocation of administrative costs and things
like that? Isn't that always going to be a problem with us?
Mr. MORRISON. Mr. Chairman, I believe it is. Just given the nature of the
health care industry and the way health care is paid, you will always have
arguments about what is the real nature and real relationship of charges to
cost. So, yes, no matter what you do, I think we will still have that debate and
that argument.
Chairman HOUGHTON. Dr. Cohen, do the uninsured pay the same as the insured?
Mr. COHEN. The uninsured frequently don't pay. The uninsured are charged the
same as the insured--
Chairman HOUGHTON. Is the concept that they pay the same as the insured?
Mr. COHEN. The concept is that they are billed the same as the insured, but
they don't frequently pay. Since they don't pay and there are resources
used in providing them care, the rates that are charged to those who do pay have
to cover the costs associated with their care.
Chairman HOUGHTON. So, in effect, when an uninsured patient comes in the door
of a hospital, they really don't have any information on how much the service is
going to cost them?
Mr. COHEN. In Maryland, they could if they want. I mean, there is a huge
amount of data available as to what charges are by hospital, by DRG, and that
data is current. As of now, it is available through March of 2004. It is
extremely current if they wanted the information and if they ask the hospital
what on average it charged, you know, the hospital would tell them if they knew
in fact what DRG they were going to be in. Patients don't always know, and their
doctors don't always know, exactly what they are going to have.
Chairman HOUGHTON. I guess that is my point. I am sick, I am uninsured, I go
into the hospital. I am really not interested in the costs, I am interested in
getting cured. There is no sort of general framework which I can use as sort
of a cost estimate.
Mr. COHEN. I think if you ask the--I mean, typically, certainly in Maryland,
if you ask the hospital what do you charge for this kind of procedure, the
hospital could give you an estimate, we charge about from this to this. You
never know what kind of complications might arise in a particular instance, so
you can't give a firm quote under those circumstances.
Chairman HOUGHTON. Mr. Pomeroy.
Mr. POMEROY. Thank you, Mr. Chairman.
My questions, really, get to the issues of trying to get our hands around some
other points of fulfilling the nonprofit mission. I am very interested, Mr.
Bernd, in your testimony, where you indicate that AHA has kind of set forward a
number of things that basically are expected of its members, particularly those
enjoying the nonprofit status. Would you expand on that a bit?
Mr. BERND. Certainly. We would expect all of our members to have indigent care
policies and to take care of the poor in our communities. We would also expect
them to endorse our policies around discounts for patients that fall outside of
charitable care and have higher income levels than what is ascertained for
charity care normally. We also expect our community institutions, not-for-profit
institutions, to serve the larger community through such things as health
education, wellness programs, outreach programs. I think the not-for-profit
mission is much wider than just providing indigent care, and we expect that of
our not-for-profit members.
Mr. POMEROY. The earlier panel, to a person, seemed to agree with the
proposition that looking at legitimacy of tax-exempt status solely through the
prism of pricing practices was too narrow, there were other things involved. Do
you agree with that?
Mr. BERND. I certainly would agree. Our health care is a good example. For
instance, 3 years ago, our epidemiologists determined that in our community
there was a higher use of antibiotics in our community. We actually started
a community-wide campaign with physicians in the community called "Resistance
Kills." This program costs us a considerable amount of money, but we were
actually able to show in two years a significant reduction in the use of
antibiotics. In fact, this program has been picked up by other insurance
organizations, BlueCross BlueShield in other states. So, I think the
not-for-profit mission is much wider than the indigent care, though indigent
care is obviously the cornerstone of our not-for-profit mission.
Mr. POMEROY. Mr. Morrison, your experience in nonprofit care delivery--do you
have any responses to those questions?
Mr. MORRISON. Yes, sir, I do. Thank you, Congressman. We need to look beyond
just the charity care, and I think we do need to look at the broader issues of
what is provided as well as the issue of opportunities that may be foregone and the
willingness of institutions to undertake services that you would not do if you
were just looking at this from a profit motive. Because one of the things that I
think you will find historically is that the not-for-profit institutions will
take on services that do not necessarily provide a bottom line, but are
necessary for the community. Not-for-profit institutions will also take on
related issues, such as what we are doing in our community, a looking at the
root causes, for instance of health disparities in various ethnic populations,
and then working directly with the community to solve those issues.
We are also looking at, and it would be almost counter-intuitive, but we are
looking at how do we reduce utilization of health care, how do we reduce chronic
care, how can I reduce the admissions to my institution. If I was just in
this for the profit, I would not be doing those things. I think there is one
of the distinctions that is very, very difficult to measure but that you have to
look at over the course of time.
Mr. POMEROY. I have no quarrel at all with the Chairman's statement that this
is something we ought to look at once in a while, a tremendous tax expenditure
going in this area in terms of revenue foregone to the nonprofit status. It is
only appropriate to keep an eye on whether or not the ultimate marketplace
performance is as we expect for that status. Is this something within AHA or
within the community of hospitals, there is discussion? Do you sense that there
is a higher sensitivity in these days about trying to be--making certain that
your operations lend a distinct character in light of a nonprofit status? Mr.
Bernd? Maybe right across the panel on that one.
Mr. BERND. I would certainly agree with that statement. I think the fact that
we have so many uninsured in this country has exacerbated the problem of trying to provide adequate health care. With 44 million people without health
insurance, it has become a larger issue for all of us, and how do we take care
of those people appropriately and can we give them discounts off these charges
we've talked about, which I know our institution certainly does. To give you an
example, we have a sliding scale that goes up to 500 percent of the Federal
poverty level and give up to 45 percent discounts. This is widely available.
We make it available to all of our patients. So, it is an issue that I think is
in the forefront and I think it is a healthy discussion and I think it is
something we need to talk about openly, and I think this is a really good topic.
Mr. POMEROY. I had asked to go across the panel, but I have taken too much
time already, Mr. Chairman. I will yield back.
Chairman HOUGHTON. Thanks very much, Mr. Pomeroy--Chairman Thomas.
Chairman THOMAS. Thank you, Mr. Chairman.
The only medical professionals that are truly trying to work
themselves out of a job are dentists, based upon the way in which we now treat
their area of expertise. I clearly think it is always smart business to
assist people in being around longer to utilize services rather than intense
interventions for short periods of time so we could always try to get to a
bottom line.
I guess I am most concerned about the arguments that the not-for-profits are
doing something, for example, the "Resistance Kills" on the antibiotics or the
example of attempting to reduce the needed services and that somehow that was
associated with your not-for-profit status. Is the reverse, then, to be assumed,
that if you were a for-profit you wouldn't care about that? Or would the
Hippocratic oath and the commitment to helping people have something to do with
that, rather than your not-for-profit status. Mr. Sucher, would you have
anything to say about that, since I think you are a for-profit operation?
Mr. SUCHER. I think it is incumbent upon the industry as a whole, regardless
of profit or not-for-profit status, that we all seek quality probably even more
than you can imagine. We fiercely chase quality every day in everything we do in
trying to provide services to our patients, irregardless of our status.
Chairman THOMAS. Let me ask you a follow-up question, because I know pricing has been
somewhat of a concern. There was a statement earlier that in fact if you had
disclosed prices, would drive prices up. I have difficulty discerning just
what a price on a price list or a master charge list is comprised of. If you ask
most businesses, you would start with materials and overhead and add labor and
then perhaps put a profit margin in there. Are any of your prices on your price
list constructed that way?
Mr. SUCHER. I think they were at one time. I think we have gotten so far away
from that and being so reliant on the insurers for establishing procedure-based
payments and procedure codes that we now look to them to, really, tell us what
they are willing to pay and kind of establish our charges accordingly. We want
to make sure we are not charging less than they are willing to pay, certainly.
Chairman THOMAS. Mr. Bernd, do you take a look at materials, labor, overhead,
and then add a profit margin, notwithstanding the fact that you are not-for-profit?
Mr. BERND. Well, no, sir, I don't think we look at that that way. I agree with
what Mr. Sucher said, it is a matter of negotiated price, so it may or may not
reflect your costs.
Chairman THOMAS. Then what is the value of a price list if everything winds up
being negotiated?
Mr. BERND. That is a good question. Its relevancy is probably not as much as
it used to be.
Chairman THOMAS. Well, I think the proper answer is that it is important when you
deal with government as to what payment you are going to get from government. We
have seen enormous increases in the price lists, and as you indicate, they have
no relationship to the actual payment made. Do you believe that when you
negotiate a price, you have a pretty good idea on what your costs of materials,
overhead, and labor are so that you won't negotiate a price less than those
costs?
Mr. BERND. I would say with commercial payors that is true. With the
government, we can't negotiate price.
Chairman THOMAS. Therefore a price list creates a value for you if it
continues to go up, notwithstanding the fact it has no relationship to what you
are really getting compensated for by other players. Is that one of the reasons
why the price list goes up?
Mr. BERND. Probably.
Chairman THOMAS. Probably? Do you believe that if prices
were disclosed it would drive prices higher?
Mr. BERND. We disclose our prices to our customers. Again, they are very
complex, but we do disclose them.
Chairman THOMAS. Do you believe that has caused pressure to drive the
prices higher?
Mr. BERND. No.
Chairman THOMAS. If all hospitals disclosed prices, much as you do for
virtually any other commodity or service, would that be a benefit to the
consumer, or would it make it more difficult for the consumer to make a
decision?
Mr. BERND. I think we should be totally transparent on our pricing to all of
our customers.
Chairman THOMAS. Okay. In trying to determine structures between
not-for-profit and for-profit, Mr. Bernd, I notice that on the Form 990 filed by Sentara Health Care in 2002, that in your role as the president and CEO, you
received $908,684, with an additional $236,000 in deferred compensation and
$12,840 in expenses, which is $1,160,000 in salary and deferred compensation.
Have you ever done comparisons with for-profit systems, and do you believe that
that is kind of where the pricing for executives in your capacity, given your
responsibilities, are paid?
Mr. BERND. Well, first of all, I do not set my own salary. I have an
independent board of directors made up of community--
Chairman THOMAS. I didn't ask you if you set your own salary. Is the number
incorrect, the $1.16 million?
Mr. BERND. I believe it is accurate.
Chairman THOMAS. Then my question was do you believe that is comparable
across the board between for-profit and not-for-profit with people in your
commensurate responsibility position?
Mr. BERND. I don't know.
Chairman THOMAS. You have never done comparative salary and compensation
examinations?
Mr. BERND. Personally, no. We hire an independent organization that does that
for the board of directors, under their control.
Chairman THOMAS. Last question, for all of you. We are looking at the question
of whether or not we should maintain a tax preference for a particular type of
hospital structure. Everyone believes we should take care of the uninsured.
What, to you, is a higher use of taxpayer money: should we deny tax preference
and use that to take care of the uninsured, or would you prefer to retain your
tax preference and we set up a set of structures which guarantee that the
uninsured are taken care of under the charity or the community label for which
you receive the tax preference? We can just start with you, Mr. Bernd. We
will go down the panel.
Mr. BERND. That is a very long question. Can you repeat it for me, please? I
am sorry.
Chairman THOMAS. It is very simple. Everyone has argued that because they
received a nonprofit benefit, we are doing charitable things, although once you
examine it there are some folks, especially Dr. Cohen, about the fact that they
get charged, we don't get collected. We have had bad debt. We've got a very
elaborate superstructure to try to deal with this. Everyone says if we could
get the uninsured insured, that would really solve a lot of problems.
We are looking at an enormous amount of money that is currently going, 41
percent of the tax expenditures under 501(c), to hospitals which originally was
for charity and now community. My assumption was that maybe some of the
uninsured got picked up that way and what we have heard were very minuscule
examples of that effort which should pass muster.
Very simple choice: in trying to make policy, would you prefer we repeal the
tax-exempt status under 501(c) for any hospital and apply the money saved to
perfect an insurance package for the uninsured? That would solve your problem,
because now the people who are coming to your door are paying you and you can
run more on a for-profit structure in which we might be able to adjust whether
or not you make a profit. Or would you prefer, do you think it is a better
societal service to keep the not-for-profit tax-preferred status, but you are
going to say somebody else should worry about the uninsured, don't take it out
of our money, when in fact the reason for creating the tax preference was for
charity and community work.
So, would you support eliminating the tax-preferred status and solving the
uninsured problem with that money? Would that be a better use of the taxpayers'
money than the way it is currently spent?
Mr. BERND. No, I don't believe so. I think, as we talked about it,
not-for-profit status and charitable has more to do than with indigent care and
patients that don't have insurance, it has to do with community mission,
community assets. Not-for-profit status is wider than just that issue.
Chairman THOMAS. The board that sets your salary may have some impact on
the $1.16 million.
Mr. Sucher, what is your position?
Mr. SUCHER. Obviously, being from the for-profit side, we would much prefer a
level playing field in all of our competitive aspects. We do provide much
uncompensated care as well, for which we get nothing as far as benefit. So, we
would really prefer to see something done regarding those who are uninsured in
lieu of a tax break.
Chairman THOMAS. You realize that your testimony just shocks me in terms of the
position that you have assumed.
Mr. SUCHER. Yes, sir.
Chairman THOMAS. Mr. Morrison?
Mr. MORRISON. My testimony will also shock you. It would be my
consideration that we should maintain the tax-exempt status for long-term
considerations. While there may be some short-term issues that we are facing
with the uninsured, I think the stability of the health care system long-term
has been shown that it is served by the tax-exempt nature of hospitals. It will
continue to be served by the tax-exempt nature of hospitals.
Chairman THOMAS. Dr. Cohen?
Mr. COHEN. Well, my priority is that extending coverage to the uninsured is
the most important option out there for the limited resources that we have.
However, tax breaks don't provide money. They allow hospitals to not pay money
and if they suddenly have to pay that money, then Medicare, for example, would
have to pay rates which paid their fair share of that burden that you then
placed on the hospitals. So, if I had to answer your question, it would be first
extend coverage. Then, if you eliminate the tax breaks, make sure that Medicare
and Medicaid pay their fair share of the added costs that would be placed on
hospitals by having to pay those taxes.
Chairman THOMAS. Thank you very much, Dr. Cohen, because that underscores my
point. I would say to my friend from North Dakota, prices are fundamental to
dealing with the question of not-for-profit or profit, because nobody can tell
you how they determine what their prices are other than dealing with the
government on payments that are not realistic and don't deal with the cost of
materials, overhead, labor, or profit. If in fact we are going to talk
about trying to serve the uninsured, and in fact the price list is created for
the purpose of getting more money out of taxpayers, i.e., the Medicare and the
Medicaid payments, what it actually costs to do what they do is essential in
looking at limited dollars, whether it is through tax-preferred structure or
payments for real costs. If you don't know what they are, you cannot deal with
the question responsibly as a legislator.
When you are talking about tax-preferred status and what requirements need to
be performed for that, you need to start with how much does it cost to do
business. I would be more than willing to submit for the record the list of
CEOs and the payment they receive between the not-for-profit
and the for-profit on comparable hospital responsibility sizes. There is a significant difference in that area alone. You wonder what other prices would
be reflected if you had an accurate ability to determine what materials,
overhead, cost, small margin of profit, notwithstanding the fact they are not
for-profit, would produce between the two structures. Then you can determine the
relative value of the tax-exempt. You can determine whether or not we ought to
create a real system where you get the money out of the services that you
deliver and that we make sure everybody gets a minimum compensation from that
structure, and augmented if necessary to deliver the services.
Psychic value of believing you are serving the community doesn't necessarily
reflect the real value of the tax-deferred that does not get counted when we are
dealing with the uninsured. Pricing is essential to completing the understanding
of that model.
Thank you, Mr. Chairman.
[The information follows:]
Comparison of Not-For-Profit and
For-Profit Hospital Executive Compensation
Hospital System Hospitals
Beds Compensation
Top 5
Not-For-Profit
President and CEO
Catholic Healthcare West 38 8,413
$1,969,575
San Francisco, CA
President and CEO
Providence Health System 18 3,306
$1,421,000
Seattle, WA
CEO and Director
Sutter Health 24
5,383 $1,203,005
Sacramento, CA
President and CEO
Adventist Health System West 19 2,634
$971,410
Roseville, CA
President and CEO
Sioux Valley Hospitals 26
1,902 $398,303
Sioux Falls, SD
Source: 2002 990 IRS Forms for the 5 largest non-profit
systems, excluding decentralized systems. It includes salaries, deferred
compensation, expenses and other allowances.
Hospital System
Hospitals Beds Compensation
For-Profit
President and CEO
Health Management Associates 43 5,520
$1,404,203
Brentwood, TN
Chairman, President and CEO
Lifepoint Hospitals 21
1,968 $1,124,615
Brentwood, TN
Chairman, President and CEO
Iasis Healthcare Corp. 14
2,028 $1,086,449
Franklin, TN
CEO
Ardent Health Services 23 2,125
$525,001
Nashville, TN
Senior Vice President*
Group Operations
Community Health Systems 20 1,692
$477,980
Brentwood, TN
*Senior Vice President is used for comparison purposes.
With 72 hospitals, the Community system would be significantly larger than the
not-for-profit systems.
Source: To compare systems of similar size, this includes
the five smallest public for-profit systems. 2002 data, SEC 14(A) and Annual
Reports. It includes salaries, bonuses and deferred compensation.
Chairman HOUGHTON. Thank you.
Mr. Cardin?
Mr. CARDIN. Thank you, Mr. Chairman.
As I listened to Chairman Thomas' and Dr. Cohen's exchange, one very important
point--and that is if we were to eliminate the tax-preferred status, then it
would be incumbent upon the extra costs associated with that being shared
fairly. In Maryland, we can do that because we have an all-payor structure. In
the rest of Nation, I doubt that would occur, because of the way the prices are
negotiated based upon market share, based upon the size of the entity that is
negotiating with the hospital. If you are larger and you have a bigger share of
that hospital's market, you can command a larger discount. That is just basic
economics.
I apologize for not being here during the presentations. I was actually, on
behalf of the Democrats, managing two Ways and Means bills that were on the
floor. I first want to acknowledge Dr. Cohen, because he is the person in our
State responsible for the way that we were able to administer an all-payor
system and still have one today. Many other States tried; Maryland is the only
State that has been able to succeed. The reason is that Dr. Cohen
established a regulatory system that was immune from traditional political
involvement. As a legislator in Maryland, I never would have thought to
interfere with the rate-setting discretion of our commission. That is a
credit to Dr. Cohen and the confidence that we had in Maryland in the manner in
which he administered the system.
I think most people here don't understand what an all-payor system is. All-payor system is not a regulatory system that establishes a rate that
hospitals can charge for a particular service. It establishes a rate that a
hospital can charge for service, which is different among hospitals but the same
for all the payors within that hospital. So, it makes no difference whether you
are Medicaid or Medicare or private insurer or uninsured when you walk in the
door. Basically, you are going to be charged the same amount for the services
that the hospital performs. Under that theory--and maybe this is theory; I hope
it is not--that you want to provide identical services to everyone who walks
through your door for the same type of condition, that there is no difference in
quality if you walk in with a Medicare card or you walk in with a BlueCross BlueShield card, into a hospital, that you are still going to get the
same quality attention. Therefore, why should there be a difference in fee?
Of course, the second major advantage in the Maryland all-payor system is that
we can get Medicaid and Medicare to pay its fair share, whereas in the other
States in the Nation that is a little more difficult and complicated process.
There is one more advantage, I might say, to the hospital community here. I have
been told there is either one or two people in CMS that deal with the Maryland
waiver. So, we don't have to deal with CMS, even though it is located in the
State of Maryland, a great organization--at least the employees are great
people. It does give you that advantage.
So, I am just--particularly when you look at the nonprofit, the tax-preferred
community, where you have a role to play in a community itself, why aren't you
proposing more of this all-payor concept so that you can get a fair distribution
of the costs? Why don't I hear more of my colleagues around the Nation talk
about returning to some form of an all-payor system in order to deal with this
dilemma of treating all the users of a hospital fairly?
Mr. BERND. As you mention, the system in Maryland has been very successful. In
fact, talking to Dick Davidson about this, who was there when the system
started, and how successful it has been, he said that there have been 15 other
States that have tried it and have failed. The uniqueness of the Maryland
system, as you know, is it is limited to 47 hospitals which get reviewed
independently each year. There is an independent commission that is set up and
I guess the biggest hurdle is Medicare and Medicaid paying full costs and the
State being allowed by Medicare to set those rates.
For instance, we looked at if you set an all-payor system in the State of
California, for instance, just to duplicate what has happened with Medicare in
the State of Maryland, you would have to increase the California medical reimbursement to
hospitals in California by 40 percent. So, you have such disparities in
reimbursement by Federal programs that it makes it very--
Mr. CARDIN. I am not sure that is totally accurate. Why don't we start
with North Dakota, a little bit more manageable State than California. I mean,
there are a lot of other States we could pick other than California. California
is a country unto itself. I understand the unique concerns.
Dr. Cohen, is it possible that we could export, or are just so grateful that we
have this waiver we are afraid if any other State looks at it, it could
jeopardize what we are doing in Maryland?
Mr. COHEN. I think--first of all, thank you very much for the kind words. I
think one of the issues, when Maryland started, Medicaid was cost-based
reimbursement. You were in the State legislature at the time when we
negotiated the waiver, as I recall. We explained to the Maryland legislature
that it was going to cost an additional 2 percent to pay their fair share. That
is all it was going to be back then and the Maryland legislature said we are
happy to pay our fair share and they adjusted the budget accordingly and went
with the waiver. It is not clear to me that a lot of other States are willing to
pay their fair share for Medicaid right now.
There are tremendous equity advantages and huge access advantages. In my
written testimony, I didn't have time to present it all, but I did indicate the
fact that in Maryland everyone has access to all the hospitals. We had Legal
Aid testify that they had no dumping cases. Hospitals were, you know, willing to
treat people and uncompensated care is equitably financed and it is spread
among all hospitals. There aren't any charity care hospitals as such. There are
hospitals that provide a fair bit of charity care, but the range is only around
2 to 13, with the average of being around 7.5, I mean, which is--the average
is high because there is good access, but no one hospital is all that high.
Mr. CARDIN. I appreciate that. I would conclude by saying you are either going
to pay now or pay later, and it is a lot less expensive if you pay up front and
give access to quality hospital care to all your constituents.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you, Mr. Cardin.
Mr. Johnson?
Mr. JOHNSON. Thank you, Mr. Chairman.
I am wondering if patients who have high-deductible plans or maybe the new HSAs would be billed as those who are insured or those who
are uninsured, since they are paying out of the pocket.
Mr. COHEN. I can tell you that in Maryland they are all billed the same. So,
the answer is they are all billed the same.
Mr. JOHNSON. For Maryland. I doubt that is the same with the rest of them.
Mr. SUCHER. It is one of our concerns that those type plans, and you are
starting to see them proliferate in a less organized manner across the Internet
offering insurance for $50 a month, things like that. All those plans do is
offer access to that payor's discounts, which gets them, you know, maybe 70
percent of charges or 80 percent of charges. It gets them a discount, but that
is all. So, they are billed the entire rate minus the discount that whatever plan
they have signed up for entitles them to, and then they are expected to pay that
discounted rate.
Mr. JOHNSON. Based on the insurer?
Mr. SUCHER. Based on the supposed insurer that is backing them, of course, who
is not just giving them access to their rates.
Mr. JOHNSON. Which is providing that type of insurance.
Mr. SUCHER. Right, and of course our concern with that is that the payor can't
afford to pay 70 percent any more than they could pay 100. So, we get very little
from that patient as well.
Mr. JOHNSON. Let me ask you this question. Since physicians decide on what
treatment is needed, do they know what the treatment costs every time and how do
you think that affects total cost?
Mr. MORRISON. Congressman, that is an excellent question. We have in our
organization undertaken some efforts to try to educate our physicians on what
particular tests cost, what particular drugs cost, and as we are able to
increase their sensitivity, they do make different decisions as to the selection
of the drug or whether that test is really, really necessary. I am not sure it
is a practice across the board, but I think it is something that hospitals ought
to consider because doctors are a little inoculated from the impact of their
decisions upon the cost of care.
Mr. JOHNSON. Is every hospital different? Go ahead.
Mr. SUCHER. Well, we are the same way. We very much know what our costs are
and provide the information to our physicians regularly and encourage them to
understand that and know what they can do to change that as well. Contrary
to one of Mr. Thomas's earlier comments, I think hospitals today generally do
know their costs of procedures. We know very precisely what our average costs
for most things we do are. The trick is getting that from what we know the cost
to be to some sensible charge structure, when--you know, I can't get anybody to
pay any more to deliver a baby; where I lose money, I am sure not going to go in
and say, gosh, I am going to discount my prices over here to come closer to
costs when I can't raise the other side of the equation.
Mr. BERND. I would just add that I think one of the most effective tools to
provide effective care is working with physicians to look at the best treatment
models for patients' illnesses and try to streamline the care process, which
takes into account efficiency and effectiveness of the care, and using
disease-based information that is available on what the best treatments are for
patients with certain illnesses. I think that is really a key to long-term
success of trying to hold down costs.
Mr. JOHNSON. Do you think the for-profits or not-for-profits provide better
physicians, facilities, and response than one or the other? You know, why
do you think specialty hospitals popped up? According to the physicians I have
talked to, they said the hospitals were not giving them the operating time when
they needed it.
Mr. BERND. I think that facilities between not-for-profits and for-profits are
very similar. I think the specialty hospitals in some places have been brought
forward due to lack of capacity. I think in others it has something to do with
profit motive. It just depends upon the situation, and I think we have
talked--we heard earlier the testimony about the fact that certain procedures in
hospitals are more profitable than others, and if you do take those out of an
institution you can do well financially. So, it is a complex issue.
Mr. JOHNSON. Yes, sir?
Mr. MORRISON. I think that the first place you really do have to look is that,
the financial incentives that are there in the boutique hospitals and with the
physician involvement, you do have the prospect of taking the more profitable or
the easy cases to someplace where you have an investment, and taking the more
difficult cases where you do not. There may be instances where there are
capacity issues, but those are generally met by the not-for-profit institutions.
The issue is one of business and financial motive.
Mr. JOHNSON. Thank you very much.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you. I am going to turn to Mr. Weller in a moment, but before I
do, Mr. Bernd, please repeat your answer to one of Mr. Johnson's questions
regarding
some of the key elements of keeping down long-term costs.
Mr. BERND. Well, I think using evidence-based medicine and trying to work with
physicians to put into place treatment protocols and care pathways are very
effective. I know we have had a lot of success in Norfolk with those, where you
try to use evidence that is there on how to best treat a patient and follow a
particular pathway. It is very effective in not only reducing cost, but having
more effective care.
Other things that are happening is we put in remotely controlled intensive care
unit monitoring,
where patients are monitored in intensive care units around the clock. You have
immediate intervention with patients in trouble and we have seen a dramatic
decrease in mortality and a decrease in cost for the investment of this
technology.
So, I think you are beginning to see some very good breakthroughs. Another good
example are software systems that are now in place that, for instance, will
provide to the clinicians when they order a particular drug, will show them how
it interacts with other drugs, what counter-indications there are, lab test
results. So, I think we are on the cusp of having some tremendous breakthroughs
in both quality and cost reductions.
Chairman HOUGHTON. Is this something which would lend itself, really, to sort
of regional repricing and re-estimation, or is it something which could be right
across the country?
Mr. BERND. I think it is something that could be very beneficial across the
country and I think, the other problem we have with prices and hospitals and
health care obviously has to do with increased utilization and the fact that we
are getting older as a society. I hope these interventions and changes in
technology will help us decrease the increases, which have been very high
lately.
Chairman HOUGHTON. Thanks very much.
Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman, and thank you for the opportunity to ask
some questions.
You know, Mr. Bernd, representing the AHA, as you know
in Illinois, as is in the case of my own district, the vast majority of
hospitals are not-for-profits.
Mr. BERND. All right.
Mr. WELLER. The district that I represent in the south suburbs, every
hospital is a not-for-profit. They usually are the largest employer in town, if
not competing with the usual locally, the school district, and they also provide
service to my communities. I would note, one thing I am particularly proud
of is that all my hospitals have a record of serving the health care needs of
people in our communities regardless of their ability to pay, their insurance
status or even their citizenship status.
There is almost 1.7 million Illinoisans, many of them immigrants and the working
poor that have no health insurance. Yet all my hospitals, as I have seen in the
records that I have, have been there when they have needed medical care. This
past year, Illinois hospitals provided more than $2 billion annually in medical
care for which they did not receive one dime in reimbursement.
I would note one system which serves much of my district, Provena Hospital
System in Illinois, provides $6.5 million in free care and last year lost $32.8
million on Medicaid services that they provided to my constituents. One
particular hospital of Provena, St. Joseph's in Joliet, provides care at no cost
to the Will-Grundy free clinic and donated a quarter of a million dollars to the
local YMCA to build a health care facility.
As I have seen, Illinois hospitals take their commitment to charity care pretty
seriously. In fact, last year the Integrated Healthcare Association (IHA) and the Metropolitan Chicago Health Care
Council developed guidelines in charity care and collection practices for the
uninsured that are designed to be patient-friendly. Mr. Bernd, I would like
to get your perspective on these guidelines.
The guidelines include a number of basic principles. Uninsured patients receive
free care if they are at or below 100 percent of Federal poverty. Discounts
provided to patients with incomes between 100 and 200 percent of Federal
poverty. Hospitals work with patients receiving discounts to develop a
reasonable payment plan. Hospitals do not take legal action against charity care
patients who have demonstrated that they do not have sufficient income or assets
to meet their financial obligations.
Obviously, in order for these hospitals to serve, they also have to survive
financially. Illinois hospitals such as Provena have demonstrated that they
can serve these communities, particularly those with limited access to care.
They tend to be the poorer non-citizen patients.
The question I have for you, Mr. Bernd, is, you know, you are coming before
us today with a national perspective. I have shared with you the initiatives
of the Illinois hospital community. I was wondering what are your thoughts
on charity care guidelines such as those that we have in Illinois?
Mr. BERND. Actually, those guidelines that you have presented, endorsed by the
Illinois Hospital Association, have come from the collaboration with the AHA, and actually we are asking every hospital in the union to
endorse those particular guidelines. In fact, over 2,500 hospitals have
endorsed those specific guidelines. I think they are excellent. I personally see
them as a minimum requirement for our members. In fact, I was the first--we were
the first institution that signed those. I think that is very good and I think
it is something that is really needed.
Mr. WELLER. So, essentially these guidelines are in process of being adopted
nationwide? How many States adopted?
Mr. BERND. Well, again, 2,500 of our 5,500 members have adopted it and we have
only been at this about a month. So, we are very encouraged by the results, and
we expect to have 100 percent of our members across all States endorse this.
Mr. WELLER. You had mentioned that you see these guidelines as the bottom
line. How would you improve them?
Mr. BERND. Well, for instance, my own health care institution, we provide
discounts up to 500 percent of the Federal poverty. So, that is our commitment to
our community. I think it would differ in each community, depending upon the
needs of the community, the types of population, the number of poor you have,
wage index. I think you need to tailor them by each community.
Mr. WELLER. You know, Congress always comes up with great ideas, as you know.
Mr. BERND. Yes, sir.
Mr. WELLER. I was just wondering, is there a role for Congress in
developing these kinds of guidelines?
Mr. BERND. I would hope what you have done, which is to really publicly
advocate what your member hospitals have done from your district. That is really
outstanding. I am sure we will report that in our national news and the fact
that our congressmen are supporting us in this effort. I think the real thing we
all need to work on and the thing that we have all talked about today is the
fact that there are now 44 million Americans without health insurance and the
strains it is putting on all the systems, our health care systems. It is a real
problem. It is now beginning to hit the middle class, and it really is a
problem.
Mr. WELLER. Thank you, Mr. Bernd.
Mr. BERND. Yes, sir.
Mr. WELLER. Thank you, Mr. Chairman.
Chairman HOUGHTON. Mr. Pomeroy.
Mr. POMEROY. Mr. Chairman, I just have a request relative to the issue of
whether people with HSAs that carry health insurance over the top of their HSA
first-tier exposure are able to access the discounted arrangements made by the
underlying insurance company for their portion of the first-tier costs. We
inquired of the largest players in the health insurance industry. I have a
response from BlueCross BlueShield. Others are sought from the United Health
Group. We would ask that these be allowed as part of the record of this hearing,
Mr. Chairman.
Chairman HOUGHTON. Absolutely. Mr. Portman.
[The information was not received at the time of printing]
Mr. PORTMAN. Thank you, Mr. Chairman, and I thank the panelists for giving us
some good information today. I was here for the earlier panel and then had a
meeting in between. In that meeting, it happened to have been with somebody
who works for one of our hospitals back home. I talked earlier in the hearing
about the fact that we have three major networks in greater Cincinnati, Ohio.
They are all three nonprofit. They all provide charity care, of course, but also
benefits to the community beyond that.
This person in particular was talking about billing. This was a good
opportunity coincidentally to hear something from somebody who in this case is a
relatively junior member of the billing staff, and she was talking about some of
the very issues that you struggle with every day, including the fact that many
of the patients are not able to access insured coverage, so they come in either
under Medicaid or with no health care and no compensation for their care. They don't tell the hospital that.
So, the collection process begins, it becomes
very complicated. Reminds me a little bit of the IRS collection process, where
often the left hand has not known what the right hand has been doing--although
that is better now--and in the end there is a lot of wasted cost and effort and
very little benefit to the hospital in the end because the person doesn't have
the resources.
My first question would be is the current system of billing serving the
hospitals well, and how could it be improved? Particularly, what
recommendations would you have for this panel in terms of dealing with the
billing side of things strictly as it relates to uninsured or under-insured
patients?
Mr. Bernd, maybe you want to start with that.
Mr. BERND. I think the present billing system doesn't serve the patients and
the hospitals very well. It is very complex. We deal with over 100, 200 different insurance companies. I think some of the things we could work
on are standardization of requests from insurance companies, standardization of
information that is needed. It is a very difficult system and it is very
complex. I think you heard about that today with pricing in the other areas. So,
we could use some help in that area.
Mr. PORTMAN. Well, with regard to standardization, we have talked about that
for years. With regard to the Federal side, I know we do more electronic
billing now, which I am told is more efficient. I hope you all believe that.
With regard to the private sector side, how would you get to that uniform or
standardization of billing? Should that be a Federal mandate, are you
suggesting? How would you get to the point that I think everybody agrees would
be helpful to reduce the administrative costs?
Mr. BERND. Well, I would like to see the private industry do that, but maybe
encouragement by committees such as this to say that we need to do it on the
private basis would spur us on to do that. We need the cooperation of all these
various insurance companies.
Mr. PORTMAN. Let me ask the second question, and gentlemen, jump in as to my
first one, too. Do you believe that hospitals are well-served by a system
that bills consumers amounts unrelated to what their insurer actually pays? Is
that something that is good for hospitals?
Mr. Morrison, you seem eager to answer that.
Mr. MORRISON. I am eager to answer that. Thank you, Congressman. I am not sure
that we are well-served by that, because I think, if we know up front if you are
insured, that your insurance company is going to pay something substantially
less than, essentially, our rack rate, it does create a significant amount of
confusion to that enrollee if he were to get a bill for $20,000. He doesn't
know is he going to owe a portion of this? What is this bill all about? His
insurance company comes back and says, you know, we paid $10,000, you owe
$500--is the hospital going to come back at me to get the balance? Which we are
precluded from doing because there is not balance billing.
I think if we are required to send out a detailed bill when there is no
expectation that an individual is going to pay off that detailed bill, it does
create a tremendous amount of confusion and it creates a lot of cost. It is
unnecessary.
Mr. PORTMAN. Mr. Sucher?
Mr. SUCHER. I think one of the greatest injustices to hospitals from the
current system is that the insurers don't really show the insured what they did
in fact pay. For that same $20,000 bill he just cited, if we get $10,000, for
all the patient knows, they paid $19,500, because all they then get is a
statement that shows the bill is taken care of except there is $500 left. It
is very hard, then, to collect that $500 from the patient when he thinks we have
already gotten $19,500, when in fact we have only gotten $8,000 or $10,000. So,
it is a very disserving system for all concerned.
Mr. PORTMAN. So, more transparency, we talked about earlier, even in
billing--simplifying it and doing as much at the front end as possible to
determine what the insurer can pay, will pay, and what the costs are would be
helpful, it seems to me.
Mr. COHEN. Mr. Portman, I believe that the very high charges are a major
problem for managed care and insurance companies. Many admissions are through
the emergency room. If you don't have a contract with the hospital and, for
those patients who go through the emergency room, if you are responsible for
paying charges, it is an exceedingly high amount. The result is that it puts
inappropriate pressure on payors to negotiate with virtually every hospital.
I think that puts too much of the balance of power in the hospital arena in
regard to the negotiations, and that is something to consider.
Mr. PORTMAN. Thank you, Dr. Cohen.
One final question. I would ask for this response in writing, since my time has
expired. Mr. Morrison, Florida law, as you know, hospitals are required upon
request to provide the estimated charges for a hospital stay or a treatment. If
you could give us your written response as to what the positives and negatives
are to that--and for that matter, any other panelists who have thoughts on that
as a system that could be used in other States. Again, gentlemen, thank you for your testimony.
Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you.
I just have one final question. Mr. Sucher, I am interested in a simplification, reduction, making it understandable. This is not just in
health care, but in a whole variety of other things. Are there some immediate
changes we could use to simplify the hospital billing system, like right now?
Mr. SUCHER. I wish there were. I would certainly be glad to offer something if
there was. The simplest thing is, as he just said, doing some kind of a lump-sum
billing that allows, like Medicare for DRGs, and avoid the whole detail-billing
process. I don't think that is a quick solution because there is too much
invested in that process from so many things, to make a quick change in that.
Chairman HOUGHTON. Is that possible on a State-by-State basis or would it have
to be a national?
Mr. SUCHER. I think you would prefer it was national rather than
State-by-State. I mean, demonstration projects oftentimes can get something
done, so--
Chairman HOUGHTON. All right.
Okay, well, thank you very much. Appreciate your testimony. It has been a great
day. Onward and upward to another session.
[Whereupon, at 1:20 p.m., the hearing was adjourned.]
[Questions submitted from Chairman Houghton to Ms. Davis, Mr. Bernd, and Mr.
Cohen, and their responses follow:]
Question from Chairman Amo Houghton to Ms. Karen Davis
Question:
You stated to the Committee that you have
quantitative estimates of the community benefits for medical education, standby
capacity and charity care. I ask that you provide those estimates to the
Committee. In addition, you stated that on the whole it was enough to justify
the tax difference. I ask that you provide that evidence to the Committee.
Answer: Like other nonprofits,
nonprofit hospitals are ordinarily exempt from federal income taxes. As a
rule, they receive their tax-exempt status under Section 501(c)(3) of the
Internal Revenue Service Code which applies to organizations with religious,
charitable, public safety testing, scientific, literary, and educational
purposes. Because the code has never explicitly included medical
organizations, hospitals and other health care organizations have qualified under
the term “charitable.”[1]
The status also means that hospitals will have access to tax-free bonds, can
receive tax deductible donations from donors, and will have a greater
likelihood of being exempt from various state and local taxes.[2]
An IRS ruling in
1969 explicitly defined the criteria for hospitals’ tax exemption.[3]
In particular, nonprofit hospitals
were to operate a full-time emergency room and could not deny emergency care to
patients. In the ruling, charitable activities, in the context of health care,
were those that generally promoted health and thus benefited the community as a
whole.
A broad range of
activities undertaken by nonprofit and public health care institutions have
been identified as community benefits. Schlesinger and colleagues, for
example, identified over 30 different community benefit activities that health
care institutions engage in.[4]
Such activities include those with public good attributes such as teaching and
research which benefit entire communities, those that have positive spillover
effects such as programs designed to prevent disease, and those activities,
like outreach to high risk patient groups, which have little likelihood of
being undertaken by profit making institutions. Other types of community
benefit are community involvement in governance and a refusal to exploit
information asymmetries endemic to the health services market such as imperfect
information on the part of patients.
Academic medical
centers and teaching hospitals, the vast majority of which are public and
private non-profit institutions, pursue several unique missions that benefit
the broader community. Those missions include graduate medical education,
biomedical research, and the maintenance of standby capacity for highly
specialized care to medically complex patients. Research conducted by Lane
Koenig, Al Dobson and others for the Commonwealth Fund’s Task Force on Academic
Health Centers and published in a late 2003 article in Health Affairs
estimated that the costs of these three missions alone amounted to $27.2
billion in 2002.[5]
Of that total, $16.4 billion went to graduate medical education, $9.6 billion
financed stand-by capacity, and $1.2 billion funded research. Also see Appendix
A for a summary of work on this issue in the final report of the Commonwealth
Fund Task Force on Academic Health Centers.
It should be noted
that these estimates are based on standby capacity for highly specialized care
such as burn units and trauma care. They do not include future threats
including the value to communities of having a hospital equipped to deal with
terrorist attacks or natural threats such as a SARS-like epidemic. Most
communities would willingly forego property taxes on local nonprofit hospitals
in exchange for assurance that this capacity was available – even if an
occasion to use it never materialized.
With respect to
charity care, as I indicated in my testimony,[6]
a significant amount of research has shown that nonprofit hospitals are more
likely to care for uninsured patients than are for-profit hospitals.[7]
Further, academic health centers are more likely to care for such patients
than are community hospitals.[8]
In recent years, care for the uninsured has been increasingly concentrated in
fewer institutions willing to provide that care. Public academic health center
hospitals provide the highest levels of charity care among all hospitals, while
private nonprofit academic health centers provide twice as much free care as
other private hospitals.
Recent work by
Jack Hadley and John Holahan found that in 2001, private and public health care
providers spent an estimated $35 billion a year on care for uninsured patients
that went uncompensated (i.e, that was not paid for by patients or private or
public insurers).[9]
Hospitals delivered about two-thirds of total uncompensated care or a total of
about $23.6 billion.
I have only
identified some of the quantifiable benefits that flow to communities and the
nation as a whole from nonprofit and public hospitals. Clearly such community
benefit activities yield considerable value to the U.S. health care system. Nonprofit
hospitals’ tax exempt status should be considered in the context of the overall
framework of our health care system and its unique needs. Highly fragmented, it
relies heavily on local health care institutions to provide a wide range of
health care services, not all of them profitable, to an increasingly diverse
population, as well as the education and training of health care professionals.
Reliance on nonprofit health care institutions has likely helped the system
maintain its high degree of decentralization and privatization while still managing
to provide at least some of the services that traditionally for-profit entities
might have failed to provide. Serious debate about the tax-exempt status of
hospitals really has to engage the larger, more fundamental question of the how
the United States wants to finance the health care of its population.
Appendix A
Excerpt from Envisioning
the Future of Academic Health Centers: Final Report of The Commonwealth
Fund Task Force on Academic Health Centers, New York: The Commonwealth
Fund, February 2003; 7-9. (Fund Publication #600) Available at www.cmwf.org.
Clinical
Costs of Mission-Related Activities in Academic Health Center Hospitals
The conduct
of mission-related activities in AHCs and other health care institutions is
often associated with extra expenses that are not compensated in competitive
health care markets. These extra expenses are manifested in part as higher
clinical costs at AHCs. The performance of some missions, such as educating
medical students and residents and conducting clinical research, makes the
provision of care less efficient or requires extra work and the hiring of extra
staff.
According
to a recent analysis by The Lewin Group, the cost per case for AHC hospitals
($8,548) was higher than the cost per case for other teaching hospitals
($6,047) and for other urban, community hospitals ($5,238) in fiscal year 1998
(Figure 3).[10]
The Lewin Group analysis decomposed these total cost per case estimates to
provide separate cost estimates for each of the mission-related categories for
fiscal year 1998. After accounting for differences in wages, case mix, and
other factors that influence cost per case, mission-related costs averaged
$2,360, or 28 percent of total costs, for AHC hospitals. By comparison,
mission-related costs for other teaching hospitals accounted for only 11
percent ($674) of total costs. For AHC hospitals, stand-by capacity (defined as
the capacity to provide high-technology or intensive services whose
availability is essential to a modern health care system, but that are not
always in use) accounted for the largest component of mission-related costs
(45 percent), with indirect medical education and research representing 42 percent and 13 percent of total
mission-related costs, respectively (Figure 4). After updating these
cost estimates to 2002
values using the Centers for Medicare and Medicaid Services Prospective Payment
System Hospital Input Price Index, total mission-related costs, including
medical education, are estimated to be $11.4 billion for AHC hospitals and
$27.2 billion for all teaching hospitals (Table 1).
![](media/graphics/6-22-04charts/Davis1.jpg)
![](media/graphics/6-22-04charts/Davis2.jpg)
Table 1. Total Clinical Costs of Mission-Related Activities
by AHC Status, 2002* ($ billions)
|
Direct
Ed. Costs
(DME)
|
Indirect
Ed. Costs
(IME)
|
Research Costs
|
Standby Capacity Costs
|
Total Costs
|
N**
|
AHCs |
4.2 |
3.0 |
0.9 |
3.2 |
11.4 |
124 |
Other teaching
hospitals |
6.0 |
3.3 |
0.2 |
6.4 |
15.8 |
1015 |
All teaching hospitals |
10.2 |
6.2 |
1.2 |
9.6 |
27.2 |
1139 |
* Costs have been estimated using the Centers for
Medicare and Medicaid Services (CMS) Prospective Payment System Hospital Input
Price Index.
** N is the number of hospitals in the CMS Prospective
Payment System Hospital Input Price Index.
Note: Numbers may not add up due to rounding.
Source: Lane Koenig et al., “Mission-Related Costs of
Teaching Hospitals: Estimates of Graduate Medical Education, Clinical Research,
and Stand-by Capacity” (Unpublished manuscript, November 2002).
[1]
D. M. Fox and D.C. Schaffer, “Tax Administration as Health Policy: Hospitals,
the Internal Revenue Service, and the Courts,” Journal of Health Politics,
Policy and Law, 16 no.2 (1991)251-279.
[2]
M. Schlesinger, B. Gray, E. Bradley, “Charity and Community: The Role of
Nonprofit Ownership in a Managed Care System,” Journal of Health Politics,
Policy and Law, 21 no.4 (1996)697-751.
[3]D.
M. Fox and D.C. Schaffer, “Tax Administration as Health Policy: Hospitals, the
Internal Revenue Service, and the Courts,” Journal of Health Politics,
Policy and Law, 16 no.2 (1991)251-279.
[4]
M. Schlesinger, B. Gray, E. Bradley, “Charity and Community: The Role of
Nonprofit Ownership in a Managed Health Care System,” Journal of Health
Politics, Policy and Law, 21 no.4 (1996) 697-751.
[5]
L. Koenig, A. Dobson, S. Ho, J.M. Siegel, D.Blumenthal, J.S. Weissman,
“Estimating the Mission-Related Costs of Teaching Hospitals,” Health Affairs
(November/December 2003):112-122.
[6]
Karen Davis, Hospital Pricing Behavior and Patient Financial Risk,
Invited Testimony, Subcommittee on Oversight, Committee on Ways and Means,
Hearing on “Pricing Practices of Hospitals,” June 22, 2004.
[7]
L.S. Lewin, T.J. Eckels, and L.B. Miller, “Setting the Record Straight: The
Provision of Uncompensated Care by Not-for-Profit Hospitals,” The New
England Journal of Medicine, 1212-1215,May 5, 1988; Bradford H.
Gray, “Conversion of HMOs and Hospitals: What’s at Stake,” Health Affairs, 29-47,
March/April, 1997; Gary Claxton, Judith Feder, David Shactman, and Stuart
Altman, “Public Policy Issues in Nonprofit Conversions: An Overview,” Health
Affairs 9-28, March/April 1997; David Shactman and Stuart H. Altman, “The
Impact of Hospital Conversions on the Healthcare Safety Net,” in Stuart H.
Altman, Uwe E. Reinhardt, and Alexandra E. Shields (eds.), The Future U.S.
Healthcare System: Who Will Care for the Poor and Uninsured? Health
Administration Press; Institute of Medicine Committee on Implications of
For-Profit Enterprise in Health Care, Bradford H. Gray (ed.), For-Profit
Enterprise in Health Care, National Academy Press, 1986.
[8]
Commonwealth Fund Task Force on Academic Health Centers, A Shared
Responsibility: AcademicHealthCenters
and the Provision of Care to the Poor and Uninsured, Commonwealth Fund,
April 2001.
[9]
J. Hadley and J. Holahan, “How Much Medical Care Do the Uninsured Use, and Who
Pays for It?” Health Affairs Web Exclusive (12 February 2003): W3-66–W3-81.
[10]
Lane Koenig et al., “Mission-Related Costs of Teaching Hospitals: Estimates of
Graduate Medical Education, Clinical Research, and Stand-by Capacity” (Unpublished
manuscript, November 2002).
Question from Chairman Amo Houghton to Mr. David Bernd
Question:
In your written testimony, you stated that
hospitals had been concerned about violating federal regulations governing
billing and collections if they discount charges to the uninsured. Can you
provide to the Committee descriptions of Sentara’s charity care policy before
and after the February 19, 2004 letter by Secretary Thompson to Richard
Davidson, the president of the American Hospital Association?
Answer: Sentara works diligently to qualify low income uninsured
patients for public assistance through the Medicaid program or the Virginia
State and Local Hospitalization program. For those patients that don’t qualify
for either of those programs, the Sentra charity program provides assistance
for those uninsured patients whose family income falls below 200% of the
Federal Poverty Level (FPL). The Sentara charity program has been in place for
many years.
In my capacity as incoming Chairman of the Board for the
American Hospital Association, I was involved in the development and approval,
by the Board, of the Statement of Principles and Guidelines on Billing and
Collections Practices (Guidelines) as well as AHA's efforts, in connection with
successful implementation of the Guidelines, to secure needed regulatory
clarifications from the Department of Health and Human Services (HHS).
In response to the Guidelines
and in anticipation that HHS would, in fact, provide the necessary regulatory
clarifications, in December 2003, Sentara implemented an additional program for
uninsured patients whose family income exceeds 200% of the FPL. The uninsured
discount program provides discounts to uninsured patients, on a sliding scale,
based on family income level and the amount of hospital charges incurred. This
program provides assistance to uninsured patients whose family income is
between 200% and 500% of the FPL.
Question from Chairman Amo Houghton to Mr.
Harold A. Cohen
Question: In your written testimony, you state that as of
1986 there had been no cases in Maryland of “patient dumping” because of the
equitable funding of uncompensated care at Maryland hospitals. Is that
still the case in Maryland?
Answer: As
Dr. Cohen testified during his presentation, this original assertion was made
in the mid-1980s by the Maryland Legal Aid Bureau during a legislative hearing
in Annapolis, Maryland. To be consistent with the original testimony, we
contacted Maryland Legal Aid to obtain a response to your question. According
to Hannah Lieberman, Director of Advocacy, no cases of patient dumping in
Maryland have been recorded. I am enclosing her written response with this
letter for your review.
Thank
you for the opportunity to provide you with further insight into Maryland's
unique rate setting system.
[Submissions for the record follow:]
Catholic Health Association of the United States, Michael D. Place, statement
Community Catalyst, Boston, MA, statement and attachment
Mitchell, Geoffrey C., Columbus, OH, statement
Palmer, Pat, and Johnson, Nora, Caldwell, WV, statement
VHA, Inc.,
statement
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