THE SICK BILL

A COMPARISON OF TWO HOSPITAL BILLS SHOWS HOW COST-SHIFTING CAN KNEECAP CUSTOMERS.

"I reckon being ill is one of the great pleasures of life," Samuel Butler declared, "provided one is not too ill and is not obliged to work till one is better."

Yes, but Sam never had to contend with the modern hospital--or the hospital bill. Although car dealers talk about "sticker shock," the real shock therapy is reserved for anyone who's gone under the knife lately, only to find a five-figure, multipage, 350-line-item monster lurking in the recovery room. Then the bleeding begins in earnest.

Everyone knows hospitals are outrageously expensive; hospital costs account for the single greatest chunk of health-care spending (almost 40 percent) and are at the heart of the national debate over health-care reform. But some hospitals' charges climb a lot higher than others'. Case in point:

Two Denver sisters recently underwent virtually identical operations: knee replacement surgery. Both are in good health, and they received similar pre- and post-operative care. Both, I should add, happen to be related to me (hi, Mom).

Patient A decided to have her surgery done at Rochester Methodist Hospital in Minnesota, part of the renowned Mayo Medical Center. Patient B went to Presbyterian/St. Luke's Medical Center, the largest full-service hospital complex in the Denver area.

The result? Patient A received a bill from Mayo for $12,625.69, while Patient B's bill from Presbyterian/St. Luke's totaled $25,540.56. Even though Patient A had to fly out of state--and incur a hefty $619 charge to have blood shipped to Minnesota before the surgery--the sister who stayed in Denver wound up with double the bill for the same operation.

The difference in cost has nothing to do with fee-happy doctors or expensive tests, two favorite villains of health-care reformers. Most of the diagnostics were done ahead of time, and surgeons' fees (which were remarkably similar) aren't included in either bill. Nor does the fact that Patient B was hospitalized two days longer than Patient A account for the discrepancy; three-fourths of Patient B's staggering tab was incurred in the first 72 hours of her stay.

In fact, most of the extra $13,000 on Patient B's bill can be traced to mundane areas: surgical and medical supplies (an $8,500 difference for such items as bandages, knee braces, sutures, gowns and the orthopedic implants themselves); routine physical therapy (which averaged more than $250 per day compared to Patient A's charges of about $25 per day); drugs (a $1,000 gap); and room charges ($470 a day for a standard room at Presbyterian/St. Luke's versus $347 a day for a private room at Rochester Methodist).

How can one hospital charge so much more than another for basically the same products and services? The answer is cost-shifting--an accounting practice that developed in response to the complicated multipayer system of health care in this country. Cost-shifting has made the system even more bizarre by inflating prices to the point where little relationship exists between hospital charges and the true cost of the service received.

Like most hospitals, Presbyterian/St. Luke's spends millions each year treating indigent or uninsured patients in its emergency room. The hospital also loses money on some Medicare and Medicaid patients, since the government has set stringent caps on what it will pay, regardless of complications that might occur. Traditionally, hospitals passed those costs on to private insurers in the form of higher charges--but these days most major insurers insist on deep discounts, too, and get them. So the cost keeps shifting, to a shrinking pool of cash-paying patients and small insurers who don't have the leverage to negotiate discounts. When they can't keep up, they drop out, leaving more uninsured cases and aggravating the cost-shifting.

"If you look at which hospitals are taking care of the most Medicare and Medicaid [patients] and uncompensated care, and then look at the charges, you'll see a direct correlation," says Presbyterian/St. Luke's administrator Michael Ratkiewicz. "We have to absorb that in our overall cost structure."
The Mayo Medical Center, on the other hand, operates under a different set of rules. Minnesota has a state-subsidized health-care system, which means that taxpayers foot part of the bill for charity patients. Mayo also has a high volume of out-of-state referrals, including patients seeking highly specialized treatment; because Mayo sees more of these cases than anyone else, it can treat them more efficiently--and less expensively. Also, as a mature, well-endowed provider operating in a relatively stable market, Mayo doesn't have the operational or capital costs of Presbyterian/St. Luke's, such as the $120 million price tag for its new patient tower.

"Mayo tends to realistically price on what [expected] payment is," says Charles Inlander, president of the People's Medical Society, a consumer advocacy group based in Pennsylvania. "They're very efficient, and they're self-selective, to some extent."
Ratkiewicz doesn't see why anyone should get worked up over charges for $35 ice packs and $56 support stockings (see highlighted charges). After all, the vast majority of his patients never pay that much. Their costs are fixed, by prior agreement between hospital and insurer, before they are ever admitted. And Patients A and B are both covered by Medicare, which paid roughly the same amount--$11,000--in each case. Supplementary insurance kicked in a little more, but Ratkiewicz says Presbyterian/St. Luke's will end up writing off more than $14,000 of Patient B's bill.

"This number over here," says Rat-kiewicz, pointing to Patient B's total of $25,540.56, "for 90 percent of our patients, is a meaningless number. It doesn't mean anything."
Inlander disagrees. "Most hospitals create a charge as a way of negotiating the next round of payments," he says. Higher charges create a higher "base" for discounts to insurers, which eventually gets passed on to businesses and consumers in the form of higher premiums. And while it's true that uncompensated care is a major factor, the high salaries of hospital administrators and plant costs also contribute to the double-digit inflation in hospital charges nationwide.

"We aren't closing down hospitals or consolidating as we should," Inlander says. "We're still paying for these huge dinosaurs--all the new technology, the capital costs, the administrative costs."
Ironically, Presbyterian/St. Luke's is the biggest consolidator on the Denver scene. After a bumpy ride as a for-profit operation in the late 1980s, the complex was purchased by local investors in 1991 and returned to its historic not-for-profit status. Ratkiewicz claims the ongoing consolidation of the two hospitals "took $30 million in charges out of the system" last year by reducing the number of administrators and staff, upgrading the physical plant and eliminating duplication of services. The recent merger with Swedish Medical Center to create a "superprovider" known as HealthOne is expected to produce even more savings, despite $330 million in outstanding debt.

"Our charges this year are less than they were two years ago," Ratkiewicz insists. "Who else in Colorado has closed down a hospital to get these efficiencies?"
Still, a recent survey of area hospitals by the Denver Business Journal found Presbyterian/St. Luke's charged more than the state average for various common surgical procedures except one: knee operations. Ratkiewicz says the survey was based on 1992 figures, the hospital's "most inefficient year" because of the expense connected with moving patients from one hospital to the other.

The real path to reform, Ratkiewicz says, will involve not only overhauling the payment system but reducing the overall length of stay, expanding the already sizable role of outpatient care and making hospitals even more efficient.

"Under health-care reform, there isn't going to be anything left to shift around," he says. "Everybody will be covered, and we'll all be under a tighter system."
Tighter, at least, than now. To date Patient B's out-of-pocket expenses for her new knee have amounted to zero; Ratkiewicz says her account is closed. Yet she just received another bill from Presbyterian/St. Luke's for her nine-day stay last fall, seeking payment on an outstanding balance of $9,605.

Mom, I keep telling you: Those numbers don't mean anything.

Without knowing the brand names involved, it's impossible to determine whether Patient B's orthopedic implants (total price $6,975) amount to the Cadillac of artificial knees, as opposed to Patient A's economy model ($4,239.40). A more startling difference appears in the add-on charges involved in Patient B's visit to the operating room. Mayo charges a fee for the use of the room and $236.52 for "OR supplies," while Presbyterian/St. Luke's assesses a fee, then piles on more than a thousand dollars for sponges, cement, towels, the anesthesia mask--and, in a final bit of bloodletting, a $106 charge for the saw blade used in the surgery.

Part of the cost of the typical hospital room has to do with all the empty rooms elsewhere in the facility. Thanks in part to expanding outpatient care, occupancy rates nationwide have dropped significantly since the mid-1980s. "You're paying for 40 percent of the hospital beds in this country being empty," says Charles Inlander. Until recently, Denver was known as one of the most overbedded cities in the country. But Presbyterian/St. Luke's administrator Ratkiewicz says it's misleading to talk about "licensed" rather than "staffed" beds. Through consolidation, P/SL has reduced its licensed beds from 903 to 674, and staffs only 558 of them; occupancy of those beds has been running from 60 to 70 percent. Since P/SL has positioned itself as a "tertiary" hospital, specializing in expensive services such as organ transplants and cancer treatment, a certain number of beds must always be available for special clients--bone marrow or pediatric patients, for example--and can't simply be shifted to other uses.

Cost-shifting surfaces most vividly in the nickel-and-diming of patients for low-ticket, high-volume amenities such as ice packs, blankets, aspirin and basic in-room services, including checking a patient's pulse ($58 at Presbyterian/St. Luke's) or blood pressure ($68). Rochester Methodist may be one of the few hospitals left that still provides items such as "anti-embolism stockings" at no charge; Patient B was charged $56 for her fancy support hose, which retail at medical supply stores for around $35. Patient B also was billed $26 for a humidifier she never saw, $27 for mattress pads she didn't use, $84.55 for a "warming blanket" (a 4" x 6" strip of flannel) and $.75 each for four 7-Ups (she remembers getting one soda, which she didn't drink because there was no ice). P/SL administrator Ratkiewicz says the high price of blankets is just one way hospitals have attempted to pass along rising overall costs. "Over forty years [of price increases] you get these, I guess what seem to be absurd-type things," he says. "But if you lower the price of the blanket, you have to raise the price of the OR minute. It may be good public relations, but it's not going to make any difference in the long run."

Patient B was charged more than $750 for drugs shortly after her surgery. Mayo's bill does not specify which drugs were dispensed to Patient A; assume some overlap, although Mayo charged considerably less per injection and medication requirements vary widely from one individual to the next. Still, it's worth noting that Presbyterian/St. Luke's charged Patient B $437.72 for nine drugs that, if purchased from a pharmaceutical supply house, would cost about $55--and it's a safe bet that the hospital paid less than that. Figure that at least part of the markup relates to the labor cost of having a trained professional give the injection and the cost of the needle's disposal; figure, too, that the hospital's debt service and other costs far removed from Patient B's treatment may be shooting up the charge for her antibiotics and painkillers.

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