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Uninsured caught in costly twist

Hospitals charge full price for care

When a Blue Cross and Blue Shield of Massachusetts member suffers a stroke, the giant insurer pays the hospital $7,000 on average to cover the care. Medicaid pays an average of $5,441.27.

But when John Hernon had a stroke, the bill for his hospital stay rang up to $23,280.80, plus $23,018.10 for doctors fees and nine months of follow-up care.

Hernon is uninsured, and in one of the strangest twists of the US health care system, the uninsured often pay two to four times as much for the same services as most health insurers and government programs. Many patients who must pay their own bills are charged full price while insurers negotiate steep discounts for themselves and their members.

Hernon, 59, woke up on a Sunday morning in September 2002 with an upset stomach and numbness along the right side of his body and face. He called a cab to drive him to Massachusetts General Hospital, and the nurse who took his blood pressure immediately realized it was serious. Doctors determined that Hernon had suffered two strokes, he said, and admitted him to the hospital, where he spent the next four days undergoing dozens of tests and getting treatment.

Hernon had decided not to buy insurance during the early 1990s, when he became a self-employed landlord, because coverage was so expensive. Since then, premiums have soared. Almost as soon as doctors sent him home, Mass. General began sending bills. Now, Hernon pays the hospital and its doctors $700 a month in an installment plan he worked out with them.

"The poor never pay, because they're usually covered by government programs, so the only people paying the sticker price are the middle class who have no health insurance," said Elizabeth Warren, a Harvard Law School professor. "Any sensible person in America could say what's wrong with this picture."

This imbalanced system is the subject of a growing number of patient complaints, lawsuits, and congressional hearings. In February, US Health and Human Services Secretary Tommy G. Thompson wrote hospitals, saying they can give discounts to patients who cannot pay their bills, something many hospital executives believed federal rules prohibited them from doing. Now, a number of hospitals, including Mass. General, are struggling to develop discount policies for self-pay patients.

Hernon said that by forgoing health insurance, he "took a gamble, and it was a gamble I lost." He has paid for past medical care himself, but none this expensive. He raves about the care at Mass. General, which is not charging him interest and is allowing him three years to pay off his bill. He did not fight the amount at the time. But when he read a Globe article recently describing how uninsured patients often end paying full hospital charges, he realized that it applied to him.

"That's unfair," he said.

Just as unfair, he said, is a law requiring the hospital to tack a $594.78 surcharge onto his bill for "free care," a statewide pool that helps low-income uninsured patients pay their hospital bills.

He said that the huge bills have caused him stress and that he has stopped seeing his primary care doctor at Mass. General's Revere clinic until he gets out of debt. Right now, he's paying the hospital with credit cards, he said, which are interest-free until spring. By then, he hopes to finish renovating a three-family house in Somerville and sell the units as condos, allowing him to pay off the debt.

"I'm not supposed to be under any pressure," he said. "Are you kidding me? The bills were pouring in day after day."

Mass. General executives said hospitals are caught in a system that doesn't necessarily make sense, but that is difficult to alter. When the government established Medicare in 1965, the program required hospitals to establish a uniform list of charges that would apply to everyone, as a way to prevent hospitals from overcharging Medicare. Hospital executives across the country believed that this rule prohibited them from offering discounts to self-pay patients. Meanwhile insurers have largely stopped paying hospitals based on charges, negotiating volume discounts instead.

About 1 percent of Mass. General patients pay their bills themselves, or roughly 450 overnight patients a year. Mass. General executives said they don't bill full charges to low-income uninsured patients who qualify for free care.

Discounting charges for self-pay patients is tricky, said Sally Mason Boemer, Mass. General's vice president for finance, because health insurers expect to receive significant discounts on standard charges, in return for including the hospital in their networks. If the hospital lowers its charges for self-pay patients, she fears that insurers would demand even steeper discounts.

Also, Medicaid and the free care pool don't completely cover the costs Mass. General incurs for treating those patients, executives said. The hospital provided $49.8 million in free care last year to low-income uninsured patients. To help make up for those losses, the hospital charges self-pay patients more, as well as insurers who have few patients in Massachusetts and little negotiating clout.

"If I didn't have payers paying charges to make up for Medicaid and free care, an institution this size would be in trouble," Boemer said. "I would probably be losing money."

Boemer said Hernon did not indicate he couldn't pay his bill or provide financial information so the hospital could determine if he qualifies for free care. Hernon, who said he brings in about $80,000 annually on rental income before paying the mortgages and other expenses, said he didn't do so because the hospital had previously rejected his application.

Dr. Gerard Anderson, a professor at Johns Hopkins School of Medicine who testified before Congress about hospital charges in June, said hospitals should not charge patients so far above market rate, regardless of the patient's income.

Patients have little power to negotiate. "The patient's having a heart attack; he can't say, 'Look at how much you're charging me for all of this stuff.' He wouldn't even know what services he's going to need," Anderson said. "Asking people who have the least negotiating power and who are the least affluent to pay the most, it's not fair."

A patient who pushes hard may get a hospital to come down on a bill. But Peter Markell -- vice president of finance for Partners HealthCare, Mass. General's parent organization -- said Partners hopes to develop a discount policy for inpatient care that would be clear and apply to all self-pay patients. It's unclear what discounts the organization will provide, but they probably won't be as deep as those given to insurers.

A look at Hernon's medical bills show just how big the difference is between what insurers pay and what he pays. His original bill was $49,438, including hospital care, physician fees, and follow-up care through June 2003. But in March 2003, Mass. General reduced the bill by $8,870, when staff discovered that a new employee had mistakenly charged Hernon for tests that the hospital should have billed to a research grant. That left him with $40,569, which the hospital broke down by each test, medication, and treatment and its corresponding cost.

Massachusetts Medicaid and the state's large health insurers pay hospitals in an entirely different way. They do not pay for each individual item. Instead, they pay hospitals one average amount for each diagnosis. Blue Cross pays Massachusetts hospitals an average of $7,000 for a stroke patient, not including doctors fees, while Harvard Pilgrim pays $6,000 to $13,000, including doctors fees, depending on the hospital.

Insurance company executives said they determine these fees by looking at data showing how much it costs the hospital on average to treat a stroke patient and by then adding a small markup for the hospital's profit. The insurers declined to disclose what they pay MGH specifically, which they say is competitive information.

Medicaid goes even further in determining averages. No matter what the diagnosis, the agency pays each hospital a single amount. For Mass. General, the payment is $7,445.61, which is higher than the statewide average of $5,441.27 paid by Medicaid.

Dr. David Torchiana, chief executive of the physicians' organization, defends charging self-pay patients more. He pointed out that Hernon made a conscious decision not to buy insurance.

But the government has added to the problem, Torchiana said. "They've tried not to be painted as the bad guy, but their rules have contributed to the way hospitals and doctors have handled this."

Now, Hernon takes high blood pressure medication and a blood thinner. His primary care physician chastised him a year ago for missing appointments to test the level of medications in his blood and said he should have health insurance. "Now I'm getting older, I'm going to have to get something," Hernon said.

So Hernon began calling around, planning to buy insurance once he pays off his Mass. General bill. He's not going to lower his monthly expenses by much. The price for an individual Blue Cross policy: $527 to $834 a month, depending on the level of coverage.

Liz Kowalczyk can be reached at kowalczyk@globe.com.

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