Scott MacStravic, Ph.D.
Hospitals in the US have been engaged in what can only be called “price silliness” for decades. The prices they have charged have long had little relationship to their costs, for example, and have long looked more than silly and more like outrageous to patients, charging them ten times as much for simple items that patients could buy for themselves, such as facial tissues or aspirin, for example. And because their charges for some services were less than their costs, while for others far more, they have encouraged competitors to “cherry pick” those services that are consistently profitable, while general, full-service hospitals are becoming unprofitable.
Silly prices have provided a fictional basis for negotiating with payers for what they will actually pay, which often turns out to be a small fraction of the price. This may please payers, by representing a “deep discount,” but one wonders whether payers look for the discounts, or for the lowest possible payment, regardless of posted prices. And it has caused hospitals to engage in at least two other silly practices that undermine their trust in their communities.
First is the practice of charging uninsured, self-paying patients the “posted price” for services they get, even though such prices are often two to five times as great as the hospital willingly or grudgingly accepts from third party payers. This is only compounded when the hospital also aggressively attempts to collect these silly prices from patients, most of whom can’t possibly afford them. Media scandals, lawsuits galore (though most unsuccessful), and significant declines in community reputation, image and trust have followed.
Moreover, such aggressive pricing and collection practices have prompted second looks at the tax exemptions that not-for-profit hospitals enjoy, threatening them with significant additional costs at a time when most are barely surviving already. If such hospitals had to pay local, state and federal taxes, it is likely that hundreds would go out of business, so most are devoting extra time and effort to prove that they are indeed charitable organizations deserving of this special tax treatment.
But hospitals may be using the same silly prices in their efforts to preserve their tax exemption. Their posted charges make an all too attractive basis for reporting how much they have “spent” in community benefit efforts. If hospitals report “foregone revenue” or “free care” based on how much their charges were for charity patients, they are likely to be grossly exaggerating what they have actually invested. This is much like the constant TV commercials that claim to be offering a “$50 value” or some such for free if you buy their gadget for only $19.95 plus shipping and handling.
When there is a lack of agreement on what actually represents hospital “contributions” to the community, the tendency is bound to be to report based on foregone charges, since these are so much higher than costs. Any hospital that reports only the costs of services they have donated would look like a piker compared to peers reporting foregone charges. And there appears to be little agreement on which basis is proper. [“MJ Feldstein “Hospitals Share the Details on Charity, Other Care” St. Louis Post Dispatch May 19, 2006 (www.stltoday.com)]
In some cases, local businesses have demanded hospitals report on the basis of only costs, or no more than the prices hospitals are normally paid by third parties when accounting for charity care contributions. In others, hospitals have seen the benefit of reporting only realistic numbers, rather than risk the public reacting as negatively to inflated contributions as they have to inflated charging to uninsured patients. Even if this “costs” hospitals significant numbers, it may save them significant embarrassment later. Besides, it is honest and authentic, rather than spin doctoring. [M. Wagner “New Guidelines Could ‘Cost’ Hospitals on Charity Care Numbers” Triangle Business Journal May 22, 2006 (www.bizjournals.com)]
There may have been and still be some short-term advantages to acting as if posted charges are real, the practice of silly pricing seems destined to boomerang in the long run. It has also caused severe damage to hospitals’ reputations and community trust in many cases. If their communities, to say nothing of local, state and federal governments felt that reports of community benefit were similarly egregiously inflated based on fictional charges, the damage could be far worse.
Remember Me
