The Price We Pay

by Marty Makary

  You’d think the hospital leaders in the audience where I spoke might contest what I had discovered in our research, but the truth was that most of these conference attendees were unaware of it. As I began discussing how the hospital bill markup game left patients holding the bag, heads nodded in acknowledgment. But when I added that some hospitals sue patients and garnish their minimum wage paycheck, hospital executives would come up to me immediately after my talk and say “That’s terrible” and “We don’t do that.” Others would turn to their colleague and say, “We don’t do that, do we?” Without even knowing whether their hospitals sues low-income patients, many hospital executives from around the country condemned it, and would even come up to me to tell me they were personally repulsed by the idea.

  Again and again, I observed this irony of hospital leaders appalled by the idea of lawsuits filed against patients without realizing their own hospitals engaged in just such predatory practices. Clearly, there is a disconnect.

  At another conference of a large hospital system, a hospital board chair told me, “Marty, we forgive patients who can’t pay.” The look on his face was earnest as he told me that the hospital’s mission was to serve. He told me they took their inspiration from the example of one of the Catholic saints. This guy really seemed to care about patients and to be proud of his hospital’s charitable mission. But when I looked up court records online for the flagship hospital in his chain, there were ample cases of his hospital suing patients and garnishing their wages. When I circled back with him weeks later, he was clearly disappointed in his own hospital.

  I heard that some large faith-based hospital systems never sued patients, so I reached out to them. Over the phone, I explained to one of the systems’ vice presidents what I had seen nationally. I asked him if they sued patients. “We don’t sue patients,” he quickly replied, disgusted at the very idea.

  The vice president told me that he left his lucrative corporate job because the values of the health care system transcended typical corporate values. “People here believe in what we do,” he said. “And what we do is help people.” On its website, his hospital chain bragged about its charity care. Again, I felt inspired by the conversation. But when I did a routine fact check for this book, emailing him to confirm his quote, he changed his message from “We don’t sue patients” to “We advocate for our patients.”

  The change made me suspicious. So I looked up his hospital’s court records. It turns out that they had in fact sued many patients. In one case, his hospital pursued wage garnishment against a patient all the way into her bankruptcy. The judge finally stepped in to side with the patient.

  Just before I submitted this book for print, I discovered cases in which my own hospital had sued low-income patients to garnish their wages. I was extremely disappointed to learn this. But at the same time, I was inspired by the hospital’s response to change its ways once it came to light before the hospital’s clinical leaders.

  Throughout the 1960s, the Internal Revenue Service gave tax-exempt status to nonprofit hospitals on the condition that these hospitals provide free or highly discounted care to patients that could not afford it. Obviously, this tax break is of tremendous financial benefit to the facilities. Nonprofit hospitals are expected to provide charity care and to avoid predatory billing practices. The exemption from paying taxes was to be permitted so long as the hospital “operated to the extent of its financial ability for those not able to pay for the services rendered and not exclusively for those who are able and expected to pay.”5

  In 1969, the IRS became less clear on what qualifies a hospital for tax exemption.6 It created the “community benefit standard,” which recognizes the “promotion of health” as in and of itself a charitable purpose. Hospitals were no longer required to have a demonstrated level of charity care to become tax exempt. This new lower standard created debate about the minimum requirement to establish a “community benefit.”

  In 2014, the IRS required nonprofit hospitals to have a written financial assistance policy that would clearly indicate exactly who was eligible for free or discounted care at their facility. The IRS mandated that nonprofit hospitals should not engage in “extraordinary collection actions” on unpaid debts until the hospital makes “reasonable efforts” to determine if an individual is eligible for financial assistance.

  In a subsequent correspondence with the hospital’s VP, he emphasized that his hospital had a financial aid process for all patients. I responded by telling him that merely offering a financial aid process was a matter of federal law—a requirement for all hospitals mandated by the Affordable Care Act. I asked him to advocate for his hospital to please stop suing patients and start forgiving them when possible, or at least limiting collections to the Medicare allowable amount when patients couldn’t pay.

  A few months later I visited another hospital system that touted its merciful approach with patients. Before the gathering the hospital’s C-suite leaders told me they care for people the way Jesus Christ did. When patients struggle financially, they work out a payment plan, they said, or even forgive the bill. I felt inspired.

  Then we looked up the hospital’s legal filings and found that this hospital system had sued hundreds of patients. We looked at one of the judgments against a husband and wife whose debt ballooned because of interest and court fees. It went from $783 for the principal, plus $291 for interest and $176 for court fees up to a total of $1,252. And the judgment drew interest at 9%.

  The interest and court fees amounted to 60% of the principal. That sounds less like a hospital that’s there to serve and more like a payday lender that’s trying to hound a patient in debt. Those aren’t quite loan shark interest rates, but if you’re asking “What would Jesus do?” I’m pretty sure this ain’t it.

  I was starting to feel like a cop who had seen so much crime he lost his faith in the system. But I knew the truth. Most U.S. hospitals care for patients without suing them and garnishing their wages. What’s more, some hospitals forgive patients who can’t pay without making them feel like fugitives. I wanted to visit one of these great American hospitals and find out how they can afford to do it. I would soon find one in rural Nebraska.

  A Breath of Fresh Nebraska Air

  I met Michael Hansen at the annual meeting of the Nebraska Hospital Association, where I spoke about health care transparency. Mike, the mild-mannered and affable CEO of a rural Nebraska hospital, was the association’s board chair, and he liked my message of fairness and transparency in hospital pricing. He approached me after my talk and invited me to visit his hospital. Within a few months, we had planned a time for me to go and see his hospital in Columbus, Nebraska, 70 miles west of Omaha, bang in the middle of the heartland.

  I landed at the Omaha airport and immediately saw a big Omaha Steaks shop in the airport terminal. This was beef country. Mike picked me up and we drove a little over an hour, past cornfield after cornfield. As we arrived in Columbus, a town of about 25,000 people, he pointed out the Cargill and ADM food factory and processing centers. This was a blue-collar town built on corn. Ag was king in rural Nebraska. Throughout our drive, Mike educated me on the life of the typical Nebraska farmer.

  He pulled up to the Ramada Inn, where I checked in and dropped off my bags. Even though it was the nicest hotel in town, the room cost a fraction of what you’d pay for the best rooms in the big city. From there, we went to the hospital, an average-sized facility on 80 acres of land. Mike pointed out the $20 million wellness center they had built to promote fitness, where they also have a bike share program, cooking classes, and many walking and running events, as well as events for people with disabilities. We also went to the surgery center and clinics, conveniently scattered around the hospital to make pulling up and parking easier.

  “In-hospital care is not health care,” Mike explained. “In-hospital care is about 14% of health care. The rest is determined by social determinants of health, behaviors, and choices.”

  Mike was prou
d of the way his hospital interacts with its community. For example, he explained how their occupational and physical therapists partner with 850 businesses in town to promote healthy living and prevention. This seemed to be medical nirvana.

  Mike and I discussed his hospital’s finances. As I suspected from the tour, they were doing well. While many hospitals have a 3 or 4% profit margin, his had been in the range of 10 to 15% over the past several years. Most hospitals claim they make good money on privately insured patients but lose money on their Medicaid and Medicare patients. I had to ask Mike whether his payer mix explained the healthy profits. Perhaps the hospital had only a few patients covered by government plans.

  “That’s what everyone asks me when they hear we have a strong margin,” he said. “But no, 50% of our patients are Medicare or Medicaid.”

  What? Hospitals usually claim they can’t get by on what the government pays through Medicare or Medicaid. Columbus Community Hospital proved they could.

  The other half of the hospital’s patients are mostly covered by the dominant insurance company in the state. The company pays the hospital about what it charges, which is close to the lowest prices in the state, he said.

  Mike said the hospital doesn’t waste its time and resources playing price games with insurance companies. There is pretty much one price per procedure, which anyone can look up on his hospital website. He offers every insurance company a minimum discount of 4%, no exceptions: “We don’t play that game where one insurance carrier gets a secret 20% discount and the other one gets a 5% discount.”

  The flat 4% discount means that out-of-network patients don’t get outrageous bills. But was there a catch? Did Mike’s hospital take care of a lot of wealthy people? Did it have a big donor, or few uninsured patients? It didn’t. The average income in Columbus was about $26,000. It’s a farming and blue-collar town of food processing and some steel workers. Columbus Community Hospital was the only hospital around, so it takes care of everyone, including those who are uninsured. There was no alternative “safety net” hospital subsidized to take the poorest patients.

  Mike reduced his costs by keeping his middle management to essential personnel while investing in the people who worked there with good pay and benefits. At a time when hospitals struggle to staff their wards with nurses and doctors, Mike had set up extra rotations for nursing and medical students and residents. The best of them were drawn to the place by its positive culture, making recruitment and retention easier and less costly. While the average turnover rate in Nebraska hospitals is 19%, Columbus Community Hospital has steadily averaged an 11% turnover rate.

  I brought up the lawsuits. “I’ve discovered that about one third of hospitals in some parts of the country sue patients for unpaid medical bills and have the court garnish their wages.”

  “That’s wrong,” Mike said, almost before I could finish my sentence. “Any nonprofit hospital should spend about 5% of its money on taking care of people who can’t pay. Our goal is to spend a bit more than that.” Mike described two complex cancer operations they had recently performed on undocumented patients, as well as babies they had delivered for free, without blaming the mothers for their inability to pay. It’s one thing for a hospital to eat the cost of someone who comes into their emergency room. But it’s another when a hospital approves elective surgery when they know the patient will be unable to pay. That’s real charity care.

  If patients need a payment plan, Mike works a deal with the local bank to give them a low-interest loan. The hospital backs the debt, so if the patient defaults, it falls on the hospital, not the patient. I pressed Mike to see how far his hospital would go to collect an unpaid bill and he said they do a lot to be reasonable and help people, mostly by offering to work with patients by giving them a discount and putting them on a payment plan.

  As I thanked Mike and his wife, Colette, for hosting me during my stay in Columbus, Nebraska, I realized that his hospital’s success had huge implications for health care. A well-run hospital can be profitable even when half its bills are paid by Medicare and Medicaid. It doesn’t have to overcharge its patients. And it doesn’t have to sue them when they can’t pay. When people ask me if I’m optimistic about the future of health care, I say “yes,” and I think about hospital executives like Mike and places like Columbus Community Hospital. It’s a reminder that there are a lot of inspiring people who are keeping hospitals true to their great mission.

  CHAPTER 5

  The Ride

  When I was growing up in rural Pennsylvania, there wasn’t a lot of exciting stuff to do. There was no movie theater, and the oh-so-quiet library wasn’t for me. But the town had an ambulance. The day I turned 16, I became a certified EMT, spending nights at the volunteer ambulance station along with my friend and classmate Rick Hebert. For a teenager, flipping those lights and sirens on and watching the road ahead clear was a power trip like no other. At the sound of the station alarm, I transformed from a socially awkward teen to Moses parting the Red Sea. Flipping on the lights and sirens offered a rush so enticing that Rick and I were sometimes known to use them while transporting a nursing home patient to a scheduled rheumatology appointment.

  A few times we responded to a crash scene where things looked so terrible we’d radio the dispatch center to send the helicopter, the mother of all emergency vehicles. We would stand in awe of “the bird,” as we called it, slick, dark blue, and chalked with medical emblems. Medics and nurses would land, hop out in jumpsuits and flight helmets, and scoop up a patient as if it were a Navy SEAL extraction. Heroic and inspiring.

  Our local hospital, Geisinger, owned the helicopter. That meant the reasonable $800 to $2,000 cost of the helicopter ride would be added to the patient’s hospital bill and covered by insurance. For decades, hospitals charged reasonable prices for helicopter flights based on their true equipment, fuel, and personnel costs. Some hospitals, including Geisinger, even took a loss some years on their helicopter programs. The loss was inconsequential because the complex patients flown in were high utilizers and profitable. For decades, that was how the business of air ambulances worked in America.

  But over time, investors moved in and radically changed the ecosystem. They saw big profits if they could buy the air ambulance service from the hospital and bill the patient directly. That is, if the hospital didn’t own the helicopter, the transport would not be on the hospital bill and often not be covered by insurance—the patient would be responsible for the bill. Injured patients began opening surprise bills having no idea that the trip in the bird wasn’t covered by their insurance. Even when insurance would cover part of the bill, the helicopter’s new private owner could go after the patient directly for the difference, a practice known as “balance billing.”

  Air ambulance bills began to inflate and superinflate and superhyperinflate. We’re talking tens of thousands of dollars for a short ride and even hundreds of thousands of dollars in some cases. Between 2007 and 2016 alone, the average price of an air ambulance transport charged by one company went from $13,000 to $50,000.1 With big money on the table, it was off to the races. Private equity firms began buying air ambulance services from hospitals and setting up shop all over America, regardless of need. The number of air ambulance companies increased by 1,000% from the 1980s to 2017. In Ohio, EMTs began observing multiple helicopters landing at the same car accident site, each jockeying for the business to transport patients. In one instance, seven helicopters arrived at a car accident scene, apparently looking for customers. For-profit medical flight companies swooped in and set up shop around busy hospitals. For example, in 2015, Vanderbilt Medical Center found themselves surrounded by for-profit helicopter companies and, after losing market share, sold their program operations to one of them. As a result, bills from Vanderbilt Life Flight no longer appear on your hospital bill. Instead they come from the for-profit company that is considered out-of-network. The air ambulance industry has become big business in America.

  Small-Town Ame
rica

  People living in rural states are getting hit the hardest. Sitting at home in Montana, John felt a stomach cramp one day. It was a little worse than the bellyache of everyday life. At his local hospital, the doctors told him, “This could be serious. We are going to transfer you to the big city where they can take care of you.” About eight hours later, afraid and with no other options explained to him, he was wheeled off to the elevator, where the nurse hit the H button (for helipad). A helicopter pilot was there to greet him. He was loaded on the chopper for a 30-minute ride to the city.

  When he arrived at the city hospital, he was peppered with medical questions and assigned to wait in the emergency room. The beds were full, so they placed him on a stretcher in the hall. There he waited several more hours until that hospital’s on-call specialist saw him. He repeated the battery of tests and then hours later explained that John had no real reason to be in the hospital. He told him he could go home.

  “How do I get home?” he asked his nurse after the doctor left. An army of discharge planners came to his bedside and offered to call his wife for him or pay for a cab ride to the local bus station. He called his wife and said, “Honey, I’m fine, and they say I can go home. Can you come pick me up?” Early the next morning, his wife drove several hours to get him. Meanwhile in the hospital, a nurse, doctor, social worker, and unit coordinator would all repeatedly ask John for the exact time that his ride would arrive. They needed his hospital bed.

  A few months later, John received a flurry of bills totaling almost $400,000. He called his insurance company and got scolded for flying to a hospital that was out-of-network, a designation of which he was unaware. He was told that the $60,000 helicopter bill was not covered. Soon after, collection agencies began harassing him with calls and threats. He called the numbers on the bills but was merely offered a 10% discount if he paid in cash immediately. They also told him about a financial aid program that let him pay in monthly installments of $5,000—you know, the kind of pocket change most people have around.