America's Bitter Pill

by Steven Brill

  Beyond the subsidies that helped everyone earning up to 400 percent above the poverty line pay their monthly premiums, people with incomes closer to the poverty line were given a second subsidy that limited their total out-of-pocket exposure. However, the amount that better-off, middle-income consumers buying insurance on the exchanges might have to pay out of their pockets in deductibles or co-insurance was formidable for the typical “silver” and “gold” plans—as much as $12,700 before an out-of-pocket limit kicked in.

  Those high burdens on people with insurance not obtained on the exchanges had become part of the larger American landscape as employers sought to limit soaring insurance premiums by asking their workers to chip in more.

  With so much of the bill being shifted from insurers to patients, by 2012 hospital bill collecting from individuals even with insurance was becoming a big business.

  On March 23, about a week after Sean Recchi checked into MD Anderson, Bruce Folken, sixty-three, went to the emergency room at Fairview Ridges Hospital, just outside Minneapolis in Burnsville, Minnesota. There, he got a firsthand look at how far hospital bill collecting had come.

  Folken had chest pains. The bill for determining that this was a false alarm and that at worst Folken had indigestion was $4,355.10, including two CT scans for $2,911.

  Folken’s insurance covered all of it, and because the Fairview Ridges Hospital was in the insurer’s network, his insurer would get that $4,355 discounted to $1,967.

  Folken’s policy had a $1,000 deductible. At the time he went to the emergency room, Folken had paid out $507 in 2012 toward that $1,000. That meant that he had $493 more of potential liability before his insurance kicked in.

  Typically, this would mean that the hospital would bill the insurance company the $1,967 (the full amount of the discounted bill), and the insurer would then pay the hospital that $1,967, less Folken’s share remaining on his deductible ($493)—or $1,474. Folken would then be billed by the hospital for the balance of $493.

  But that isn’t how things worked in the emergency room at Fairview Ridges.

  About halfway through Folken’s stay in the ER, as he reclined on a bed with an IV tube in his arm, he was approached by a woman with what he recalled was a hospital insignia on her vest. What happened next, he told me, “was kind of scary.” The woman explained that the hospital had already checked online with his insurance company—“because I had apparently signed some form when I came in allowing them to,” he explained—and knew that he had $493 left on his deductible. “She told me that the charges were certain to exceed that amount, then looked down at me and asked, ‘So would you like to pay the $493 now?’

  “I hesitated,” Folken recalled. “I usually like to read bills before I pay them, but she kept looking at me, so I decided I did not want to upset things in the middle of them examining me for a heart attack. So, I said, ‘Sure, I’ll pay, but I need to get my wallet,’ which was in my pants, hanging on a hook where I could not reach it. So she smiles and says, ‘Can I get your wallet for you, so you can pay now?’ I was so nervous that I gave her the wrong credit card, not the credit card that is tied to my medical payments account.”

  A few weeks after Folken’s visit to the emergency room, he read an article in the Minneapolis Star Tribune reporting that the state attorney general was investigating billing practices at the nonprofit Fairview chain of six Minnesota hospitals. The major charge, as later outlined in a suit brought by the Minnesota attorney general, was that Fairview was using employees of a firm called Accretive Health to ask patients getting treatment, even in the emergency room, for payment. Asking for advance payment in these emergency situations violated state regulations because it was impermissibly coercive, the attorney general charged.

  According to the suit, “Accretive prepared a document [explaining how the company works], called the ‘Accretive Secret Sauce.’ The cover states: ‘You’ve never seen ASS like ours!’ and ‘Check out our ASS!’ The Secret Sauce states that typical hospitals do not collect money in the emergency room but that one of Accretive’s Secret Sauce ingredients is to make bedside collections visits in the emergency room to extract money from patients.”

  Accretive, which was the creation of a private equity firm, put a not-terribly-different spin on its strategy: “Accretive Health is a built-for-purpose company founded in 2003 with the sole focus of generating significant, sustainable improvements in revenue cycle outcomes,” its website explained.

  When Folken read about the suit against Fairview and Accretive, he contacted the attorney general’s office and became one of her many sample cases. He even volunteered to allow his name to be used and ended up in local news stories and on a segment of NBC’s Rock Center newsmagazine.

  Accretive would later settle the attorney general’s suit by agreeing to pay a $2.4 million fine, some of which would be distributed to the allegedly intimidated patients, including Folken. The firm did not deny that it had designed the hospital bill collection strategies and tactics (which, its lawyer later told me, also included having people available to help patients fill out financial aid applications). Nor did Accretive dispute that it deployed employees at client hospitals to supervise these collection strategies. However, the Accretive lawyer did deny that the woman who had approached Folken in the emergency room was its employee.

  With healthcare revenues continually outpacing other sectors of the economy, Accretive was by now one of many popular private equity investments in medical bill collecting.

  THE $28,000 AMBULANCE

  A few months after someone in a Minnesota emergency room fetched Bruce Folken’s wallet for him so that he could pay before he was treated, David Cramer, a graduate divinity student at Baylor University in Texas, was in a serious rollover accident on a highway in Bourbon, Missouri. He would later provide this account of how his emergency treatment turned out:

  I was flown 60 miles by helicopter to a major hospital, where I received treatment for serious, but not life threatening, injuries. Despite being a doctoral student on a meager stipend, I was fully insured with both auto and health. My medical bills were all negotiated significantly so that I only had to pay around $4000 out of pocket for all of my treatments combined.

  However, after my health and auto insurance paid a combined total of nearly $9,000 to the medical helicopter company, they refused to settle the remainder and thus are requiring me to pay nearly $20,000, which is near my entire annual salary (which covers living expenses for myself, my wife, and our two young children).

  After doing some research, I learned that the helicopter company is for profit.… Still, after I explained to them that I literally live at or below the poverty line for a family of four, and that I had no ability to refuse their services, they nevertheless continue to insist on me paying the total remaining balance, even suggesting that I put it on credit cards.

  By the time Cramer wrote to me, he had delved into the company that had provided his air ambulance—Air Methods Corporation—and discovered a conference call that CEO Aaron Todd had hosted for stock analysts a few months later. Todd reviewed his company’s good fortunes amid the lagging recovery from the recession and provided this information that Cramer had not mentioned: “Net cash provided from operating activities for 2012 increased to $151 million compared with $95 million in the prior year period,” Todd told the analysts. “Looking forward to 2013 and beyond,” the ambulance company CEO added, “as always our budget objective is to grow revenue by 10% or greater and to grow earnings per share by 20% or greater.”

  “Air Methods Is Poised to Fly Higher Thanks to Obamacare,” a columnist for the stock-pick website Seeking Alpha would declare in 2014.

  The Air Methods website also touted a unit that helped hospitals with in-house ambulance services maximize revenues and collections. “Many hospital billing services immediately write off all rejected claims or place patients in collections,” the website declared. “Many volunteer EMS [emergency medical service] agencies don’t
have the personnel or the time to follow up on complex reimbursement claims with Medicare or private insurance claims.”

  As Cramer found out, Air Methods had mastered the use of those bill-collecting resources. As of October 2014, the young divinity student and the lawyer he had been forced to retain were still fighting with Air Methods over the nearly $20,000 that the high-flying ambulance company—whose stock was up about 500 percent since Obama signed the healthcare reform law—insisted he owed.

  “I feel like I’m living in a Kafka novel,” Cramer wrote.

  Cramer had fallen victim to a loophole in his and pretty much everyone else’s insurance coverage big enough to fly an Air Methods helicopter through. The insurance company that Baylor used for students such as Cramer, Blue Cross Blue Shield of Texas, paid for ambulance services, but paid only what it thought was reasonable and customary—in this case, $4,000. Hardly peanuts for a quick helicopter ride, but not what Air Methods had in mind. And while many states prohibit balance billing for ambulance services (charging the patient the difference between what an insurer will pay and what the charge is), many others, including Missouri, allow it.

  As for Obamacare, while the new law requires insurance companies to insure emergency services, it requires only that out-of-network providers be paid what the in-network provider would have been paid by the insurer. And it does not prohibit balance billing for the remainder. “The ambulance guys have a very strong lobby,” a Senate staffer told me. “And lots of our members, especially in rural areas, love the ambulance companies and want to support what they do.”

  As a result, Obamacare provides the ambulance companies with the assurance that with the new law they would always be cushioned by having many more of their patients have insurance that would pay a reasonable fee, yet they would not be limited from being able to charge more if they could collect it.

  THE CHIEF JUSTICE’S “BETRAYAL”

  Liz Fowler sat with Max Baucus in the front row of the spectator seats as the justices filed in on June 28, 2012, to announce whether twenty-eight Republican state attorneys general and a group of private party plaintiffs had prevailed in their effort to strike down Obamacare. Fowler, who had not liked what she had seen when she attended one of the hearings in March, feared the worst.

  At first, it seemed that the law had been struck down. Roberts, reading the Court’s controlling opinion, ruled that the Commerce Clause did not, in fact, allow Congress to mandate that people buy insurance. It looked like Obamacare was going to be over before it started.

  However, as the chief justice read on, he declared that the mandate could be allowed, because although the Obama administration had not called it a tax, the penalty for people who did not buy insurance was, indeed, a tax.

  It was an argument that the government lawyers had made only parenthetically, just in case. And it was exactly the language that the Democratic senators had wanted to avoid. Nonetheless, with the IRS collecting money from people via their tax returns, the Court held that it was a tax and, therefore, allowed because Congress had broad constitutional authority to levy taxes even if it wanted to call them something else.

  Conservative blogs and publications were furious.

  “There are people in Washington—too often, Republicans—who start living in the Beltway atmosphere, and start forgetting those hundreds of millions of Americans beyond the Beltway who trusted them to do right by them, to use their wisdom instead of their cleverness,” wrote columnist Thomas Sowell on Townhall.com. “How far do you bend over backwards to avoid the obvious, that ObamaCare was an unprecedented extension of federal power over the lives of 300 million Americans today and of generations yet unborn? These are the people that Chief Justice Roberts betrayed when he declared constitutional something that is nowhere authorized in the Constitution of the United States.”

  There were high fives all around in the White House, although President Obama and his staff were first dismayed by initial media reports that they had lost because some reporters read Roberts’s Commerce Clause ruling before seeing his pivot to the tax rationale.

  Another part of the ruling was a negative for the Obama team. The Court had ruled 7–2 in response to another claim that the law could not force a state—by threatening to revoke all of the Medicaid funds the state currently received—to expand Medicaid to all of their poor people, even if the federal government would pay for the expansion completely in the first three years and pay 90 percent thereafter. That was still too heavy-handed a threat, the Court ruled. However, with Washington paying so much of the tab and the states getting relieved of the cost of healthcare for their poor, the initial read at the White House was that most states, even those run by the most conservative Republicans, were likely to sign on.

  KENTUCKY AT THE STARTING GATE

  Carrie Banahan, the civil servant who had written the grant that got Kentucky federal funds to begin planning its Obamacare exchange, was jubilant as she left a meeting in Governor Steven Beshear’s office a few days after the Supreme Court’s decision. Beshear and Audrey Haynes, the governor’s cabinet secretary for health and family services, had just asked Banahan to run the program, which was what she had been hoping would happen.

  Beshear also had said that going ahead with the Medicaid expansion using federal money seemed like a “no-brainer” to him, though he wanted them to get some consultants to do a study verifying that the state would benefit not only in terms of the health of its people but also economically by taking Washington’s money to expand Medicaid to all who needed it.

  Banahan, Haynes, and Beshear were determined to make the launch a turning point that could reverse Kentucky’s grim health statistics, as well as a crowning legacy achievement for Beshear, whose second and final term as governor would conclude in 2015. However, they decided to start out modestly and quietly. They wanted to hold off the political opposition as long as they could. For their headquarters, Banahan had in mind an office park just outside of town that looked more like a warehouse. Beshear liked that. No fluff. No waste. Nothing they could be attacked for.

  Banahan also wanted to see if she could persuade Chris Clark, an engineer who had worked for her, to come out of retirement to help coordinate things.

  Being responsible for and exposed to the dire health problems in her state had long weighed on Banahan. So much so, she later recalled, that she had tears in her eyes when she left the governor’s office.

  THE STALL CONTINUES IN WASHINGTON

  One would have thought that the Supreme Court’s decision would have generated at least as much immediate enthusiasm and activity in the White House and across the Obama administration as it had in the Kentucky statehouse. Indeed, with the Court having cleared away what looked to be the final external hurdle for the law to go forward, the insurers and the rest of the healthcare industry assumed they would start seeing the necessary regulations and other preparations flowing out from Washington with fire-hose velocity.

  However, through the summer of 2012, nothing happened. There was a presidential election looming, and the Obama political team didn’t want to pollute the news cycles with anything that could prompt an Obamacare story. Someone was bound to criticize anything they issued. “We literally fell a year behind,” a senior CMS official told me. “We were told by the White House to do nothing, not even circulate drafts of regs, because they might leak out if lobbyists got ahold of them.”

  There was one exception. On June 5, Nancy-Ann DeParle, now the deputy chief of staff, announced on the White House blog that “consumers are starting to hear the good news about their health insurance costs.” She was referring to rebates that were about to be issued from insurers who had run afoul of the medical loss ratio, or MLR. That was the rule that required that if insurers didn’t spend a certain percentage of what they collected in premiums on customers’ claims they had to refund the difference to those customers. DeParle cited three insurers who were about to send their customers about $95 million in premium rebates. Abo
ut two months later, White House press secretary Jay Carney would convene reporters traveling with the president on Air Force One to remind them that “as of today, August 1, 12.8 million Americans will benefit in $1.1 billion in rebates from insurance companies that were made possible by the Affordable Care Act.”

  Late in June, Gary Cohen became the fourth head in as many years of CCIIO, the center that had been demoted from an office. Cohen, who had been a partner at one of San Francisco’s most successful litigation firms, was serving as counsel to the state-run exchange that was starting up in California. He had previously worked at CMS, and couldn’t resist the challenge of going back to run the launch of the federal exchange.

  Cohen’s CCIIO now had fourteen months to get the exchanges up and running. Within days of arriving, Cohen decided he had to take a fresh look at all the regulations being drafted. He was soon told by higher-ups at CMS and the White House that he should take his time.

  There would be no substantive regulations having anything to do with Obamacare issued from Labor Day through Election Day, 2012. Without the regulations governing the standards for insurance to be sold on the exchange, there was no way to create the so-called business rules that the coders needed to begin building the website.

  The final insurance regulations would not be issued until December 16, 2012. That was more than a year behind the already unambitious schedule that had so alarmed the White House economic team in the summer of 2010. And it was a year and a half after the White House staff meeting in July 2011, when the insurance companies were reported to be “going bananas” over not having already been given the rules.