[House Hearing, 108 Congress]
[From the U.S. Government Printing Office]




         A REVIEW OF HOSPITAL BILLING AND COLLECTIONS PRACTICES

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               ----------                              

                             JUNE 24, 2004

                               ----------                              

                           Serial No. 108-107

                               ----------                              

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house



                    U.S. GOVERNMENT PRINTING OFFICE
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         A REVIEW OF HOSPITAL BILLING AND COLLECTIONS PRACTICES

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 24, 2004

                               __________

                           Serial No. 108-107

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas                   Ranking Member
MICHAEL BILIRAKIS, Florida           HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California          SHERROD BROWN, Ohio
NATHAN DEAL, Georgia                 BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi, Vice Chairman           TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma

                      Bud Albright, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

              Subcommittee on Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida                 Ranking Member
RICHARD BURR, North Carolina         DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
  Vice Chairman                      HENRY A. WAXMAN, California
MIKE FERGUSON, New Jersey            EDWARD J. MARKEY, Massachusetts
MIKE ROGERS, Michigan                JOHN D. DINGELL, Michigan,
JOE BARTON, Texas,                     (Ex Officio)
  (Ex Officio)

                                  (ii)
                    ------------------------------  



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Anderson, Gerard F., Director, Johns Hopkins Center for 
      Hospital Finance and Management, Professor, Department of 
      Medicine, Johns Hopkins School of Medicine, Professor, 
      Departments of Health Policy and Management and 
      International Health, Bloomberg School of Public Health....    15
    Bovender, Jack O., Jr., Chairman and Chief Executive Officer, 
      HCA........................................................    91
    Collins, Sara R., Senior Program Officer, Health Policy, 
      Research and Evaluation, the Commonwealth Fund.............    37
    Fetter, Trevor, President and Chief Executive Officer, Tenet 
      Healthcare Corporation.....................................   103
    Jacoby, Melissa B., Associate Professor, University of North 
      Carolina at Chapel Hill, School of Law.....................    23
    Kuhn, Herb, Director, Center for Medicare Management, Centers 
      for Medicare and Medicaid Services, U.S. Department of 
      Health and Human Services..................................   130
    Lofton, Kevin E., President and Chief Executive Officer, 
      Catholic Health Initiatives................................    85
    Morris, Lewis, Chief Counsel, Office of Inspector General, 
      Department of Health and Human Services....................   135
    Pardes, Herbert, President and Chief Executive Officer, New 
      York Presbyterian Hospital.................................    97
    Rukavina, Mark, Executive Director, the Access Project.......    31
    Tersigni, Anthony R., Chief Operating Officer and Interim 
      CEO, Ascension Health......................................    79
Additional material submitted for the record by:
    Bovender, Jack O., Jr., Chairman and Chief Executive Officer, 
      HCA:
        Letter dated July 19, 2004, enclosing response for the 
          record.................................................   782
        Letter dated July 27, 2004, enclosing response for the 
          record.................................................   832
    Clarkson, Douglas S., Assistant General Counsel, Tenet 
      Healthcare Corporation:
        Letter dated August 5, 2004, enclosing response for the 
          record.................................................   596
        Letter dated September 10, 2004, enclosing response for 
          the record.............................................   801
    Fetter, Trevor, President and Chief Executive Officer, Tenet 
      Healthcare Corporation, letter to Hon. John D. Dingell, 
      dated July 20, 2004, enclosing response for the record.....   795
    Lofton, Kevin E., President and Chief Executive Officer, 
      Catholic Health Initiatives:
        Letter to Hon. John D. Dingell, dated July 20, 2004, 
          enclosing response for the record......................   819
        Letter to Hon. James C. Greenwood, dated July 22, 2004, 
          enclosing response for the record......................  1591
    Pardes, Herbert, President and Chief Executive Officer, New 
      York Presbyterian Hospital:
        Responses for the record.................................   669
        Letter dated July 22, 2004 enclosing additional responses   770
    Rukavina, Mark, Executive Director, the Access Project, 
      response for the record....................................   724
    Service Employees International Union, prepared statement of.   590
    Tersigni, Anthony R., Chief Operating Officer and Interim 
      CEO, Ascension Health:
        Letter to Hon. John D. Dingell, dated July 20, 2004, 
          enclosing response for the record......................   719
        Letter to Hon. James C. Greenwood, dated July 22, 2004, 
          enclosing response for the record......................  1237
    The Cost of Care for the Uninsured: What Do We Spend, Who 
      Pays, and What Would Full Coverage Add to Medical 
      Spending?, a report prepared for the Kaiser Commission on 
      Medicaid and the Uninsured.................................   575

                                 (iii)

  

 
         A REVIEW OF HOSPITAL BILLING AND COLLECTIONS PRACTICES

                              ----------                              


                        THURSDAY, JUNE 24, 2004

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:20 p.m., in 
room 2123, Rayburn House Office Building, Hon. James C. 
Greenwood (chairman) presiding.
    Members present: Representatives Greenwood, Stearns, Burr, 
Bass, Walden, Ferguson, Rogers, DeGette, Allen, Schakowsky, and 
Waxman.
    Staff present: Mark Paoletta, majority counsel; Anthony 
Cooke, majority counsel; Brad Conway, majority counsel; Michael 
J. Abraham, legislative clerk; Edith Holleman, minority 
counsel; Amy Hall, prsfessional Staff; Bridget Taylor, 
professional staff; Voncille Hines, research assistant; and 
Dave Vogel, legislative clerk.
    Mr. Greenwood. The subcommittee will come to order. Let me 
begin by apologizing to all for the delay, it's the unavoidable 
exigencies of voting, but we welcome you all. The Chair 
recognizes himself for the purpose of making an opening 
statement.
    We convene this afternoon to review hospital billing and 
collection practices for uninsured/self-pay patients. Today in 
this country an average working man or woman treated at a 
hospital can be stuck with a bill that is double what managed 
care or government programs pay. These are uninsured/self-pay 
patients who don't have the weight of an HMO to negotiate on 
their behalf, or don't qualify for government health 
assistance. Then, to add insult to their injury, they are 
sometimes aggressively pursued for these inflated debts. The 
situation is unfair and it is unjust.
    To put these hospital charges in perspective, let us look 
at a simple chart that paints a troubling picture. This 
provides a basic breakout of hospital revenues and costs. Based 
on our research, these proportions seem common in the hospital 
industry.
    The black column, second from the left, is the cost to the 
hospital for providing the service. On either side of the cost 
column, Medicaid and Medicare can be seen to pay, on average, a 
bit less and a bit more, respectively. Third-party payers, such 
as insurers and managed care, represented by the yellow column, 
pay within a wide spectrum but, on average, provide profitable 
reimbursement. The red column on the far right is what many 
hospitals expect the uninsured and self-pay patients to pay. 
This charge to uninsured and self-pay patients is, generally 
speaking, the hospital's ``charge master'' rate. That term will 
come up a lot today, so let us talk about charge masters for a 
moment.
    Charge masters are catalogs of prices for all services and 
supplies offered at a hospital. They sometimes run hundreds of 
pages and contain thousands of line items. The prices in a 
charge master, as indicated in the chart, can bear little 
relation to the actual cost to the hospital. Indeed, some items 
on a charge master can reach well over 1000 percent markup.
    And these prices continue to grow each year increasingly 
out of proportion to costs. In California urban hospitals, for 
example, the average price mark-up over cost has risen from 174 
percent in 1990 to 310 percent in 2003. Most hospitals, I 
think, will admit to being hard-pressed to justify these 
charges. Rather, hospitals will explain that charge master 
prices are the product of many complex and sophisticated market 
forces in health care, including government entitlements, 
managed care, and rising costs. There is, without a doubt, a 
number of significant and powerful moving parts in health care 
finance, but we must not allow the working class uninsured to 
get chewed up in these machinations.
    Hospitals will say they address the matter of high charge 
master prices through their charity programs which provide care 
free or at a reduced cost to the needy. Unfortunately, this too 
often covers only some people for only certain services.
    Further, I question whether we can be assured of the 
fairness or reasonableness of charges which, in some instances, 
are merely discounts from an already inflated number. For 
example, let us return to the chart using the 2002 numbers. 
Even if an uninsured patient had a 25 percent discount, he or 
she would still be paying twice the cost. A partial discount 
off an inflated number seems very arbitrary. Even given all the 
well-administered, generous and commendable charity programs 
offered by hospitals, ultimately, there are still individuals 
who are expected to pay these full charge master rates.
    It would seem that through these charity programs hospitals 
are trying to include the uninsured in a finance and accounting 
system that appears simply not designed for or allowing for 
participation by individual consumers. And if, in the end, 
managed care, government programs and the uninsured are not 
paying the charge master price, then what purpose does the 
current charge master structure serve?
    Let us turn to what happens when someone is eventually 
asked to pay these inflated bills. Hospitals will point out 
that they collect only pennies on the dollar and, based on our 
investigation, this would seem to be the case.
    The question for our purposes here, however, is not what 
they actually collect, but what happens to the part they don't 
collect? In a September 2003 study, one nonprofit hospital in 
Connecticut was found to have had over a 9-year period medical 
liens on 7.5 percent of the homes in a community it purported 
to serve. A hospital may indeed only collect 10 cents, but the 
other 90 cents may be secured by the patient's home. Many 
hospitals have claimed to have recently revisited and revised 
their collection practices. While that is encouraging, I remain 
concerned, however, when I read articles like the two that 
appeared in the Wall Street Journal over the past couple of 
weeks, about two of the systems appearing before us today.
    In the first article, from yesterday, one hospital system 
conceded that as many as half of those uninsured patients, 
possibly eligible for discounts under a new charity program, 
were not told of their potential eligibility. And they offered 
this admission, unfortunately, only after being confronted with 
a report by an advocacy group alleging that large numbers of 
uninsured patients seeking care in their facilities were not 
learning about available charity discounts.
    The second article from 2 weeks ago described the case of a 
man who recently had his bank account seized because of a 13-
year-old hospital bill from one of the systems here today. 
Perhaps what is more troubling in the story and the age of the 
bill was the excuse offered by the hospital. The hospital 
indicated that this was a mistake on the part of a lower-level 
hospital staff that, when brought to the attention of senior 
executives, was immediately remedied.
    Are the new commitments recently articulated by so many 
hospitals to reform their billing and collection practices only 
known at the management level? Are lower-level staff, who are 
actually the front-line staff, aware of these new policies?
    Not to put too fine a point on this, but the awareness, 
participation, and cooperation of this front-line hospital 
staff is vital. How these hospital employees present payment 
options to a patient can mean the difference between having a 
bill covered by a charity program or placing the full amount on 
a high-interest credit card.
    As a further illustration, one system with us today, in a 
customer service training manual produced to the subcommittee, 
made an explicit statement of ``four main priorities when 
securing payment on a self-pay account. Priority 1, obtain any 
insurance information; priority 2, attempt to obtain payment in 
full or settle the account; priority 3, negotiate a payment 
arrangement; priority 4, determine fund eligibility.''
    The manual goes on to say that billing agents should use 
their discretion in applying these principles, but if an agent 
followed these priorities, as written, a needy patient might 
never learn about charity care before paying by a credit card 
or agreeing to an unmanageable and unreasonable payment plan 
with the hospital. How the billing process is executed and 
practiced by the hospital staff is more important than any new 
written policy or any promises or pledges from management.
    At the outset of this investigation, hospitals generally 
acknowledged many of these concerns with billing and collection 
practices, but claimed Medicare rules, in some instances, tied 
their hands with respect to what they could do for uninsured 
and self-pay patients.
    In December 2003, 5 months after the start of this 
committee's investigation, the American Hospital Association 
sought guidance from the Department of Health and Human 
Services on these rules. Two months later, both Secretary 
Thompson and the HHS Office of Inspector General responded, 
largely rebuking the industry's positions. The final panel of 
this hearing will feature two representatives of HHS, and will 
explore further with them this guidance.
    In this regard, I will seek from HHS and the hospitals, an 
answer to the question of why steps to address the situation 
have not been taken until now. If hospitals believed that 
Medicare rules created roadblocks to doing the right thing for 
the uninsured, why did they not raise it with HHS earlier?
    Cost-to-charge ratios are reported to HHS in Medicare costs 
that the Agency must have seen this growing divergence between 
cost and charges. Is no one at HHS watching to see whether 
their rules and regulations are causing harm?
    In December 2002, Trevor Fetter, CEO of Tenet Healthcare, 
who is here with us today, made some very interesting remarks 
in an investor conference call shortly after joining Tenet. 
This was almost 1\1/2\ years ago, and in many ways he framed 
precisely the issues for which we come here today. Quoting Mr. 
Fetter: ``I would like to turn to an issue that has bothered me 
for years. I mentioned earlier that Medicare requires hospitals 
to set charges the same for everyone. This means that the 
uninsured or underinsured patient receives a bill at gross 
charges. In other words, the entire hospital industry renders 
its highest bills to the customers who are least able or likely 
to pay. The problems that this creates are obvious. The bills 
are tremendous and incomprehensible to most people. The patient 
leaves the hospital, presumably after some traumatic event, and 
the hospital bill adds to the trauma. As a result, they don't 
pay. Thirty percent of the patients account for nearly 100 
percent of the collections from this group, 70 percent of the 
patients pay virtually nothing, but Medicare requires that the 
hospitals make a bona fide effort to collect. The 
administrative costs are huge. The ill will that is generated 
among the patients is huge. And the whole situation is far from 
ideal, from a social or economic perspective. Tenet employs 
more than 5,000 people to render bills and attempt to collect 
from these patients. It is ridiculous.''
    Mr. Fetter could not have put more clearly into words what 
this committee's investigation is about. It is not unreasonable 
to assume that Mr. Fetter was not the only member of the 
hospital industry to recognize this problem. If so, why is 
there action only now? Were lawsuits and a congressional 
investigation necessary for the industry to address this?
    Finally, we will likely hear today testimony and comments 
about the role of universal health coverage in the issues we 
are addressing in this hearing. In anticipation, let me say 
this: In Congress, we have debated, and will continue to 
debate, the critical matter of health care coverage. But since 
this committee started this investigation almost 1 year ago, we 
have seen concrete action improving the condition of uninsured 
and self-pay patients facing medical debts. Our focus on 
billing and collection issues has yielded specific and 
immediate results. I look forward to continuing and building 
this direct approach to these problems that is helping real 
people right now.
    We welcome today representatives from the Department of 
Health and Human Services, and the Chief Executives of 
Ascension Health, Catholic Health Initiatives, HCA, New York 
Presbyterian, and Tenet Healthcare.
    We also welcome our panel of experts and advocates, Dr. 
Anderson, Ms. Jacoby, Mr. Rukavina, and Dr. Collins. Thank you 
all for joining us here today, and I look forward to your 
testimony. The Chair recognizes the gentlelady from Colorado 
for an opening statement.
    Ms. DeGette. Thank you, Mr. Chairman. I agree with the 
chairman, this is a very important hearing on the hospital 
billing of the uninsured and underinsured. In particular, I 
want to extend a welcome to Kevin Lofton, who is the President 
and CEO of Catholic Health Initiatives in Denver, who is on the 
second panel today.
    Each year, thousands of Americans without health insurance 
receive hospital care because of urgent and emergency 
situations. Through no fault of their own, though, these 
patients are unable to pay their bills. This puts both 
hospitals and patients in a quandary. The hospitals have spent 
money and manpower providing critical medical care, but they 
have no way to recover the cost. The patients have incurred 
catastrophic debts. The amount could be $1,000, $10,000, or 
even $100,000, and have no ability to get the amount of money 
necessary to pay off these bills in a proper period of time.
    The problem stems from the inevitable collision of 
uninsured patients needing health care and hospitals needing to 
be paid for health care. Now, there are anywhere from 43 to 81 
million Americans who go without health insurance for at least 
part of a year. This is a burden that neither our health care 
system or our patients can continue to bear. And as a result of 
this system, both patients and hospitals are facing severe 
financial pressures.
    There is no question that some hospitals took collection 
efforts too far. Everyone here is aware of reports of body 
attachments and other types of financial penalties. The stories 
frankly are horrifying, and we must look into steps to protect 
patients from overzealous bill collectors. This hearing, 
though, must keep the problem of hospital billing in context. 
Too many Americans are unable to pay for health care because 
they do not have health insurance.
    This subcommittee's investigation reinforces the reality 
that the entire health care system is extremely ill. Some 
hospitals seem to view uninsured patients as revenue enhancers. 
Studies uncovered that hospitals charge insured patients only 
46 percent of the rack rate for services. This pricing reveals 
that it is essential that patients have an advocate in the 
discounting process. In the current system, the uninsured are 
the only ones who have no advocate. Like any other type of debt 
collection, hospital billing and collection practices can have 
a devastating effect on patients without the ability to pay. 
These patients, many of them still recovering from illness or 
surgery, may see their credit rating ruined and their financial 
lives destroyed.
    As Professor Jacoby will describe, this could even mean 
denial of housing or employment. This can spiral into a vicious 
trap. How can these patients pay their hospitals without new 
income? And if the patients have left the hospital still 
recovering from their illness, how easy is it for them to 
negotiate with a billing department?
    Now, one Wall Street Journal article I read talked about a 
man who was billed $22,000 for a 3-day hospitalization 
following emergency appendectomy surgery. He couldn't pay the 
$22,000. But the problem we have, I will bet he couldn't pay it 
even if under a fee reduction program his bill was cut in half, 
to $11,000. And that is the problem we have.
    Our second panel, comprised of hospital CEOs, will provide 
more information on this price system and the collection 
practices. They will also describe the steps that they are 
taking to improve their billing systems. I am looking forward 
to hearing the details of these plans for the uninsured 
because, up to this point, it has been unclear how robust these 
needed discount programs are.
    The investigation of this subcommittee has been extremely 
comprehensive and valuable. Examination of this problem has 
brought to light some specific examples of egregious billing 
practices, but I hope that these stories do not overshadow the 
fact that both patients and hospitals are caught in the same 
vicious cycle. Hospitals cannot be expected to absorb all the 
cost of serving the growing number of uninsured and 
underinsured, and I am sure the chairman did not mean to imply 
that in his opening statement. What this country needs is a 
system in which everyone has access to and can pay for 
essential health care services, both emergency and preventive. 
Every American should have basic health insurance that is 
affordable.
    As this hearing will show, the financial burdens that our 
uninsured patients and our hospitals struggle with every day 
make this an issue that can no longer be delayed and, frankly, 
it is a problem that is getting worse and worse, both for the 
un- and underinsured, and for the hospitals which are trying to 
bear an increasing burden of this.
    Now, it would be easy for us to simply blame hospitals for 
overaggressive bill collection and too high rates, but it would 
miss the larger point. Too many Americans are unable to pay for 
health care services because they do not have health insurance. 
I hope this hearing serves as the impetus for us to address 
this larger issue that is at the root of the problem. And, Mr. 
Chairman, I would ask unanimous consent to put Mr. Dingell's 
opening statement in the record, and also any other member of 
the full committee who wishes to insert an opening statement in 
the record.
    Mr. Greenwood. Without objection, that will be the order.
    Thanks to the gentlelady. Recognize the gentleman from 
Oregon, Mr. Walden, for an opening statement.
    Mr. Walden. Thank you very much, Mr. Chairman. I appreciate 
the fact of the work of the staff on this issue, and certainly 
your leadership on this issue, and recognize the problem that 
is before us.
    I spent several years on a community hospital board, a 
nonprofit hospital board, before coming to the Congress, and 
every month we would go through our billing, and every month we 
would write off a goodly share for charity care. And I recall 
that the biggest shifter of cost--if that is the right word--in 
the system was both Medicaid and then Medicare that often had 
reimbursement rates that, frankly, didn't necessarily cover 
even the cost of care. And, so, those are issues I think we 
need to look at. Clearly the billing issue, though, is the 
legitimate one that needs to be examined, and I know many of 
the hospitals have begun to do that, many are in the process of 
doing that, and certainly the light that has been shed on this 
practice has moved that effort forward.
    It is interesting to note, however, that when it comes to 
the uninsured, there are some folks that probably do have the 
ability to pay, and I got the census data. And it is kind of 
interesting to note that of those who went without health 
insurance for an entire year, 8.2 percent had household income 
in excess of $75,000, and 20 percent had household income over 
$50,000.
    Interesting, too, as we look at how do you get health care 
coverage, especially insurance, for folks who are these folks--
and, in some cases, obviously 20 percent have income over 
$50,000--43.3 percent are noncitizens of the United States, 
according to the census population study; 33.4 percent are 
foreign-born. So, you have 76, 77 percent are either foreign-
born or not citizens of the United States, who are uninsured.
    So, as we look at how do we reach out to provide affordable 
health care, there is clearly a target group there that stands 
out in certain need. And I know we work with those folks in 
many different ways.
    I think this hearing is important. I think looking at the 
charge master and what people are being billed, and whether or 
not those are reasonable charges is very important for this 
subcommittee. And so I look forward to the testimony of the 
folks from the various panels, and hopefully together we can 
find a more equitable way to make all this work and still allow 
hospitals to be able to keep their doors open and provide care, 
including the enormous charity care that is already given.
    Mr. Chairman, thank you for your leadership, and I look 
forward to the witnesses.
    Mr. Greenwood. The Chair thanks the gentleman. Recognize 
the gentleman from California, Mr. Waxman, for an opening 
statement.
    Mr. Waxman. Thank you very much, Mr. Chairman. This hearing 
before the subcommittee today is a critical one. It is 
resultant from an investigation which focused on a number of 
billing practices by hospitals which have resulted in 
unconscionable practices in going after uninsured persons who 
owe debts far beyond their ability to pay.
    Turning bills over to collection agencies who engage in 
practice of harassing individuals, garnishing their wages, 
going after their homes, freezing their bank accounts, these 
activities have no place in this country when the debt is 
occurred because of a person's critical need for health care. 
Uninsured people who facing bills of tens and even hundreds of 
thousands of dollars and no possible way to pay need help, not 
harassment. The fact that medical bills and the debt from those 
bills is the second leading cause of bankruptcy in this country 
is, simply put, unacceptable.
    I want to make a couple of critical points. First, we all 
need to acknowledge that in the face of these revelations, the 
hospital industry has, by and large, responded with concern and 
a commitment to stop the more abusive practices.
    We will hear today of the adoption of policies designed to 
address the more egregious abuses. And while I commend them for 
that, the real test, of course, will not be in the signing of 
pledges to do better, but in actually carrying them out and 
stopping these troubling practices.
    The second point is, the clear and critical point here is 
that all these problems occur because we have so many uninsured 
people in this country. We know that over a 2-year period, over 
80 million people find themselves without insurance for some 
period of time. This is completely unacceptable. We will never 
solve the problem we are discussing today until that situation 
changes.
    Third point, we know that the practice of uninsured people 
facing the very highest charges is not just a problem for 
people getting hospital care. While the bills might be the most 
overwhelming, the fact is that uninsured Americans without drug 
coverage every day face the problem of paying the highest 
prices when they can least afford it. They pay more than people 
with insurance. They pay more than citizens of Canada and other 
countries. And this is also unacceptable, and I hope this 
subcommittee will show equal interest in the problem in this 
area. After all, they have no one negotiating for them to get 
lower drug prices, either.
    Finally, I have to note that the policies now in vogue with 
the Republican Majority of pushing health savings accounts and 
high deductible insurance plans runs directly contrary to what 
is needed to give people the assurance of coverage and access 
to favorably negotiated prices. It is unfair to our hospitals 
to ask them to provide their most favorable discounted rates to 
insurers who have deliberately designed policies where people 
will face a long period of essentially being uninsured because 
the deductible is so high. Hospitals give discounts to insurers 
because they are assured of payment for essentially all of the 
services they provide, less a small deductible amount. Asking 
them to provide the same discount to a truly uninsured person 
is sensible and humane, but requiring them, in essence, to do 
the same for uninsurers with deliberately designed high 
deductible plans is another matter entirely. Asking hospitals 
to bear the brunt of the unmet cost in the long period before 
insurance kicks in, asking them to protect the profits of 
insurers is not a sensible policy and will ultimately hurt the 
very institutions that are on the front line of delivering 
care.
    I look forward to hearing from our witnesses today and 
exploring this issue further with the members of the 
subcommittee.
    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes the gentleman from New Hampshire, Mr. Bass, for an 
opening statement.
    Mr. Bass. Thank you, Mr. Chairman. This is indeed a very 
interesting hearing. It is not simple. There are many different 
parties involved. There is, if you will, problems and issues to 
be shared by all. On the part of the hospitals, there are 
allegations of inflated billing to the uninsured, unethical 
collection practices, but yet, on the other hand, hospitals--
most, if not in fact all hospitals, engage in significant and 
important charity programs that provide essentially deeply 
discounted services to the poor, and the reality is that 
hospitals are not great profit centers nationwide anyway, we 
know that. We just went through a debate on possible 
reimbursement from the Federal Government, and we provided 
significant increases in this area, and it wasn't because the 
hospitals were being over-reimbursed.
    Patients are another factor. Most patients are insured, but 
those that are not are divided, as my friend from Oregon 
pointed out, into some who can pay and some who cannot. And we 
do not want to establish a situation where individuals who do 
not choose to buy either managed health care or any form of 
health insurance can qualify for benefits or payments under 
those circumstances.
    And, of course, the insurance companies are another factor 
because they are the biggest--besides the Federal Government--
reimbursement mechanism, and they negotiate and they create 
differences in prices because of their negotiating power, which 
is another part of this complicated equation.
    And, last, the Federal Government and its reimbursements 
for Medicare and Medicaid is, I guess, probably the biggest 
reimbursement single entity, and growing every day, that the 
relationship that the hospitals have to determine what element 
of discount occurs is a difficult one, and it is at times 
somewhat awkward or perhaps arbitrary. So there are no clear 
answers here, but there might be some interesting findings that 
come out of this hearing that will help make the system more 
predictable, help the hospital community perhaps make their 
collection processes and their billing processes more 
predictable and fair for those who really need health services 
and cannot afford to pay for them.
    I would also point out that I think that--I appreciate my 
friend from California's comments relative to health savings 
accounts--but there are also other scenarios that could work 
out that would be very beneficial to the process, if consumers 
really have a voice in the process of paying for hospital care, 
at least the first-dollar hospital care, through health savings 
accounts which provide accountability and an incentive for 
patients to hold hospitals, doctors and other entities 
accountable for the bills that are sent out, rather than 
awaiting the lawyers to file suits, or interest groups, or 
committees of Congress to conduct investigations.
    So, like all the hearings that this good subcommittee has, 
they are important, but--especially in this case--there are no 
clear villains and there are no clear heroes in the process of 
investigating this issue. And with that, I will yield back and 
look forward to hearing from our witnesses.
    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes the gentlelady from Chicago, Ms. Schakowsky, for the 
purpose of making an opening statement.
    Ms. Schakowsky. Thank you, Mr. Chairman, for holding this 
hearing on hospital billing and collection practices. Many of 
the issues that we will talk about today are the focus of 
attention in Illinois and are being considered by the 
Legislature, investigated by the State Attorney General's 
Office, and debated by the hospital community and the public.
    I want to thank Mr. Greenwood, Mr. Dingell, and Ms. DeGette 
for including a report on the Chicago situation called ``A 
Failing Mission: The Decline of Charity Care at Resurrection 
Hospital'' in the hearing record. I would like also to ask 
unanimous consent to include a statement by the Service 
Employees International Union that also addresses billing and 
collection practices in Illinois in the hearing record.
    Mr. Greenwood. Without objection, the material will be 
included in the record.
    Ms. Schakowsky. Thank you. In fact, several Chicagoans have 
traveled here today to attend this hearing because they have 
been personally and extremely seriously affected. I want to 
recognize them. Zaida Perez was a hospital nurse for 21 years. 
Her troubles began when her working but uninsured husband was 
in a car accident in January 2003, and admitted to Advocate 
Lutheran General Hospital. Two days later, her father died, and 
she faced $13,000 in burial expenses. She was diagnosed with 
breast cancer and, fortunately, was treated at Cook County 
Hospital, which helped arrange payment for her bills. In March, 
Lutheran General sent her husband a bill for $12,000. Although 
she asked for help in devising a payment plan, no help was 
given, and in April the threatening calls began. After a 
payment plan was finally worked out and payments were being 
made, she was sued. Her husband's wages were garnished at the 
rate of $75 a week, until she finally got legal assistance to 
erase her debt.
    Lesszest George is a working single mother. Her 19-year-old 
son spent 2 weeks in Illinois Masonic Hospital after he was 
shot in a case of mistaken identity. Asked after the surgery 
who would be responsible for the bill, Ms. George signed the 
paper that was put before her, thinking that her son was 
covered by her insurance but not realizing that he had lost 
that coverage upon graduation from high school. She received a 
bill for $52,000. The hospital did work to help her apply under 
the Victims' Assistance Fund, but she was denied. Instead of 
working with her for charity care, they filed a lawsuit. Her 
son is now doing well physically, but is still uninsured 
because, as a part-time student and part-time worker, he 
doesn't qualify for insurance.
    Their stories underscore that hospital billing and 
collection practices can turn a medical injury into a financial 
nightmare as in the case of Lutheran General Hospital and 
Illinois Masonic Hospital. Or, as in the case of Cook County 
Hospital, those practices can provide the necessary financial 
assistance so that the focus is on getting well, not dealing 
with collection agencies and lawsuits.
    We need to address charity care policies, discriminatory 
pricing, and abusive collection practices, but we must also 
recognize that our health care system itself has failed Zaida 
Perez, Lesszest George, and many other Americans. Despite 
working full-time, they are uninsured and facing medical debts 
that will be hard to dig out from and that make it hard to care 
for their families' ongoing needs.
    As we will hear, the problems of medical debt and the lack 
of affordable health care are most acute for the uninsured. 
They are more likely to forego care, are charged more for care 
in hospitals and other settings, and are the most likely to 
face medical bankruptcy. But being covered by insurance isn't a 
guarantee by any means. As Sara Collins points out in her 
excellent testimony, more than one in three of the continuously 
insured reported problems paying medical bills. We know that 
access to affordable health care benefits, cost-sharing 
requirements and discounts varies not just by whether you are 
insured or uninsured, but on the type of insurance coverage you 
have. The bigger the group, the better the coverage.
    We in Congress can act to solve these problems, or we can 
act to exacerbate them. High deductible plans and health 
savings accounts will shift more cost onto individuals and 
families, increasing the likelihood of medical bankruptcy. 
Limited tax credits for the purchase of inadequate individual 
policies will not guarantee that policyholders will be able to 
pay their bills. Instead, it is time that we enact universal 
health care that assures access to comprehensive, affordable 
care. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentlelady, and 
recognizes the gentleman from New Jersey, Mr. Ferguson, for an 
opening statement.
    Mr. Ferguson. Thank you, Mr. Chairman. I commend you for 
your interest in the problems of the uninsured, and your 
leadership in investigating how some of the Nation's largest 
hospital systems handle uninsured patients, and I have a great 
deal of interest in the topic of today's hearing.
    There is much about our health care system in this country 
that we take for granted. Our hospitals are the finest in the 
world. Our doctors and nurses are the best trained. Our 
technology is the most advanced. At the same time, I, like 
many, am deeply concerned about the number of uninsured 
Americans.
    About 1.2 million residents in my home State of New Jersey, 
or about 15 percent of our population, are uninsured. Most of 
them are from working families, good people who play by the 
rules, provide for their children, and pay their taxes.
    I believe that every person should have access to quality 
health care, adj that we in the Congress should be working to 
make health insurance more affordable, but until that time it 
is imperative that our health care system treats the uninsured 
and the poor with respect and with mercy and with fairness.
    From the evidence uncovered by this subcommittee, it is 
clear that although oftentimes that is the case, it doesn't 
happen every time.
    I commend the subcommittee for its role in prompting 
hospitals across the Nation to examine how they handle 
uninsured patients. These examples do not take anything away 
from the many hospitals that, for decades, and in some cases 
for centuries, have provided charity care to the poor and the 
vulnerable. This is especially the case of many of the 
nonprofit hospitals in my home State of New Jersey and across 
the country that are sponsored by religious organizations. In 
New Jersey, I give examples like St. Michael's Medical Center 
in Newark and St. Claire's Hospital in Morris County.
    In this day and age of making your numbers and creating 
shareholder value and growing the bottomline, I am awed by 
their continuing tradition and commitment to care for the poor. 
In many respects, our Nation's hospitals, especially those who 
focus exclusively on care for the indigent, are the health care 
providers of last resort. People can go to the hospital when 
they have nowhere else to go for care. The proof is in the 
numbers.
    A recent study by the Kaiser Commission on Medicaid and the 
Uninsured estimated that uncompensated care in 2004 will total 
more than $40 billion. Hospitals will account for about 60 
percent of that total.
    Mr. Chairman, I ask unanimous consent that a copy of this 
study, the Kaiser Commission Study, be entered into the record.
    Mr. Greenwood. Without objection, it will.
    Mr. Ferguson. Thank you. No one should feel good about 
these numbers. The cost of uncompensated care at hospitals 
should concern everyone. This is what Stuart Altman, a health 
policy expert who teaches at Brandise University recently said 
on NPR about unpaid bills at hospitals, and I quote: ``They are 
a symptom of a much broader issue, which is whether the 
hospital system is financially in good shape, or not, and that 
affects both access to care and quality.''
    I urge my colleagues on this subcommittee and members of 
the audience here to heed those concerns. Again, I thank you, 
Mr. Chairman, for holding this critically important hearing, 
and I certainly look forward to hearing from several panels of 
our witnesses here today. I yield back.
    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes the gentleman from Maine, Mr. Allen, for his 
statement.
    Mr. Allen. Mr. Chairman, thank you for calling this hearing 
today. It is an important subject matter, and I welcome all of 
our witnesses.
    Medical data is a serious problem faced by a growing number 
of Americans who are uninsured or underinsured, and the process 
by which hospitals charge and obtain payment from individuals 
without insurance deserves careful scrutiny, especially 
considering that medical data is a leading cause of personal 
bankruptcy in the United States.
    Hospital bills are just one service that many uninsured are 
paying out-of-pocket. They also have doctors' bills, outpatient 
services, and prescription drugs. Most people accessing 
hospital services have some kind of third-party coverage, but 
those who are not insured and have no one negotiating on their 
behalf for setting a price, as happens with Medicare and 
Medicaid, have to pay the charge master rate.
    I am willing to guess that very few of the 44 million 
people who lack health insurance today have a clue what a 
charge master rate is, nor would the average uninsured person 
know that if they go to the emergency room, they may be charged 
a good deal more than a health plan is charged by a hospital to 
provide the same care, often 2 to 3 times more. And while 120 
days may seem like a reasonable time to pay a $100 or $200 
bill, the average cost of an emergency room visit is between 
$500 and $1,000 for an individual without insurance. I suspect 
that many uninsured would have difficulty paying a bill of that 
amount or more within 4 months, and if they need just one 
overnight stay, they can wind up with a bill of $4,000 or so in 
just 24 hours.
    Some things could help. Transparency in the billing 
process, enrolling patients who qualify in a charity care 
program, establishing reasonable payment plans for those who 
don't. All of that can help alleviate the anxiety associated 
with a daunting medical bill.
    In Maine, all of our acute care hospitals are nonprofit. On 
average, self-paying patients make up about 7 percent of 
overall hospital payments. And, currently, most of our 
hospitals offer free care for patients who are between 175 
percent and 200 percent below of the Federal poverty level. And 
our hospital CFOs in Maine have been working together to 
develop guidelines regarding charity care, sliding scale fees, 
billing and collections.
    I realize that the chairman's intention for calling this 
hearing today is to examine hospital billing and collection 
practices, but given the number of uninsured in this country 
and the rapid growth in health care premiums, we need to look 
deeper. Health insurance premiums in the U.S. rose 13 percent 
in 2003, the third consecutive year of double-digit inflation. 
As a result, many employers are forced to increase cost-sharing 
or switch to products which put a greater financial burden on 
employees, including so-called ``consumer-driven high-
deductible health plans,'' which I believe will only make the 
problem we are dealing with here today worse than it is.
    Congress, someday, must focus on how to make affordable 
quality health insurance available to all Americans, but today 
Congress is simply stumbling along like a man shackled and 
bound in a straightjacket, not limited really by physical 
barriers, but limited by our ideological preconception about 
the role of government in the private sector when it comes to 
health care. We are limited by our own ideas in a way that is 
doing a great disservice to the people of this country, and if 
we are going to make progress on the larger issue in front of 
us, we have to work through that issue.
    We won't solve all those problems today, but I do welcome 
the panels, and I thank the chairman for holding this hearing. 
With that, Mr. Chairman, I yield back.
    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes the gentleman from Florida, Mr. Stearns, for his 
opening statement.
    Mr. Stearns. Thank you, Mr. Chairman. I congratulate you on 
having this hearing. I think all of us realize we are not here 
to be overly critical of the hospitals, or sort of beat up on, 
we are just trying to arrive at some explanation of the reality 
between the cost and the charges.
    America's hospitals, urban and rural, for profit and not-
for-profit, I think do a superb job of taking care of patients 
of every age and health condition. I am very proud of the 
charitable outreach of the hospitals in my congressional 
district and, with that, Mr. Chairman, I would like to put into 
the record a summary of my charitable hospitals into the 
record, with unanimous consent.
    Mr. Greenwood. Without objection, the document referred to 
will be made a part of the record.
    Mr. Stearns. Anyone who enters their hospital is treated, 
without question, and I think they should seek payment for 
their services. They have to make a profit for their 
shareholders or, if they are not-for-profit, they still have to 
have enough profit so they can have capital expenses. However, 
Mr. Chairman, there is a great disparity between what a 
procedure costs and what is charged. This accounting creature 
is called a ``charge master.'' Is it based on some realistic 
computation of the factors involved in the care of the 
individual, or is it a fictitious number in hospital finance? 
And we all remember the ``average wholesale price,'' AWP 
system. And the pharmaceutical wholesale pricing system, 
remember the hearings we had on that, and the concerns we had 
on that.
    Dr. Anderson's testimony says that in the 1960's, while 
there was a proliferation of uninsured Americans because they 
had become tax exempt, there were no discounts, everyone paid 
the same rates. The rates that insured and self-pay people paid 
were similar. Yet, today, on the average, ``self-pay patients 
are currently being charged 2 to 4 times what people with 
health insurance coverage pay for hospital services.'' So, why 
are the self-pay patients paying 200 to 400 percent more? That 
is a legitimate question.
    Also, as taxpayers have an interest in both Federal health 
programs and the tax benefits, I am interested to know the 
relationship, if any, between the charge master, the taxes and 
the Medicaid reimbursement.
    So, the question is, after we finish this hearing, where do 
we go from here? Well, there are going to be some people that 
are going to call for a price control. I don't recommend that 
as a solution. I think that out of the box, we should not have 
price controls, but I think the three panels we have, and all 
the witnesses, are to be commended for coming here, and I look 
forward to an open honest debate on this. Thank you, Mr. 
Chairman.
    [Additional statement submitted for the record follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Let me begin by thanking Chairman Greenwood for holding this 
hearing today. I share his concerns with what we have been learning 
about the billing and collection practices of too many hospitals with 
regard to uninsured/self-pay patients. Today I look forward to learning 
more about these issues as well as the steps the hospital industry is 
taking to address them.
    Hospitals across America have long been community leaders in 
helping those less fortunate. Last year alone, hospitals provided $22 
billion in charity care in their respective communities. For this, 
hospitals should be commended.
    There has been a substantial group of needy patients, however, 
sometimes left out of these efforts. I am concerned that uninsured/
self-pay patients are too often expected to pay far more than others 
for their care and then aggressively pursued for this inflated debt. 
This is particularly troubling for me because my home state of Texas, 
in 2002, had the highest rate of uninsured citizens at 28.5%. I am 
committed to ensuring fair and reasonable treatment by hospitals in 
their billing and collections practices--for every patient regardless 
of their means or manner of payment.
    All hospitals have specific charges for each service they provide 
and compile these thousands of individual charges into one price-list 
catalog called the ``charge master.'' However, these charge master 
rates do not reflect the actual cost and reasonable profit of providing 
that service. Mark-ups have rendered these charges sometimes hundreds 
of percent above the actual costs to the hospital.
    As health care costs continue to rise, these mark-ups also continue 
to increase. A study just recently published shows that hospital prices 
increased 8% in 2003, the sixth straight year of accelerating price 
increases and the largest one-year spike in a decade. Managed care, 
commercial insurance, and the government pay hospitals substantially 
less than charge master rates. But the uninsured/self-pay patient is 
left with the short straw and the full charge. They are the ones often 
expected pay these full mark-ups. They are the ones paying the sticker 
price. They are the ones charged an arm and a leg in order to get one 
fixed.
    The collection tactics sometimes used to pursue these inflated 
bills can be even more disconcerting. There have been a number of 
reports and articles over the past year describing some particularly 
aggressive collection practices. Collections are an unfortunate reality 
of business life, but every corporation has a duty to make sure any 
such policies and practices are measured and reasonable. And let me be 
clear, I hold the individual corporation responsible, particularly in 
health care, for knowing and monitoring the practices of any collection 
agent acting on its behalf.
    I am encouraged that the industry has seemed to have heard the 
message and taken recent steps to revisit and enhance its billing and 
collection policies. However, we all know policies can be little more 
than talk; the proof is in the results. I look forward to hearing how 
your commitments have taken form in action--from the industry, to the 
systems, to the hospitals, to finance departments and to the men and 
women sitting across the table from an patient seeking to meet their 
fair obligations in a fair and respectful manner.
    I want to also say that I am pleased this Committee has been able 
to facilitate communication between hospitals and the Department of 
Health and Human Services on these matters and I expect that dialogue 
to continue.
    I thank Chairman Greenwood again for his efforts and I look forward 
to today's testimony.

    Mr. Greenwood. The Chair thanks the gentleman, and would 
now call forward our first panel, consisting of Dr. Gerard F. 
Anderson, M.D., Professor of the Department of Health Policy & 
Management and International Health, at the Bloomberg School of 
Public Health. He is a professor in the Department of Medicine 
at Johns Hopkins School of Medicine, and he is the Director of 
the Center for Hospital Finance and Management, as well.
    We also have with us Melissa B. Jacoby, Associate 
Professor, University of North Carolina at Chapel Hill, School 
of Law; Mark Rukavina, Executive Director of The Access Project 
in Boston; and Sara Collins, Ph.D., Senior Program Officer, The 
Commonwealth Fund, in New York. We welcome all of you this 
afternoon. I know that you expected to be sitting there an hour 
and a half ago, but we thank you for your indulgence.
    It is the custom of this subcommittee to take testimony 
under oath, and so I need to ask if any of you object to giving 
your testimony under oath?
    [No response.]
    Seeing no objection, I also need to advise you that 
pursuant to the rules of the committee and the House, that you 
are entitled to be represented by counsel. Do any of you wish 
to be represented by counsel?
    [No response.]
    I didn't think so. If you would then stand and raise your 
right hands, please.
    [Witnesses sworn.]
    Mr. Greenwood. You are under oath, and we will start with 
you, Dr. Anderson. You are recognized for 5 minutes for your 
opening statement. Good afternoon.

TESTIMONY OF GERARD F. ANDERSON, DIRECTOR, JOHNS HOPKINS CENTER 
 FOR HOSPITAL FINANCE AND MANAGEMENT, PROFESSOR, DEPARTMENT OF 
    MEDICINE, JOHNS HOPKINS SCHOOL OF MEDICINE, PROFESSOR, 
 DEPARTMENTS OF HEALTH POLICY AND MANAGEMENT AND INTERNATIONAL 
 HEALTH, BLOOMBERG SCHOOL OF PUBLIC HEALTH; MELISSA B. JACOBY, 
  ASSOCIATE PROFESSOR, UNIVERSITY OF NORTH CAROLINA AT CHAPEL 
  HILL, SCHOOL OF LAW; MARK RUKAVINA, EXECUTIVE DIRECTOR, THE 
 ACCESS PROJECT; AND SARA R. COLLINS, SENIOR PROGRAM OFFICER, 
 HEALTH POLICY, RESEARCH AND EVALUATION, THE COMMONWEALTH FUND

    Mr. Anderson. Good afternoon, Mr. Chairman. You said we had 
been waiting for an hour and a half, we have been waiting for 
several months for this opportunity. I am glad you waited for 
my birthday to give me the opportunity to testify today.
    Mr. Greenwood. Which one is it, Dr. Anderson?
    Mr. Anderson. Fifty-three.
    Mr. Greenwood. Fifty-three. You are under oath, Dr. 
Anderson.
    Mr. Anderson. I understand. I direct the Johns Hopkins 
Center for Hospital Finance and Management, the only 
academically based research center focusing exclusively on 
hospitals. My written testimony begins by explaining how we got 
to the current situation of self-pay patients paying 2 to 4 
times more for hospital services than the uninsured patients. 
It concludes that the marketplace does not constrain hospital 
charges for self-pay patients, and the Members of Congress have 
done a better job than I could in explaining the reasons why.
    What I would like to explain is why hospitals have these 
high charges. The first one is the Medicare payments, outlier 
payments, are partially based on charges. This encourages 
hospitals to maintain high charges.
    Second of all, bad debt and charity care is typically 
calculated at full charges. High charges make it appear that 
hospitals are being more generous than they really are.
    Third, some self-pay patients actually pay full charges. 
These self-pay patients fall into three groups. The first are a 
very few people with medical savings accounts. The second 
category are international visitors. These are typically 
affluent individuals who need a procedure that can be performed 
most effectively in the United States. These individuals are 
willing to pay full charges even at inflated rates. The third, 
and by far the largest group that is asked to pay full charges, 
are the 43 million Americans who are uninsured. The uninsured 
have very little bargaining power with hospitals. My review of 
hospital practices suggests that less than 1 in 20 uninsured 
patients actually negotiate a lower rate with hospitals.
    Because hospital charges for a heart attack average about 
$30,000 per admission, most uninsured Americans, even those 
making $50,0000 or $75,000, are unable to pay full charges. 
Even if they don't pay, however, the toll on the uninsured can 
be substantial. People who do not pay are sent to collection 
agencies, and some are driven to bankruptcy. One study found 
that nearly half of all personal bankruptcies were related to 
medical bills.
    The question, therefore, becomes what is a reasonable rate 
for hospitals to charge self-pay patients, given that the 
marketplace does not work? I propose four guiding principles 
for Congress to consider.
    The first, that the rates should be above what insurers and 
managed care plans are currently paying hospitals; second, 
self-pay patients should not be asked to pay exorbitantly high 
rates; third, self-pay patients should know in advance what 
they are going to be asked to pay; and, fourth, the system 
should be easy to administer and to monitor.
    And, therefore, I have two payment options for Congress to 
consider. My preferred option is to mandate that the maximum a 
self-pay patient should pay is the Medicare rate plus 25 
percent. The rationale for allowing hospitals to charge 25 
percent more than Medicare is based upon three factors. First, 
self-pay insurers pay about 14 percent more than Medicare. I 
then add 1 percent for prompt payment and, finally, I add an 
additional 10 percent because the amount paid by private 
insurers is an average, and some commercial insurers will pay 
more than the average. Adding these three factors together 
results in a proposed payment rate of Medicare+25 percent. The 
Medicare+25 percent rate is easily monitored and adjusts for 
the complexity of the patient. It would be continually updated 
by Medicare as Medicare updates its own PPS rates. The major 
disadvantage is that it is not market determined. In most 
markets, however, it would be above what the insurers and the 
managed care plans are paying, and so it wouldn't interfere 
with the marketplace.
    A second option is to allow hospitals to charge the maximum 
they charge any insurer or any managed care plan. The advantage 
is that, in fact, it is market determined. However, I see four 
disadvantages with this option. First, it would require 
regulations and auditing to verify that the rate is really the 
maximum hospitals charge any insurer or any managed care plan. 
Second, in order to make the rate transparent, it would be 
necessary to keep the rate in place for an extended period of 
time, probably a year. Third, it would require hospitals to 
tell insurers and managed care plans who is the worst 
negotiator. And, finally, it requires all payments to be done 
on a per-day basis. Any other payment would probably make 
comparisons difficult, and all this does interfere with the 
marketplace.
    Balancing the pros and cons of both options, therefore, I 
recommend Medicare+25 percent. It satisfies all four 
principles. It is above what the insurers are paying, it is a 
reasonable amount, it is transparent, and it is easy to monitor 
and verify.
    In summary, both Congress and the hospital industry should 
recognize that hospital charges for self-pay patients are not 
determined by market forces and, second of all, Medicare+25 
percent is a reasonable amount for self-pay patients to pay.
    I would be happy to answer any questions.
    [The prepared statement of Gerard F. Anderson follows:]

                 Prepared Statement of Gerard Anderson

    Mr. Chairman, members of the Committee; my name is Dr. Gerard 
Anderson. I have been working on hospital payment issues for many 
years. Between 1978 and 1983, I worked in the Office of the Secretary 
in the US Department of Health and Human Services. In 1983, I was one 
of the primary architects of the Medicare Prospective Payment 
legislation. Following passage of the Medicare Prospective Payment 
legislation, I joined the faculty at Johns Hopkins where I have been 
for the past 21 years. At Johns Hopkins, I direct the Johns Hopkins 
Center for Hospital Finance and Management--the only academically based 
research center focusing exclusively on hospitals. I am also a 
professor of Health Policy and Management and professor of 
International Health in the Bloomberg School of Public Health and 
Professor of Medicine in the School of Medicine at Johns Hopkins 
University.
    I would like to begin my testimony by highlighting several 
milestones in hospital payment policy. Because of the evolution of 
hospital payment policy, self pay patients are currently being charged 
2 to 4 times what people with health insurance coverage pay for 
hospital services. These are not market rates and need to be lower. 
After reviewing the milestones, I will then make a series of specific 
suggestions to the committee that will make the current hospital 
payment system more equitable to the self pay patients. My preferred 
option is that hospitals be limited to what Medicare pays plus 25 
percent.
critical milestones that have led to market failure in hospital payment
    One hundred years ago most hospital care was either free or very 
inexpensive. In 1900, hospitals could provide little clinical benefit 
for most illnesses and were primarily places for housing the poor and 
insane who were sick. Hospitals were primarily philanthropic 
organizations. They were established primarily in poor urban areas.
    Beginning in the 1920s, the ability of hospitals to improve the 
health status of patients increased dramatically. For the first time, 
rich and poor Americans sought out hospital care when they became 
seriously ill. Anesthesia expanded access to surgery and antibiotics 
made it easier to treat infections.
    Physicians had a wider range of services to provide to hospitalized 
patients. New drugs and new equipment became available and better and 
more highly trained personnel were required to provide these services. 
The cost of providing hospital care began to accelerate. In order to 
recover these higher costs, hospitals began to charge patients for 
services. Hospitals developed a charge master file. Initially there 
were only a few items on the list. It listed specific charges for each 
service the hospital provided. A hospital day had one charge, an hour 
in the operating room had another charge, and x-ray had a third charge, 
etc. As the number of services the hospital offered increased, so did 
the length of the charge master file. There are now over 10,000 items 
on most hospital charge master files.
    Before 1929, there was no health insurance and patients paid the 
hospital directly. In 1929, Baylor Hospital in Dallas, Texas began a 
program selling health insurance to school teachers in the Dallas 
County School district. Baylor created this health insurance system 
because many of its patients were having difficulty paying hospital 
bills. It became the prototype Blue Cross Plan. As the depression 
worsened in the 1930s, the ability of people to pay their hospital 
bills also worsened. Blue Cross and other types of insurance programs 
proliferated. These insurers paid charges based upon the charge master 
file.
    During this period, the charges were based on the cost of providing 
care plus a small allowance for reserves. The markup over costs was 
typically less than 10%.
    Private health insurance received a major boost during World War II 
when Congress made health insurance tax exempt. After World War II, 
private insurers continued to pay the charges that hospitals had 
established. Over time, the ability of hospitals to improve the health 
status of their patients increased, the kinds of services provided by 
hospitals increased and the costs of hospital care began increasing at 
2 to 3 times the rate of inflation. By 1960, the typical hospital had 
established a list of prices for approximately 5,000 separate items. 
There were no discounts; everyone paid the same rates. The rates that 
insured and self pay people paid were similar.
    Hospitals set their prices for these 5,000 items on a few criteria. 
The most important factor was costs. Charges were typically set at a 
given markup over costs, usually 10 percent. The hospital would 
estimate how much it cost to deliver a service and then charge 10% 
more. The ability of hospitals to estimate cost for individual 
services, however, was extremely limited by cost accounting. No 
hospital really knew how much it costs to provide a particular service 
because cost accounting techniques were not sufficiently detailed.
    Market forces determined charges for only a few services. Child 
birth for example, was one service for which patients could engage in 
comparative shopping. Pregnant women had almost nine months advance 
warning that they would be admitted to the hospital and their families 
could therefore engage in comparative shopping. In theory, they could 
compare differences in the out-of-pocket costs and the perceived 
quality between two hospital delivery rooms. Thus, hospitals kept 
delivery room charges at or below actual costs.
    For most services, however, it was often impossible for consumers 
to engage in comparative shopping because either the admission was an 
emergency or their doctor had admitting privileges in only one 
hospital. For most admissions, they had no idea what services they 
would use during their hospital stay. They could not engage in 
comparative shopping if they did not know what services they were going 
to need. In addition, for most people, insurance paid the full bill and 
so patients had no financial incentive to engage in comparative 
shopping.

                       MEDICARE BECOMES INVOLVED

    When the Medicare program was established in 1965, Congress decided 
that the Medicare program would pay hospital costs and not charges. 
This was the method of payment used primarily by Blue Cross. Congress 
recognized that charges were greater than costs and that the Medicare 
program would be able to exert little control over charges. A very 
detailed hospital accounting form called the Medicare Cost Report, was 
created to determine Medicare's allowable costs.
    In order to allocate costs between the Medicare program and other 
payors, the Medicare program required hospitals to collect uniform 
charge information. Uniform charges were necessary in order to allocate 
costs to the Medicare program. The Medicare Cost Report could determine 
allowable costs for the entire hospital, however, it needed a way to 
allocate these costs specifically to the Medicare program. Charges are 
used to allocate costs to the Medicare program. If, for example, 40% of 
the charges were attributed to the Medicare program, then the cost 
accounting system would allocate 40% of the costs to the Medicare 
program.
    In order to prevent fraud and abuse, the Medicare program required 
hospitals to establish a uniform set of charges that would apply to 
everyone. Otherwise, the hospital could allocate charges in such a way 
that would result in more costs to the Medicare program.
    Hospitals continued to have complete discretion on how they 
established their charges. The Medicare program did not interfere with 
how hospitals set charges for specific services. One hospital could 
charge $5 for an x-ray and another hospital $25 for the same x-ray. A 
number of studies conducted at the time showed wide variation in 
hospital charges.
    People with insurance generally had little reason to scrutinize 
their bills because they had first dollar coverage. Insurance paid the 
full hospital bill. Also, patients did not know what services they 
would need and so they did not know what prices to compare. Insurance 
companies did little to negotiate with hospitals regarding hospital 
charges in the 1960s and the Medicare and Medicaid programs did not pay 
on the basis of charges.
    In the 1970s, market forces still had a small impact on hospital 
charges. In reality, the hospital had virtual carte blanche to set the 
charges. The number of separate items that had a charge associated with 
them, doubled from 5 to 10,000 at the typical hospital, where it is 
today.
    Two major changes occurred in the 1980s that had a major impact on 
hospital charges. First, Medicare created the Prospective Payment 
System which eliminated any need for using hospital charges to allocate 
hospital costs. Second, most insurers began negotiating discounts off 
of charges or using some other mechanism to pay hospitals. As a result, 
any market forces that existed to limit what hospitals could charge 
were almost completely eliminated.
    In 1983, the Medicare program moved away from paying costs and 
instituted the Prospective Payment System (DRGs). As the Medicare 
Prospective Payment System became operational, the need for the 
Medicare Cost Report and therefore the need for a uniform charge master 
file to allocate costs became less and less important. Today, because 
nearly all of the Medicare program uses some form of prospective 
payment, the requirement of a uniform charge master file by the 
Medicare program is virtually unnecessary.
    Managed care plans began to negotiate with hospitals in the early 
1980s. They wanted discounts off of charges in return for placing the 
hospital in their network. They successfully negotiated sizeable 
discounts with hospitals. As insurers began to compete with managed 
care plans in the mid 1980s, they also began to move away from paying 
full charges and started negotiating their own deals. Some insurers 
decided to pay on a per day basis, others decided to pay discounted 
charges, or a negotiated rate. Nearly all private insurers and managed 
care plans stopped using full charges as the basis of payment by 1990. 
They simply could not compete in the market place if they paid full 
charges.

                    COST SHIFTING AND MARKET FAILURE

    As each segment of the market developed a different way to pay 
hospitals, this lead to a phenomenon known as ``cost shifting''. As the 
Medicare program instituted the Prospective Payment System (DRGs), the 
Medicare program began to limit the amount that Medicare would spend. 
Faced with constraints on Medicare (and soon thereafter Medicaid) 
spending, the hospitals began to engage in ``cost shifting''.
    To do this the hospital industry increased prices to commercial 
insurers. Given that most commercial contracts were written to 
reimburse hospitals based on the hospital's own charges, it was 
relatively simple matter for hospitals to raise their prices. When 
commercial insurers tried to raise prices to the employers, however, 
employers began to examine alternatives. Employers slowly and then 
rapidly embraced managed care. Managed care expanded rapidly using 
their market power to negotiate discounts off of charges with 
hospitals. Soon commercial insurers asked for similar discounts. 
Private insurers continued to pay more than Medicare however in most 
cases.
    Without the federal government, state governments, private 
insurers, or managed care plans paying full charges, the regulatory and 
market constraints on hospital charges were virtually eliminated. By 
1990, the only people paying full charges were the millions of 
Americans without insurance, a few international visitors and the few 
people with health savings accounts. These individuals had limited 
bargaining power and were asked to pay ever increasing prices. 
Effectively, there was market failure in this aspect of the hospital 
market.
    Without any market constraints, charges began increasing much 
faster than costs. In the mid 1980s charges were typically 25% above 
costs. Without any market constraints, it is now common for charges to 
be two to four times higher than costs. Charges are also two to four 
times what most insurers pay. Most insurers, including Medicaid, 
Medicare, and private payors, pay costs plus/minus 15 percent. Over the 
past twenty years, the difference between what the hospital charges and 
what it costs to provide care has grown steadily in nearly all 
hospitals.
    Hospitals have been able to increase charges because self pay 
individuals have limited bargaining power when they enter a hospital. 
They first must find a team of physicians willing to treat them who 
also have privileges at that hospital. Then they must negotiate with 
the hospital. Often they wait until they are ill before they seek 
medical care. This further diminishes their bargaining power because it 
is now an emergency. Often the hospital wants prepayment. Because most 
self pay persons have limited resources and cannot make full payment in 
advance, this further diminishes their bargaining power.
    Perhaps the most important constraint on their bargaining power, 
however, is that they do not know what services they will ultimately 
need. They do not know how long they will remain in the hospital, what 
x-rays or lab tests they will need, and therefore they cannot know in 
advance what services they will require and which of the 10,000 prices 
they should negotiate.

              COSTS, AND WHAT INSURERS PAY IN PENNSYLVANIA

    Using the most recent data available I compared what insurers pay 
and what hospitals charge in Pennsylvania. As noted earlier, charges 
vary considerably from hospital to hospital. Pennsylvania collects data 
on what hospitals charge and what insurers pay in Pennsylvania for 
different illnesses (www.phc4.org). For example, I looked at the 
charges that Philadelphia area hospitals charged for medical management 
of a heart attack in 2002. The average charge was over $30,000. Most 
insurers paid less than $10,000.

         WHY ARE CHARGES SO MUCH HIGHER THAN WHAT INSURERS PAY?

    There are three main reasons why hospitals set charges 2-4 times 
what they expect to collect from insurers and managed care plans. The 
first is that Medicare outlier payments are partially based on charges. 
The second is that bad debt and charity care is typically calculated at 
full charges. The third is that some self pay patients actually pay 
full charges.
    In the Medicare program, a small proportion of patients are much 
more expensive than the average patient. These are known as outlier 
patients. Medicare pays for these patients outside of the DRG system. 
Medicare continues to use charges as part of the formula used to 
determine outlier payments.
    Recent investigations have shown certain hospital systems 
manipulating the payment system in inappropriate ways to over charge 
the Medicare program for outlier patients. One aspect of this fraud was 
the exceptionally high amounts these hospitals charged. Lowering the 
charges would diminish the over charges in the Medicare program for 
outlier payments and would reduce the level of fraud.
    Second, hospitals routinely quantify the amount of bad debt and 
charity care they provide. This helps with fund raising and is used to 
meet charitable obligations. However, by valuing bad debt and charity 
care at full charges, these numbers vastly over estimate the amount of 
bad debt and charity care the hospital actually provides.
    There are three groups that still pay charges. The first are people 
who have health savings accounts. Some of these individuals may be able 
to negotiate discounts although most pay full charges. It is extremely 
difficult for one person to negotiate with a hospital, especially in an 
emergency situation. The hospital holds all of the cards. Lowering the 
charges will benefit people with health savings accounts.
    The second category is international visitors. These are typically 
affluent individuals who need a procedure that can be performed most 
effectively in the United States. These individuals are willing to pay 
full charges, even at inflated prices.
    There are compelling arguments to charge international visitors 
higher prices than Americans. Most can afford to pay and, in addition, 
they have not subsidized the hospital sector in the United States 
through tax payments and other public subsidies. On the other hand, in 
most other countries Americans are usually treated free of charges if 
they have an emergency. An American injured while traveling in Canada, 
Australia, France, etc would be treated free of charge or receive a 
very small bill. Although there is no data that I know of that would 
allow us to compare the cost of care provided to Americans traveling 
abroad to the cost of care provided to foreigners receiving care in the 
U.S., I expect it would be similar. In that case it seems unfair to 
charge foreign visitors so much more for a service when Americans 
receive care free of charge overseas.

                        IMPACT ON THE UNINSURED

    The third, and by far the largest group that is asked to pay full 
charges is the uninsured. There are 43 million Americans who are 
uninsured. The uninsured can theoretically negotiate with hospitals 
over charges, but they have little bargaining power. My review of 
hospital practices suggests that less than 1 in 20 uninsured patients 
actually negotiates a lower rate.
    Many uninsured people are unable to pay full charges. In fact, most 
studies suggest that less than 1 in 10 uninsured people pay a portion 
of their charges and relatively few pay full charges. In fact, in most 
hospitals only 3 percent of total revenues comes from people who are 
uninsured. Self pay patients represent a very small proportion of 
hospital revenues.
    The toll on the uninsured, however, can be substantial. There are 
numerous reports that show hospitals attempting to collect payments 
from the uninsured. The people who do not pay are sent to collection 
agencies and some are driven to bankruptcy. One study found that nearly 
half of all personal bankruptcies were related to medical bills (M.B. 
Jacoby, T.A. Sullivan, E. Warren, ``Rethinking The Debates Over Health 
Care Financing: Evidence from the Bankruptcy Courts,'' NYU Law Review 
76, May 2001: 375). Another survey (D. Gurewich, R. Seifert, J Pottas, 
The Consequences of Medical Debt: Evidence From Three Communities, The 
Access Project, February 2003) found that hospitals were routinely 
requiring up front payments, refusing to provide care, or encouraging 
uninsured patients to seek new providers if they did not have health 
insurance. Many respondents found the terms the hospitals were offering 
were difficult to maintain given the hospitals' inflexible collection 
processes and their own financial situations.
    Nearly all hospitals do this to some extent. For example, a series 
of stories in the Wall Street Journal examined the collection 
procedures at Yale-New Haven hospital. The Wall Street Journal found 
that in 2002, the Yale-New Haven hospital was lead plaintiff in 426 
civil lawsuits, almost all of which concerned collections or 
foreclosure lawsuits against individuals, compared with 93 lawsuits at 
a similarly sized local hospital. Yale-New Haven Hospital also 
frequently engaged in aggressive collections measures, such as wage 
garnishment, seizure of bank accounts, and property liens. In 2001, the 
hospital filed 134 new property liens in New Haven, almost 20 times the 
number filed by the city's other hospital.

                       BENEFITS OF LOWER CHARGES

    If charges were lowered there could be two beneficial outcomes. 
First and most important, fewer self pay individuals would declare 
bankruptcy. Second, more self pay patients would be able to pay their 
bills if the charges were more in line with prevailing rates.

                  GUIDING PRINCIPLES FOR SETTING RATES

    The question therefore becomes what is a reasonable rate for 
hospitals to charge self pay patients given that neither market forces 
or regulations constrain hospital charges.
    I propose four guiding principles. First, the rate should not 
interfere with the market place. The rate that self pay individuals 
should pay should be greater than what insurers and managed care plans 
are currently paying hospitals. Second, the charges should not be 
substantially higher than what insurers and managed care plans are 
currently paying hospitals. Individuals with limited bargaining power 
should not be asked to pay exorbitantly high rates because they lack 
market power. Third, the rate should be transparent to patients. 
Patients should know the prices they will be asked to pay when they 
enter the hospital. Fourth, the system should be easy to administer and 
to monitor.

                        TWO PAYMENT ALTERNATIVES

    I have two specific suggestions for the Congress to consider.
    The first is to mandate that the maximum a patient can pay is the 
amount paid by Medicare plus 25%. I call this DRG+25%. The rationale 
for allowing hospitals to charge 25 percent more than Medicare is based 
on three factors. First, private pay insurers pay an average of 14 
percent more than Medicare for a similar patient. I then add one 
percent for prompt payment. Finally, an additional amount (10%) is 
added because the amount paid by private insurers is an average and 
some commercial insurers pay more than the average. Adding the three 
factors together results in a proposed payment rate of DRG + 25%.
    The advantages are that the DRG + 25% rate is easily monitored and 
adjusts for complexity of the patient. It would be continually updated 
by Medicare as Medicare updates the PPS rates. The disadvantage is that 
the rate is not market determined. In most markets, however, it would 
be above what insurers and managed care plans are paying.
    A second option is to allow hospitals to charge the maximum they 
charge any insurer or managed care plan on a per day basis. The 
advantage is that it is market determined.
    There are four disadvantages. First, it will require regulations 
and auditing to verify the rate is the maximum they charge any insurer 
or managed care plan. Second, in order to make the rate transparent, it 
will be necessary to keep the rate in place for an extended period of 
time, probably a year. This interferes with the market place. Third, it 
will require hospitals to tell all insurers and managed care plans who 
was the worst negotiator. This also interferes with the market place. 
Fourth, it requires all negotiations to be on a per day basis. Any 
other payment system would be too complicated. This interferes with the 
market place.
    Balancing the pros and cons of both options, I recommend the 
DRG+25% option. It complies with all four principles--it is above what 
insurers are paying, it is a reasonable amount, it is transparent, and 
it is easy to monitor and verify.

                            RATE IS TOO LOW

    Insurers may argue that they are entitled to more substantial 
discounts over self pay individuals for two reasons--prompt payment and 
volume discounts. The prompt payment argument has some validity. A two 
month delay in payment at a 6 percent interest rate is equivalent to a 
1 percent savings. This is built into the DRG + 25% payment.
    The volume discount argument is more complicated. In my opinion it 
has limited financial impact, especially on medical services. Most 
insurers and managed care plans do not guarantee a certain volume of 
patients and certainly they do not guarantee a certain case mix of 
patients. Instead, they agree to put the hospital on a preferred list 
of hospitals. The patient and the physician still make the final 
decision regarding which hospital to select. The choice, therefore is 
fundamentally different from a purchase in the manufacturing or retail 
sector where a large volume of goods or services is actually purchased.
    The second part of the volume argument, however, is probably more 
important. The same medical services will be used if the patient is 
self pay or insured. The patient will use the same set of laboratory 
tests, spend the same time on the operating table, require the same 
nursing hours, etc. The medical services are what is most expensive in 
a hospital and this does not depend on the volume of patients that an 
insurer has.

                INCENTIVES TO PURCHASE HEALTH INSURANCE

    Some individuals with high incomes choose to self insure. An 
important and difficult question is whether these individuals should be 
able to get the benefits from these lower rates.
    One argument is that these individuals have voluntarily chosen to 
go without health insurance and they should pay a much higher rate if 
they get sick. A second argument is that these individuals should be 
given financial incentives to purchase health insurance and that 
lowering the hospital rates for them will only induce them to go 
without coverage.
    Although there is merit in both arguments, the question is what is 
a fair rate for them to pay when they get sick? When they need 
hospitalization they should pay a rate that is somewhat higher than 
people with health insurance coverage pay. The DRG +25% criterion meets 
this objective. This group of people should not be asked to pay for the 
bad debts of other self pay patients any more than the insured 
population. And, if the rates were reasonable they would be more likely 
to pay.

                    SIMPLIFICATION OF PAYMENT SYSTEM

    The medical care system could be simplified if such a change were 
enacted. One major change would be the elimination of the Medicare Cost 
Report. A second simplification is that it would be easier to calculate 
any discounts that hospitals are offering to low income individuals.
    The Medicare Cost Report was created in 1965 with the passage of 
the Medicare legislation and the decision by the Congress to pay costs. 
The Medicare cost report is now a document that is over 6 inches thick 
and requires many hours for hospitals to complete. However, with the 
passage of the Medicare Prospective Payment legislation in 1983 and 
subsequent adoption of additional Prospective Payment Systems for 
outpatient care etc., there is no longer a compelling reason for 
maintaining the Medicare Cost Report. Any information the Congress 
needs from hospitals to set hospital payment rates could be summarized 
in a few pages. The only relevant information is the profit of 
hospitals and some information used to calculate graduate medical 
education and disproportionate share payments.
    Hospitals often give discounts to low income self pay patients. It 
is therefore key to understand what is the basis for the discount. A 
discount from full charges is not really a discount if it is still 
greater than what insurers and managed care plans would pay. A true 
discount would be below what public and private payors are expected to 
pay. If the payment system for self pay patients were simplified (DRG + 
25%) then it would be easier for them to determine if they are really 
getting a discount and how much they were expected to pay. Currently 
the self pay person does not know the real extent of the discount or 
how much they will pay.

                                SUMMARY

    In summary, what should be done?
    Both Congress and the hospital industry should recognize that 
hospital charges are not determined by market forces. The only people 
paying full charges are those with limited or no bargaining power.
    The maximum that self pay individuals should have to pay for 
hospital services should be DRG rate plus 25%.
    I would be happy to answer any questions.

    Mr. Walden [presiding]. Thank you, Dr. Anderson, we 
appreciate your comments and testimony.
    Ms. Jacoby, you are next. Welcome.

                 TESTIMONY OF MELISSA B. JACOBY

    Ms. Jacoby. I thank the subcommittee for inviting me to 
participate today. I am a law professor, and I study contracts 
and bankruptcy, and specifically medical bankruptcy, which many 
members of the committee have already mentioned, as has my co-
panelist, and I have been researching the impact of medical 
debt, illness and injury on households of modest means, from 
the background of someone who looks at contracts and 
bankruptcy.
    The main observation I want to offer you today is this: 
Uninsured patients of modest means actually may be paying a 
steep price for what hospitals and others characterize as 
``uncompensated care.'' In other words, charging uninsured 
patients the highest prices coupled with assertive debt 
collection affects patients and their families, even if the 
hospital ultimately writes off the entire bill. And I think 
that government, industry, and individual hospital policy 
should be evaluated with this in mind.
    Millions of American families are in debtor/creditor 
relationships on account of medical care, and this certainly 
may not be problematic for those with generous incomes, high 
quality insurance and, frankly, those with good luck. Modest 
income families, on the other hand, struggle when they are 
personally liable for unexpected and undiscounted hospital 
bills. A bill of even $500 or $1,000, as many others have 
noted, can derail the budget of a working family, let alone 
bills of $5,000, $10,000, or more. And certainly it is evident 
that a lump sum often is infeasible. But even paying 
installments with accruing interest has the potential to leave 
a patient in a state of perpetual indebtedness.
    Debtor/creditor laws are not self-executing and do not 
require that creditors call, pressure, threaten, sue, garnish, 
or record liens on patients' homes in an effort to get paid, 
and hospitals may believe no harm comes from trying to collect 
before they write off the bills as bad debts or before they 
consider charity care eligibility, and the complex way of the 
laws and regulations seem to make this the easier course, but 
there is harm to patients and their families even if the 
hospital never collects a dime.
    We are finding a lot of medical related financial trouble 
in the bankruptcy system, and we do estimate that half of all 
personal bankruptcy filings are medical-related. In a study 
still underway, uninsured medical bankruptcy filers have 
reported an average of nearly $11,000 in medical bills since 
illness onset. And bankruptcy filers with most medical 
diagnoses identify hospital bills as their largest uncovered 
expense, or their largest medical expense.
    Now, bankruptcy offers some benefits, some help to 
indebtedness patients. For example, it stops debt collection 
attempts, it removes liens that hospitals may impose on homes 
under some circumstances, and discharges some debts, although 
not all, but we all know that bankruptcy has a lot of 
consequences. Among other things, it ruins credit for 10 years, 
and may affect the ability to access nonemergency health care 
in the future. No one sees bankruptcy as a solution to the 
problems that we are talking about today. And of course 
bankruptcy filers really are the tip of the iceberg. The 
financial impact of hospital billing and collection extends to 
many households with similar problems, who never do file for 
bankruptcy. For these households, like their bankrupt 
counterparts, defaulting on a hospital bill sent to collection 
results in negative credit report notations. Medical debt 
collectors actively do report to credit bureaus.
    Federal Reserve researchers who studied credit reports in 
1999 estimated that medical bills accounted for more than half 
of collection agency actions listed on credit reports. Credit 
reports also may list hospital lawsuits, judgments and liens. 
Notations related to payment history and legal action reduce 
one's credit score, and a borrower with a low credit score, 
assuming she can get credit at all, may be expected to pay as 
much as several hundred dollars more every month for credit. 
This affects home buying, refinancing, and sending kids to 
college, among other things. And, when employers or potential 
employers or landlords also access these credit reports, the 
ramifications can multiply.
    Beyond the financial impact, hospital billing and 
collection practices may have a health impact. First, debt and 
collection may induce stress, and a large body of 
interdisciplinary research suggests that stress adversely 
affects health. Second, hospital debt may affect future access 
to care. Half of medical bankruptcy filers report chronic 
health conditions. They need more care in the future like even 
those who do not have chronic conditions. Yet, health providers 
may turn away indebted or bankrupt patients, or patients may be 
too embarrassed or fearful to seek care after being subject to 
debt collection efforts.
    So, I will conclude where I started. Uninsured patients of 
modest means pay a steep price for what so often is 
characterized or even touted as uncompensated care. This is an 
important piece of the puzzle, as lawmakers, regulators, and 
health care providers work through the issues underlying this 
investigation.
    I thank the subcommittee.
    [The prepared statement of Melissa B. Jacoby follows:]

     Prepared Statement of Melissa B. Jacoby, Associate Professor, 
              University of North Carolina at Chapel Hill

    Thank you for the opportunity to participate in this important 
hearing. I approach this issue from the perspective of a law professor 
who studies and teaches bankruptcy, contracts, and related subjects. 
While as a member of the Temple University faculty in Philadelphia, and 
now as I join the faculty of the University of North Carolina at Chapel 
Hill, I have been studying the impact of indebtedness and debt 
collection on individuals and families with illness or injury.
    In the current health care environment, patients often are debtors 
of their medical providers.1 Characterizing medical 
providers as creditors means little independently; the law gives 
creditors a set of tools to coax or require their debtors to 
repay,2 but does not require that creditors use them. 
Creditors generally exercise their discretion in using, or refraining 
from using, their debt collection toolbox depending on the 
circumstances. Thus, for example, credit unions on the whole take a 
different approach to debt collection than retailers.
---------------------------------------------------------------------------
    \1\ See generally Melissa B. Jacoby, The Debtor-Patient; In Search 
of Non-Debt Alternatives, 69 Brooklyn L. Rev. (forthcoming 2004). 
Courts routinely characterize patients and providers as debtors and 
creditors. See, e.g., Trevino v. HHL Financial Services, 945 P.2d 1345, 
1348-1349 (Colo. 1997) (describing hospital as patient's creditor, as 
patient received medical care for which he agreed to pay); Porter v. 
McPherson, 479 S.E.2d 668, 673, 675 (W. Va. 1996); Bashara v. Baptist 
Mem. Hosp. Syst., 685 S.W. 2d 307, 310-311 (Tex. 1985) (describing 
hospital patient relationship as debtor-creditor relationship).
    \2\ Those tools include informal communications and threats, along 
with more formal approaches invoking the power of the state, such as 
filing lawsuits and instructing the sheriff to levy on property.
---------------------------------------------------------------------------
    A confluence of circumstances makes the hospital billing and 
collection situation particularly troubling. Hospitals have zealously 
used their debt collection toolbox even against patients who did not 
expect this liability (at all, or of this magnitude), are of modest 
means,3 and may be suffering income loss alongside their 
illness or injury.4 Hospitals engage in debt collection 
activities amidst allegations that these practices conflict with their 
missions, and despite arguments that they already receive significant 
governmental support to subsidize their care of modest income patients. 
To the extent that hospitals pursue collection before dispositively 
determining charity care eligibility,5 some patients subject 
to collection for undiscounted bills never should have been considered 
debtors in the first place.6
---------------------------------------------------------------------------
    \3\ For a striking study showing low incomes of patients written 
off as bad debt after failed collection, see Joel S. Weissman, Paul 
Dryfoos, & Katharine London, Income Levels of Bad-Debt and Free-Care 
Patients in Massachusetts Hospitals; Does uncompensated care serve the 
truly needy, 18 Health Affairs 156, 161 (1999). Yet, even uninsured and 
underinsured families better described as middle class have trouble 
paying hospital bills. Middle income households already have committed 
their incomes to important fixed costs such as housing, transportation, 
and child care, leaving little or no cushion. See Elizabeth Warren and 
Amelia Warren Tyagi, The Two-Income Trap: Why Middle-Class Mothers & 
Fathers Are Going Broke (2003).
    \4\ See, e.g., Melissa B. Jacoby, Collecting Debts from the Ill and 
Injured; The Rhetorical Significance, but Practical Irrelevance, of 
Culpability and Ability to Pay, 51 Am. U. L. Rev. 229, 238 (2001) 
(overlap in debtors reporting job problems and medical problems in 
chapter 13 bankruptcy); Melissa B. Jacoby, Teresa A. Sullivan & 
Elizabeth Warren, Rethinking the Debates Over Health Care Financing: 
Evidence From the Bankruptcy Courts, 76 N.Y.U. L. Rev. 375, 408 (2001) 
(overlap in debtors reporting job problems and medical problems).
    \5\ See, e.g., Ray B. Lefton, Developing Organizational Charity-
Care Policies and Procedures, Health Care Financial Management 52, 54-
55 (April 2002) (describing hospital policies that permit collection 
attempts to proceed against charity care accounts); Health Care 
Financial Management Association, Principles and Practices Board 
Statement Number 15, Valuation and Financial Statement Presentation of 
Charity Service and Bad Debts By Institutional Healthcare Providers, 
available at www.hfma.org/resource/P_and_P_board/Statement_15.htm (last 
accessed June 1, 2004) (describing debt collection activity as part of 
``information gathering process'' to determine charity care 
eligibility).
    \6\ See, e.g., Universal Health Care Action Network of Ohio, A Well 
Kept-Secret: The Challenge of Finding Out About Hospital Free Care in 
Cleveland Ohio (Oct. 2003). They also may have been eligible but not 
enrolled in other programs that would have covered part or all of the 
costs of their care. See generally General Accounting Office, Means 
Tested Programs: Determining Financial Eligibility is Cumbersome and 
Can Be Simplified, GAO-02-58 (November 2001); Barents Group LLC, Final 
Report On ``Review of the Literature On Evaluations of Outreach for 
Public Health Insurance and Selected Other Programs'' (Mar. 31, 2002), 
available at www.cms.hhs.gov/schip/outreach/rpt33100.pdf; Jennifer P. 
Stuber, Kathleen A. Maloy, Sara Rosenbaum & Karen C. Jones, Beyond 
Stigma: What Barriers Actually Affect the Decisions of Low-Income 
Families to Enroll in Medicaid? (The George Washington University 
Medical Center, Issue Brief, July 2000); Dahlia K. Remler, Jason E. 
Rachlin & Sherry A. Glied, What Can the Take-Up of Other Programs Teach 
Us About How To Improve Take-Up of Health Insurance Programs? (National 
Bureau of Economic Research, Working Paper No. 8185, Mar. 2001); 
Michael J. Perry, Evan Stark & R. Burciaga Valdez, The Henry J. Kaiser 
Family Foundation, Barriers To Medi-Cal Enrollment and Ideas for 
Improving Enrollment: Findings From Eight Focus Groups In California 
With Parents of Potentially Eligible Children (Sept. 1998), available 
at www.kff.org/medicaid/1436-index.cfm; Michael Perry, Susan Kannel, R. 
Burciaga Valdez & Chrstina Chang, The Henry J. Kaiser Family 
Foundation, Medicaid and Children Overcoming Barriers to Enrollment: 
Findings from a National Survey (Jan. 2000), available at www.kff.org/
medicaid/2174-index.cfm.
---------------------------------------------------------------------------
    The patient-hospital debtor-creditor relationship is different from 
many others in its origin. If a consumer does not like the terms a 
store offers for the purchase of a television, we expect that the 
consumer should be able to walk away. As one court put it, however, 
when a loved one legitimately needs medical care, ``the option of 
walking away from the deal [is] simply unrealistic.'' 7 
Patients or family members often seek hospital care and sign various 
hospital documents and agreements under trying 
circumstances.8 These documents--frequently the basis of the 
hospital's creditor status 9--may require that the patient 
or loved one promise to pay the full-charge rate, and sometimes have 
required payment of attorneys' fees, costs, interest, or even 
penalties, if the bill goes to collection.
---------------------------------------------------------------------------
    \7\ Valley Hospital v. Kroll, 2003 WL 23416577 (N.J. Super. 2003) 
(``terms contained in the form were non-negotiable. The hospital 
clearly exercised a decisive advantage in bargaining. Prior to any 
treatment, a patient--or in this case someone acting on his behalf--was 
compelled to sign it. The patient was in no position to reject the 
proffered agreement, to bargain with the hospital, or, in lieu of 
agreement, to find another hospital'').
    \8\ For example, a mother rushed her son to the hospital after an 
accident left him unconscious and bleeding. After the hospital sued her 
for payment, she explained that ``I signed where she told me to sign, 
so they would give him medical treatment because he needed it because 
he was bleeding out of his ears, out of his mouth, the bone out of his 
elbow was sticking out through the skin.'' Heartland Health Systems v. 
Chamberlin, 871 S.W.2d 8, 11 (Mo. App. W.D. 1993) (holding patient's 
mother liable under terms of admission agreement based on her 
signature). See also Bethesda Hospital v. Kessnick, 174 B.R. 481 (S.D. 
Ohio 1994) (hospital acknowledging that father signed form during very 
stressful time upon daughter's admittance to hospital).
    \9\ But see, e.g., Doe v. HCA Health Services of Tennessee, Inc, 46 
S.W.3d 191 (Tenn. 2001) (refusing to enforce hospital debt on basis of 
agreement due to indefinite price term, but considering value of 
services for purposes of holding patient liable on quantum meruit/
unjust enrichment theory).
---------------------------------------------------------------------------
    Hospital decision-makers may believe there is little harm in 
charging full price and trying to collect before writing off these 
accounts as bad debt. Hospitals also may be responding to incentives 
built into the complex regulatory environment; even if current law and 
regulations do not expressly preclude discounts and more lenient 
collection practices, it likely is easier to ensure compliance with the 
regulatory scheme by imposing full charges and engaging in assertive 
collection.
    Given this situation, it is important to set the record straight: 
hospital billing and collection practices can adversely affect patients 
and their families whether or not those practices produce payment or 
ultimately are written off as bad debt.
1. Hospital collection activity has credit report implications
    Medical bill collection activity hurts patients' credit rating 
whether or not the activity produces payment for the hospital. In the 
words of Federal Reserve researchers, ``[p]erhaps the most important 
factors considered in credit evaluation are a consumer's history of 
repaying loans and any evidence of money-related public actions or non-
credit-related collections.'' 10 These researchers estimated 
that medical bills accounted for nearly one fifth (18.2%) of court 
judgments recorded on credit reports, and more than half (52.2%) of 
collection agency actions reported to credit bureaus, many for rather 
small amounts of money.11 When a collection agency action, 
lawsuit, judgment, and lien all are listed on a patient's credit 
report, the adverse effects of one default not only multiply, but 
linger.12
---------------------------------------------------------------------------
    \10\ Robert B. Avery, Paul S. Calem, Glenn B. Canner & Raphael W. 
Bostic, An Overview of Consumer Data and Credit Reporting, Federal 
Reserve Bulletin 47, 60-61 (Feb. 2003) (emphasis added); My FICO (a 
division of Fair Isaac), www.myfico.com (reporting on credit history 
components, including judgments and liens).
    \11\ Robert B. Avery, Paul S. Calem, Glenn B. Canner & Raphael W. 
Bostic, An Overview of Consumer Data and Credit Reporting, Federal 
Reserve Bulletin 47, 67, 69 (Feb. 2003). See also Sara R. Collins et. 
al, The Affordability Crisis in U.S. Healthcare: Findings from the 
Commonwealth Fund Biennial Health Insurance Survey, The Commonwealth 
Fund Issue Brief #723 17-19 (March 2004); S. Felt-List, M. McHugh, & E. 
Howell, Monitoring Local Safety-Net Providers: Do They Have Adequate 
Capacity? 21 Health Affairs 277 (Sept/Oct. 2002) (reporting on 
collection agency contacting the uninsured).
    \12\ Accounts placed for collection, civil suits, and judgments can 
be reported for seven years for most purposes, but the seven-year 
period starts and ends at different times for each notation. Fair 
Credit Reporting Act  605, 15 U.S.C.  1681c. Information about 
failure to pay medical debts will affect credit nothwithstanding the 
fact that recent amendments to the Fair Credit Reporting Act impose 
additional conditions on the handling of medical information.
---------------------------------------------------------------------------
    As suggested above, the credit report and credit score are key 
determinants of whether a patient will receive credit and, if so, what 
the terms will be.13 In addition, the Fair Credit Reporting 
Act permits credit reports to be used for a variety of other purposes, 
such as employment-related inquiries.14 Thus, one expensive 
trip to a hospital, followed by zealous collection and reporting, can 
bring about a host of unexpected negative effects.
---------------------------------------------------------------------------
    \13\ Regularly updated charts on the ``My Fico'' website show that 
a borrower can pay several hundred dollars more on a loan each month 
because of a low credit score. www.myfico.com (last accessed June 4, 
2004).
    \14\ See, e.g., Fair Credit Reporting Act  604, 15 U.S.C.  1681b 
(listing permissible purposes of furnishing consumer report, including 
employment purposes, and specifying conditions); id at  1681k 
(procedures relating to reporting of public record information for 
employment-related inquiries).
---------------------------------------------------------------------------
2. Large medical debts and collection activity contribute to bankruptcy
    Bankruptcy researchers have discovered that almost half of personal 
bankruptcy filers have significant medical debts and/or say that 
illness or injury was a reason for their bankruptcies.15 A 
variety of studies find between one third to more than half of 
bankruptcy filers owed debts directly to medical providers at the time 
of filing,16 and these understate the problem because they 
do not include medical bills charged to credit cards or rolled into 
home mortgage loans. Bankruptcy filers sixty-five or older had the 
highest rate of reporting that illness or injury was a reason for 
filing bankruptcy.17
---------------------------------------------------------------------------
    \15\ See Melissa B. Jacoby, Teresa A. Sullivan, & Elizabeth Warren, 
Rethinking the Debates Over Health Care Financing: Evidence From the 
Bankruptcy Courts, 76 N.Y.U. L. Rev. 375 (2001) (46.2% medical-related 
filings); Bruce Jancin, Medical Bills Cited in 55% of U.S. Bankruptcy 
Cases, Skin and Allergy News (Aug 2003).
    \16\ See, e.g., Hugh F. Daly III, Leslie M. Oblak, Robert W. 
Seifert & Kimberly Shellenberger, Into the Red To Stay in the Pink: The 
Hidden Cost of Being Uninsured, 12 Health Matrix 39, 56 (2002) (47% 
with medical debt among Legal Aid Society of Greater Cincinnati clients 
who sought assistance with bankruptcy filings in 2000-2001); Ed Flynn & 
Gordon Bermant, The Class of 2000, Am. Bankr. Inst. J., Oct. 2001 
(56.2% of chapter 7 no-asset bankruptcy filers with medical debt on 
bankruptcy schedules); Melissa B. Jacoby, Teresa A. Sullivan & 
Elizabeth Warren, Rethinking the Debates Over Health Care Financing: 
Evidence From the Bankruptcy Courts, 76 N.Y.U. L. Rev. 375, 387 (2001) 
(31.2% reported owing money to ``health care providers, services, 
supplies'' at time of filing bankruptcy); Champaign County Health Care 
Consumers Medical Billing Task Force, How Medical Debt Affects 
Champaign County Consumers; A Community Report on Medical Debt-Related 
Bankruptcies and Small Claims Lawsuits (July 11, 2002) (58% of cases in 
Central District of Illinois in December 2001 involved debts owed to 
medical providers). For a less recent study finding a high incidence of 
medical debt, see Susan D. Kovac, Judgment-Proof Debtors in Bankruptcy, 
65 Am. Bankr. L. J. 675 (1991) (80% of judgment proof chapter 7 debtors 
in Tennessee district had medical debt, with mean amount of over $7,800 
in mid-1980s). In a recent study, one couple owed $200,000 of medical 
bills not covered by insurance, while another debtor accrued $20,000 
debt a year for care of her husband who had been in a coma for five 
years. See Melissa B. Jacoby, Collecting Debts from the Ill and 
Injured; The Rhetorical Significance, but Practical Irrelevance, of 
Culpability and Ability to Pay, 51 Am. U. L. Rev. 229, 248-249 (2001).
    \17\ See Melissa B. Jacoby, Teresa A. Sullivan, & Elizabeth Warren, 
Rethinking the Debates Over Health Care Financing: Evidence From the 
Bankruptcy Courts, 76 N.Y.U. L. Rev. 375, 397-398 (2001).
---------------------------------------------------------------------------
    Even insured patients may see their credit ruined through medical-
related bankruptcy.18 The majority of those in medical-
related bankruptcy say they have some insurance at the time of 
filing.19 Among married joint bankruptcy filers who were 
insured at the time of their bankruptcy filings, almost 40% reported 
owing debt to a provider of medical services or supplies.20
---------------------------------------------------------------------------
    \18\ See, e.g., Fair Credit Reporting Act,  605, 15 U.S.C.  1681c 
(permitting bankruptcy cases to be listed for ten years ``from the date 
of the entry of the order for relief or the date of adjudication).
    \19\ See Melissa B. Jacoby, Teresa A. Sullivan, & Elizabeth Warren, 
Rethinking the Debates over Health Care Financing: Evidence from the 
Bankruptcy Courts, 76 N.Y.U. L. Rev. 375, 399-400 (2001). Whether they 
experienced gaps in insurance, however, is an important question that 
warrants further study. See generally Congressional Budget Office, How 
Many People Lack Health Insurance and For How Long? (May 2003) (nearly 
60 million people were uninsured at any point within 1998); Hearing on 
the Uninsured, Committee on Ways and Means Subcommittee on Health 
(March 9, 2004) (statement of Douglas Holtz-Eakin, Director of the 
Congressional Budget Office, figure 1).
    \20\ See Melissa B. Jacoby, The Debtor-Patient; In Search of Non-
Debt Alternatives, 69 Brooklyn L. Rev. table 1 (forthcoming 2004).
---------------------------------------------------------------------------
3. Large hospital debts and collection activities adversely affect 
        patient health
    In addition to financial costs, patients suffer health-related 
costs from hospital bills.21 The first relates to the health 
impact of stress.22 Some researchers are concerned 
specifically about the negative impact of indebtedness and related 
financial trouble on certain diseases or conditions.23
---------------------------------------------------------------------------
    \21\ See generally Melissa B. Jacoby, Does Indebtedness Influence 
Health? A Preliminary Inquiry, 30 J. L. Med. & Ethics 560 (2002).
    \22\ See generally M. Katz, Stress, Control, and Psychological 
Interventions, in Stress and Health Among the Elderly (M.L. Kykle et. 
al, eds., 1992); W.R. Lovallo, Stress and Health; Biological and 
Psychological Interactions (1997); A. O'Leary et. al, Stress and Immune 
Function, in Clinical Disorders and Stressful Life Events (T.W. Miller 
ed., 1997); Steven C. Ames, Glenn N. Jones, & Phillip J. Brantley, A 
Prospective Study of the Impact of Stress on Quality of Life: An 
Investigation of Low-Income Individuals with Hypertension, 23 Ann. 
Behav. Med. 112 (2001); P.A. Barnett, J.D. Spence, & J.R. Jennings, 
Psychological Stress and the Progression of Carotid Artery Disease, 15 
J. Hypertens. 49 (1997).
    \23\ See, e.g., Patricia Drentea and Paul J. Lavrakas, Over the 
Limit: The Association Among Health, Race and Debt, 50 Social Science 
and Med. 517 (2000); Simon Hatcher, Debt and Deliberate Self Poisoning, 
164 British J. Psychiatry 111 (1994); Richard Reading & Shirley 
Reynolds, Debt, Social Disadvantage and Maternal Depression, 53 Social 
Science & Med. 441 (2001); Steven Hope, Chris Power, & Bryan Rodgers, 
Does Financial Hardship Account for Elevated Psychological Distress in 
Lone Mothers?, 49 Social Science & Med. 1637 (1999); G.W. Brown & P.M. 
Moran, Single Mothers, Poverty and Depression, 27 Psychological Med. 21 
(1997); Robert J. Havlik, Allexander P. Vukasin, & Stephan Ariyan, The 
Impact of Stress on the Clinical Presentation of Melanoma, 90 Plastic 
and Reconstructive Surgery 57 (1992); Hilary Graham & Clare Blackburn, 
The Socio-Economic Patterning of Health and Smoking Behavior Among 
Mothers With Young Children on Income Support, 20 Sociology of Health & 
Illness 215 (1998); H.G. Morgan et. al, Deliberate Self-Harm: Clinical 
and Socio-economic characteristics of 368 Patients, 127 British J. 
Psychiatry 564 (1975); J.H.J Bankroft et al, The Reasons People Give 
for Taking Overdoses, 128 British J. Psychiatry 538 (1968). See also 
Gillian Parker, Getting and Spending: Credit and Debt in Britain 
(1990); David Caplovitz, Consumers in Trouble: A Study of Debtors in 
Default (1974); M. Ryan, Social Work and Debt Problems (1996); E. 
Kempson et al, Hard Times? How Poor Families Make Ends Meet (1994).
---------------------------------------------------------------------------
    Owing a significant debt can be stressful on its own. The stress is 
exacerbated, however, by a zealously pursued debt collection process. 
While still in a hospital bed, a patient may receive a visit from a 
hospital representative to discuss payment.24 Once home, the 
patient may start to receive letters and phone calls proposing ways of 
taking care of the bill. The calls will get pressing when the first 
debt collector takes over,25 and get even more assertive if 
the hospital enlists the services of a secondary debt 
collector.26 Debt collectors will threaten to report the 
patient's delinquency to credit bureaus and/or threaten to file a 
lawsuit. If they follow through on the latter,27 the 
litigation process itself can be intimidating. Although liability is 
determined quickly in many cases, other cases--and the associated 
stress and uncertainty--linger for years after the original 
hospitalization.28
---------------------------------------------------------------------------
    \24\ See Rhonda L. Rundle & Paul Davies, Hospitals Start to Seek 
Payment Upfront, Wall. St. J., June 2, 2004, at D1; Patrick Reilly, 
Extracting Payment; Hospitals try collecting before patients leave ER, 
Modern Healthcare, Nov. 17, 2003, at 8.
    \25\ Healthcare collection is its own segment of the collection 
industry. See, e.g., ACA International, The Association of Credit and 
Collection Professionals, Collections Information, available at 
www.acainternational.org (last updated 2/16/04); ACA International, The 
Association of Credit and Collection Professionals, Healthcare 
Collections (last updated 3/1/04). Hospitals mostly pay their 
collectors on contingency. See id.; Tom Jajny, The What, Why and When 
of Collecting Patient Balances, Medical Practice Management, July/Aug/
2003, at 33. Debt collectors of course are expected to act within the 
limits permitted by the Fair Debt Collection Practices Act and related 
laws. See, e.g., Federal Trade Commission Bureau of Consumer Protection 
Opinion Letter to J. Russell Gibson, III (February 21, 1990) available 
at www.ftc.gov/os/statutes/fdcpa/letters/gibson90.htm (opinion letter 
on whether ``day 1'' ``pre-collection'' services for hospital fall 
within FDCPA); Federal Trade Commission Bureau of Consumer Protection 
Opinion Letter to Thomas Isgrigg (November 10, 1992) available at 
www.ftc.gov/os/statutes/fdcpa/letters/isgrigg1.htm (opinion letter on 
whether activities of agency with respect to delinquent medical 
accounts fall within FDCPA).
    \26\ Robert M. Frohlich, Effective reassignment of accounts can 
decrease bad debt, Healthcare Financial Management 36, 37 (1994) 
(describing use of subsequent collection agency placements, lawsuits, 
and credit bureau reporting).
    \27\ See, e.g., Champaign County Health Care Consumers Medical 
Billing Task Force, How Medical Debt Affects Champaign County 
Consumers; A Community Report on Medical Debt-Related Bankruptcies and 
Small Claims Lawsuits (July 11, 2002) (in study of small claims court 
records, finding 20% of plaintiffs were not-for-profit health 
providers).
    \28\ See, e.g., County of Santa Clara v. Vargas, 139 Cal. Rptr. 537 
(Cal. App. 1977) (medical care given in 1969, payments made until 1974, 
and this case report published in 1977); Mercy Hospital, Inc. v. Carr, 
297 So.2d 598 (Fla. App. 1974) (published appeal in 1974 for debt 
incurred in 1968); Orthopedic & Reconstructive Surgery, S.C. v. 
Kezelis, 496 N.E.2d 1112 (Ill. App.1986) (reported decision in 1986 for 
dispute over medical bill for services in 1978).
---------------------------------------------------------------------------
    Whether or not the lawsuit results in a court judgment, concerns 
about the magnitude of the hospital bill may increase if the patient's 
liability includes court costs, execution costs, and perhaps even the 
hospital's attorneys' fees. 29 Patients also understandably 
fear what comes after a court judgment: a judgment entitles a creditor 
to garnish wages, attach bank accounts, or direct a sheriff to levy on 
property within limits imposed by state and federal exemption laws. 
Even if a patient has property of little value, the prospects of loss 
can be frightening and devastating.30
---------------------------------------------------------------------------
    \29\ See, e.g., Sholkoff v. Boca Raton Community Hospital, Inc., 
693 So.2d 1114 (Fla. App. 1997) (interpreting and upholding patient 
authorization agreement imposing collection costs, attorneys' fees, and 
interest at the ``highest rate permitted by law'' if patient does not 
pay in full within 45 days). See generally William J. Woodward Jr., 
Enforcements of Money Judgments: Objectives and Restrictions, in 9 
Debtor-Creditor Law 37-24 (Theodore Eisenberg, ed. 1990) (discussing 
allocation of costs).
    \30\ Even among the lowest income quintile, 40.6% of families owned 
houses and 56.8% owned cars according to the 2001 Survey of Consumer 
Finance. Arthur B. Kennickell et. al, Recent Changes in U.S. Family 
Finances: Evidence from the 1998 and 2001 Survey of Consumer Finance, 
Federal Reserve Bulletin 1, 19 (Jan. 2003).
---------------------------------------------------------------------------
    Aside from the health impact of stress, large medical debts can 
dampen a patient's likelihood of receiving future medical care. Medical 
providers may refuse to give non-emergency care, or patients indebted 
for prior care may fear to seek more.31 This is especially 
troubling for patients with chronic problems. Debt, therefore, may 
exacerbate the health care access problems experienced by the uninsured 
and underinsured.32 Large hospital debts and related 
financial distress also make it harder to afford adequate food, safe 
housing and other basic necessities.33
---------------------------------------------------------------------------
    \31\ D. Andrulus et. al, Paying for Health Care When You're 
Uninsured: How Much Support Does the Safety Net Offer?, The Access 
Project (Jan. 2003); Bruce Jancin, Medical Bills Cited in 55% of U.S. 
Bankruptcy Cases, Skin and Allergy News (Aug 2003); Elizabeth Warren & 
Amelia Warren Tyagi, The Two-Income Trap; Why Middle-Class Mothers and 
Fathers Are Going Broke (2003); D. Gurewich, R. Seifert, & J. Prottas, 
The Consequences of Medical Debt: Evidence from Three Communities, The 
Access Project (Feb. 2003); Carol Pryor & Deborah Gurewich, Getting 
Care But Paying the Price; How Medical Debt Leaves Many in 
Massachusetts Facing Tough Choices, The Access Project (Feb. 2004).
    \32\ See, e.g., U.S. Census Bureau, Supplemental Measures of 
Material Well-Being: Expenditures, Consumption, and Poverty 1998 and 
2001, P23-201, 10 (Sept. 2003) (reporting on percentage of families who 
needed to visit doctor or hospital but did not go); John Z. Ayanian et. 
al, Unmet Health Needs of Uninsured Adults in the United States, 284 J. 
Am. Med. Ass'n 2061 (2000) (nearly \2/5\ of long term uninsured adults 
and 1/3 of short term uninsured adults reported not being able to see 
physician when needed in the past year due to cost).
    \33\ See generally Sara R. Collins et. al, The Affordability Crisis 
in U.S. Healthcare: Findings from the Commonwealth Fund Biennial Health 
Insurance Survey, The Commonwealth Fund Issue Brief #723 (March 2004); 
Carol Pryor & Deborah Gurewich, Getting Care But Paying the Price; How 
Medical Debt Leaves Many in Massachusetts Facing Tough Choices, The 
Access Project (Feb. 2004). See also U.S. Census Bureau, Supplemental 
Measures of Material Well-Being: Expenditures, Consumption, and Poverty 
1998 and 2001, P23-201 (Sept. 2003) (reporting on households living 
with inadequate food, in homes with leaky roofs, and in neighborhoods 
with abandoned buildings, smoke or fumes, and where they are afraid to 
walk at night).
---------------------------------------------------------------------------
4. Large hospital debts and collection activity directly affect 
        patients' families
    The financial and health effects of hospital bills and debt 
collection are not limited to patients. They apply to their loved ones 
as well. This is particularly true when hospitals seek to hold family 
members liable for patients' care. As noted previously, hospitals 
sometimes do so on the basis of signatures on admission forms. For 
example, in one case, an eighty-year-old widow was mourning the death 
of her husband, who had suffered several debilitating illnesses, when 
the hospital sued her for more than $257,000 for his hospital bills 
based on her signature.34 Other times, hospitals seek to 
hold spouses liable on other grounds, such as the doctrine of 
necessaries.35 Even if the spouse is ultimately is not held 
liable, he or she has been placed through an additional ordeal at a 
time of great emotional distress.
---------------------------------------------------------------------------
    \34\ See Valley Hospital v. Kroll, 2003 WL 23416577 (N.J. Super. 
April 17, 2003). Medicare and Medigap had paid the hospital hundreds of 
thousands of dollars, but the hospital argued it could balance bill the 
patient's widow for its full charge once Medicare Part A benefits had 
been exhausted. Nearly three years later, the court granted partial 
summary judgment in favor of the patient's widow on the balance billing 
issue.
    \35\ According to courts and commentators, hospitals have been the 
principal users of the doctrine of necessaries, leading to the 
conclusion that this doctrine is more of a hospital debt collection 
device than a spousal support device. See Medical Center Hospital of 
Vermont v. Lorrain, 675 A.2d 1326, 1329 (Vt 1996) (``virtually all 
necessaries cases are hospitals seeking payment, often due to last 
illness''); Shawn M. Willson, Comment, Abrogating the Doctrine of 
Necessaries in Florida: The Future of Spousal Liablity for Necessary 
Expenses After Connor v. Southwest Florida Regional Medical Center, 
Inc., 24 Fla. St. U. L. Rev. 1031, 1043 (1997) (``In the last fifty 
years, all of the Florida cases in which a party invoked the doctrine 
involved unpaid medical expenses. In case after case, hospitals sought 
to trap an unwilling spouse into making payment on a debt for which he 
or she did not contract''). However, some state courts abolished the 
doctrine of necessaries on constitutional grounds, leaving to the 
legislatures whether to enact a gender-neutral statute. See, e.g., 
North Ottawa Community Hospital v. Kieft, 578 N.W.2d 267, 273 (Mich. 
1998) (holding doctrine of necessaries no longer is part of Michigan's 
common law, and thus ``neither husband nor a wife is liable, absent 
express agreement, for necessaries supplied to the other'').
---------------------------------------------------------------------------
5. Medical-related financial products are not necessarily the solution
    Various studies have observed the use of third party credit for 
medical bills.36 This shifts the burden of collection and 
risk of non-payment away from the medical provider. Providers 
understandably find this prospect attractive even though they incur 
costs associated with processing credit card charges.37
---------------------------------------------------------------------------
    \36\ See, e.g., Sara R. Collins et. al, The Affordability Crisis in 
U.S. Healthcare: Findings from the Commonwealth Fund Biennial Health 
Insurance Survey, The Commonwealth Fund Issue Brief #723 (March 2004) 
(among those with medical debt, approximately one fifth ran up credit 
card debt or incurred debt secured by home); Glenn B. Canner et. al., 
Recent Developments In Home Equity Lending, 84 Federal Reserve Bulletin 
241, 248 tbl.8 (1998) (increase in borrowers indicating medical 
expenses as use for home equity lines of credit and loans); Peter J. 
Brady et. al, The Effects of Recent Mortgage Refinancing, Federal 
Reserve Bulletin 441, 446 (July 2000) (39% of 1998 and early 1999 
refinancings used for consumer expenditures, which includes medical 
expenses among a list of other things). This is not an entirely new 
phenomenon, however. Even a study in the 1970s found medical costs a 
major reason for consumers taking out personal loans. Thomas A. Durkin 
& Gregory E. Eliehausen, 1977 Consumer Credit Survey, 80, table 15.1 
(Washington DC Federal Reserve Board, 1978).
    \37\ See, e.g., Julie A. Jacob, Credit to your practice: Letting 
patients pay with plastic, American Medical News, July 29, 2002.
---------------------------------------------------------------------------
    Some health care providers and third parties are taking this to the 
next level: they are joining forces to offer medical-specific credit 
products to patients.38 Many of these products do not shift 
the risk of non-payment entirely away from providers, but the risks and 
burdens on the whole seem far lower for providers than those associated 
with the traditional billing and collection process.
---------------------------------------------------------------------------
    \38\ See, e.g., Tyler Chin, In the cards: Getting Paid with 
Plastic; Innovations in the credit and debit card industry are giving 
physicians new options for collecting bills, American Medical News, 
Jan. 12, 2004; Mike Stobbe, Credit card agency cuts hospitals' losses, 
The Charlotte Observer, July 11, 2003; www.accessonemedcard.com; 
Michael Unger, Just What the Doctor Ordered; Schein's One-Stop Service 
Ranges from Equipment to Personal Finance, Newsday, Dec. 30, 1996, at 
C7 (discussing MedCash credit cards, with interest rates eventually 
rising to 19%); News Release, PracticeXpert Launches Pxpert Medical 
Credit Card Program (Sept. 4, 2003) (acquiring delinquent accounts from 
physician and transferring balance to credit card, which can be used 
for other purchases as patient re-pays); News Release, King Thomason 
Group Enters into Agreement With Medical Capital Corporation to Market 
KTG's TotalCare Medical Accounts Receivable Credit Card Program (April 
23,2004); www.kgth.com/main/totalrecovery.htm (citing 95% approval rate 
for private pay patients); Citibank Health Card Program, 
www.citibank.com/us/cards/cardserv/healthcrd/cons--benefits.htm (card 
for family health needs, offering 3 month interest free period with 
rate of nearly 22% thereafter, and default interest rate of over 25%); 
HELPCard, www.helpcard.com (interest rate of prime plus 11.9%); 
www.healthEZ.com (encouraging employers to offer to employees as 
supplement to health plans); DeeDee DePass, How HealthEZ Got Fit, Star 
Tribune, www.carecredit.com.
---------------------------------------------------------------------------
    These products have received little systematic attention at this 
point and they raise a host of issues. According to a quote in the 
American Medical News, the director of the American Medical Association 
Institute for Ethics worries that these products may result in 
``further commercialization of the patient-physician relationship,'' 
and that cards targeted toward those with poor credit histories ``are 
in essence endorsing the idea that impoverished patients who have the 
worst credit history should sign up for another credit card, which by 
the way will pay [medical providers] off first.'' 39
---------------------------------------------------------------------------
    \39\ Tyler Chin, In the cards: Getting Paid with Plastic; 
Innovations in the credit and debit card industry are giving physicians 
new options for collecting bills, American Medical News, Jan. 12, 2004.
---------------------------------------------------------------------------
    For purposes of this hearing, however, it suffices to say that 
these products do not seem to address the needs of uninsured hospital 
patients. A $40,000 credit card bill is not much better than a $40,000 
hospital bill, and may be worse. Some medical credit products offer 
interest free installments for limited periods, but the interest rates 
jump to 20% or higher thereafter. Even at a lower interest rate, the 
patient may face a perpetual oppressive obligation.40 To the 
extent lenders and providers encourage medical-specific home equity 
products, it is worth noting that undiscounted hospital bills rolled 
into home mortgage loans raise the stakes further; home equity loans 
for large medical bills reduce retirement security through the loss of 
equity, and may lead to home loss altogether.41
---------------------------------------------------------------------------
    \40\ This essentially was the problem experienced by Quinton White 
with respect to his hospital bill payment plan. See Lucette Lagnado, 
Twenty Years and Still Paying; Jeanette White is Long Dead But Her 
Hospital Bill Lives On; Interest Charges, Legal Fees, Wall St. J., 
March 13, 2003, at B1; Lucette Lagnado, Twenty Years--and He Isn't 
Paying Any More, Wall St. J., April 1, 2003, at B1.
    \41\ See, e.g., Federal Trade Commission, Facts for Consumers, 
cNeed a Loan? Think Twice About Using Your Home as Collateral, 
available at www.ftc.gov/bcp/conline/pubs/hoepa.htm (last accessed June 
4, 2004).
---------------------------------------------------------------------------
    In addition, one again needs to consider the credit report 
implications. Credit cards and loans are trade accounts that have a 
wider range of credit-rating effects than medical debts. Thus, in 
addition to all of the previously discussed effects of medical debt, 
the mere existence of a trade account can affect the patient's credit 
score, particularly if the liability is large or if the patient 
recently opened other accounts. In addition, the lender is likely to 
regularly report any lateness in repayment, further affecting the 
patient's credit rating. Given these risks, medical-specific credit 
products are not likely to offer the solution to the problems being 
discussed today.
    Thank you again for the opportunity to participate in this 
important hearing. I would be glad to help the Subcommittee however I 
can.

    Mr. Walden. Thank you for your testimony, we appreciate it.
    Mr. Rukavina, we appreciate your being here today, and look 
forward to your comments.

                   TESTIMONY OF MARK RUKAVINA

    Mr. Rukavina. Thank you, and I would like to thank the 
subcommittee for this opportunity today. I am the Executive 
Director of The Access Project. We are a national resource 
center working with local groups that are trying to expand 
access to health care, and over the past few years we have 
produced a number of reports on medical debt.
    Medical debt is an enormous problem in this country. The 
Commonwealth Fund recent survey identified that half of 
Americans with no health insurance had problems related to 
medical bills or accrued medical debt. And maybe surprising to 
some here today, more than half of the uninsured experiencing 
these problems used all or most of their savings to pay medical 
bills.
    I would like to make three main points, then offer some 
recommendations. First, the uninsured are charged the highest 
fees for care. They are given a raw deal when it comes to 
hospital billing. Though many uninsured patients get the 
necessary medical treatment that they need from hospitals, they 
are charged the highest fees for that care. Paying for medical 
care is a burden, it is crushing for the uninsured. People with 
insurance pay a discounted rate, but uninsured patients pay 
full charges.
    The Wall Street Journal reported on a 25-year-old uninsured 
woman from New York City, who was billed $14,000, not including 
doctor's fee, for a 2-day appendectomy stay. Medicaid would 
have paid about $5,000 for this procedure, and Medicare just 
under $8,000. She was ineligible for either program and was 
charged the full rate. This is wrong, and it is not isolated to 
New York State.
    For years, as we have heard, hospitals have blamed this 
unfair practice on Federal Medicare rules and regulations. We 
were pleased when earlier this year Secretary Thompson 
clarified that hospitals could offer discounts to uninsured 
patients. Hopefully this will bring an end to the practice of 
price gouging uninsured patients, but discounting fees will not 
be enough.
    My second point is that the uninsured need help to pay for 
their medical care, and to enroll in existing financial 
assistance programs. Most uninsured patients are not able to 
pay for their care in full. Fortunately, for some of the 
uninsured, programs exist to help them, programs like Medicaid, 
children's health insurance programs, and the hospital's own 
charity care policies. But many uninsured patients are simply 
unaware of these programs, and they need help in applying for 
them. Too few hospitals provide such assistance, but it doesn't 
have to be this way.
    We found a very effective program at Cooley Dickinson 
Hospital in Northampton, Massachusetts. Hospital case managers 
visit each uninsured patient and review their individual health 
care needs. They help patients complete program applications, 
they refer them to a local network of physicians offering care 
on a sliding fee scale, and they help them apply for hospital 
charity care. They have enrolled hundreds of patients in 
Medicaid and other programs. The hospitals gain needed 
revenues, the patients avoid crushing debt, both are better 
off.
    The crucial point here is that case managers review payment 
alternatives with patients at the front-end of the process, not 
when bill collectors are pounding on their doors. Without such 
help, many patients would be reluctant to go back to the 
hospital.
    My final point is that the uninsured are intimidated and 
harmed by overly aggressive collection practices. Some 
collection tactics used by hospitals are simply deplorable. 
Aggressive practices have been well documented, we have heard 
of some of them already today. Patients have been hounded by 
collection agencies, sued and subsequently charged high 
interest rates, have wages garnished, liens slapped on homes, 
some have even been arrested and imprisoned for the bills that 
they have incurred.
    In Illinois, a woman who incurred just under $1700 in bills 
due to a miscarriage, was briefly jailed after she missed two 
court hearings on hospital bills.
    I have five recommendations for American hospitals. One, 
lower the fees charged to uninsured patients. Secretary 
Thompson clarified this can be done, just do it and do it now.
    No. 2, help the uninsured pay for care. Hospitals must 
assist uninsured patients in applying for existing programs. 
This would provide hospitals with reimbursement for services, 
and help patients avoid this debt--the Cooley Dickinson example 
is but one--we believe other hospitals could and should 
implement such programs.
    No. 3, stop the aggressive collection actions taken against 
uninsured patients. American hospitals are the finest 
institutions in the world. Unfortunately, the hospital billing 
departments and collection agencies used by some hospitals do 
harm patients, hauling low-income uninsured patients to court 
is senseless. Hospitals spend money to do this, with little 
financial gain, and such actions ruin the credit of uninsured 
patients.
    No. 4, we challenge the American Hospital Association to 
demonstrate bold leadership and establish a financial 
assistance initiative for uninsured patients. An essential 
component of this program would be to work in partnership with 
consumer and community advocacy organizations to ensure that 
these policies are sensible and understood by the uninsured 
patients in their community. It should be guided by one basic 
principle, and that is ``do no harm.'' Hospitals must begin to 
treat patients who owe them money with respect and dignity, and 
hospitals should not ask Congress or the Administration for 
additional resources until doing so.
    My final point, we urge all hospitals to join uninsured 
consumers in advocating for a comprehensive system of 
affordable health care for all.
    Thank you for the opportunity to speak before you today.
    [The prepared statement of Mark Rukavina follow:]

        Prepared Statement of Mark Rukavina, The Access Project

    Thank you for inviting me to speak before this panel on the 
important issue of hospital billing and collection practices with 
respect to uninsured patients.
    My name is Mark Rukavina, and I am the executive director of The 
Access Project. The Access Project is a national resource center 
providing support to local organizations seeking to improve access to 
health care. The Access Project works in partnership with the Heller 
School for Social Policy and Management at Brandeis University in 
Massachusetts. In our work with local groups since 1998, we have 
undertaken numerous research and policy analysis projects and produced 
a series of reports on subjects relating to health care access 
barriers. Over the last four years, our work has increasingly focused 
on the problem of medical debt and its consequences. Through our 
research, and that of others, we have learned that the problem is 
widespread and its causes diverse. Hospitals practices around pricing, 
billing and collections are prominent among the causes of medical debt. 
The existence of medical debt on a large scale, and the consequences of 
this debt, belies many prevalent misconceptions about the uninsured and 
their ability to access health care. In my remarks, I would like to 
clarify some of these basic misunderstandings.
    (1) The first misconception is that uninsured patients can get the 
care they need from safety-net institutions for free or at affordable 
prices.
    The Access Project documented the actual experiences of the 
uninsured through a survey it conducted in 2000 of uninsured people who 
had received care in local safety-net institutions. In the 24-site 
survey of nearly 7,000 uninsured respondents, 60 percent said they 
needed help paying for their medical care, and nearly half (46%) said 
they owed money to the facility where they received care. For those who 
received care in hospital emergency rooms, the percentages were even 
higher.
    These findings are reinforced by other national research. For 
example, the Commonwealth Fund's recent report, The Affordability 
Crisis in U.S. Health Care: Findings from the Commonwealth Fund 
Biennial Health Insurance Survey (March 2004), found that two out of 
five adults in 2003, and 6 out of 10 among those who lacked insurance, 
had problems related to medical bills or accrued medical debt.
    Moreover, medical debt has a direct effect on people's ability to 
access health care. In our 24-site survey, among the respondents with 
unpaid bills, almost a quarter said the debt would deter them from 
seeking care at the facility in the future. In another Access Project 
study, we interviewed low-income consumers with medical debts in three 
communities. More than half said their medical debts made it harder for 
them to get medical care. They reported that providers discouraged them 
from seeking additional services by requiring cash payment upfront, 
flatly refusing care, or encouraging them to seek new providers.
    A 2000 study done by the National Association of Public Hospitals 
and Health Systems found that even safety-net providers do not 
automatically provide free care to uninsured patients. More than 80 
percent of the public hospitals surveyed had implemented cost-sharing 
plans and an increasing number implemented pharmacy co-payment plans.
    Medical debt can erode not only individuals' access to care, but 
also their overall financial security and that of their family. One 
survey found that more than a quarter of families in which one or more 
members were uninsured reported having to ``change their way of life 
significantly'' to pay medical bills, a figure that rose to nearly 40 
percent when all family members were uninsured. In the recent 
Commonwealth Fund survey, among the uninsured respondents who had 
medical bill problems or medical debt, almost 4 in 10 said they were 
unable to pay for basic necessities such as food, heat or rent; over 
half said they used all or most of their savings to pay medical bills; 
and more than 2 in 10 said they had taken on large credit card debt or 
loans against their homes to pay medical bills.
    (2) Another misconception is that uninsured people expect to get 
their care for free, or are simply unwilling to pay for it.
    In fact, the uninsured do pay a significant portion of their bills. 
As the Commonwealth Fund survey indicates, many exhaust their savings, 
take out loans, or assume large credit card debt to pay their medical 
bills. A recent report by the Kaiser Commission on Medicaid and the 
Uninsured, The Cost of Care for the Uninsured: What Do We Spend, Who 
Pays, and What Would Full Coverage Add to Medical Spending? (2004), 
estimates that people who are uninsured for an entire year pay over a 
third (35%) of their health care costs out-of-pocket, considerably more 
than the 20 percent share paid by those with insurance. According to 
the report, the uninsured can be expected to pay 32.6 billion dollars 
for their care in 2004.
    Our interviews with low-income people with medical debt found that 
many respondents had a strong desire to pay off their debt and tried to 
negotiate payment plans, but found that the terms of the plans 
hospitals offered were difficult to maintain, given inflexible hospital 
collection practices and their own tenuous financial circumstances. 
Here are what some of our survey respondents told us.
          ``. . . they demanded I pay a certain amount bi-weekly. I 
        couldn't afford it. They didn't want to help. I was willing to 
        pay some money, as much as I could.''
          ``I (said) I couldn't pay $500, that I could pay $100, but 
        the person answered no, that it had to be $500.''
    Moreover, not being able to pay their medical bills in full caused 
many people tremendous anxiety and stress. Again, here is what some of 
our respondents told us.
          ``I am constantly worrying about my medical debt . . . I feel 
        hopeless. I am a single mom and think that in the future I will 
        not be able to better my life.''
          ``Owing money affects every part of your life. You don't stop 
        worrying about it anytime.''
          ``I couldn't sleep . . . I just slept a few hours and it (the 
        debt) even took my appetite away.''
    One factor that makes it especially difficult for uninsured people 
to cover the entire cost of their care is that they are often expected 
to pay more for the same services than other payers. Uninsured patients 
don't have access to the discounts negotiated by insurers or set by the 
government. Uninsured patients are expected to pay full charges or 
``the rack rate.'' A Wall Street Journal article in March of 2003 told 
the story of Rebekah Nix, a 25-year old uninsured woman in New York who 
was billed $14,000--not including doctor's fees--for a two-day stay for 
an appendectomy. The state's Medicaid program would have paid about 
$5,000 for the procedure, and Medicare about $7,800.
    In testimony before the House Ways and Means Committee this past 
March, University of Southern California Professor Glenn Melnick showed 
that nationally, hospitals increased their mark-ups--the amount charged 
over and above the cost of care--from 159% in 1993 to 211% in 2003. 
Average mark-ups across states ranged from 135% to 300%. Given this, 
it's no surprise that the uninsured can't cover these costs.
    Adding insult to injury, many hospitals enforce these payments 
through aggressive billing and collections practices, a situation that 
has been documented in the press and by various community groups. 
Reports of hospital billing and collections practices in Connecticut, 
New York and Illinois led to a series of articles in the Wall Street 
Journal. The Journal articles, as well as articles in other newspapers 
across the country, have detailed cases of the devastating effects of 
harsh collections practices in which people were hounded by collection 
agencies, charged high interest, had wages garnisheed and property 
attached, had liens put on homes, and were even arrested as they 
struggled to pay their bills. For example the Journal documented the 
case of Quentin White, who had been paying Yale-New Haven Hospital for 
over 20 years for the debt from his late wife's medical care. The 
hospital charged 10 percent interest, placed a lien on the White's 
home, and in 1996 nearly cleaned out Mr. White's bank account. Over the 
years, Mr. White paid nearly $16,000 on what was originally a bill of 
just less than $19,000. However, his outstanding balance had ballooned 
to about $39,000 in 2003 because of the interest charges. In another 
case in Champaign, Illinois, Marlin Bushman was arrested and jailed 
after missing a court hearing on a $579 hospital bill. Kara Atteberry 
was briefly jailed because she missed two court hearings on a $1,678 
hospital bill incurred for a miscarriage.
    Hospitals have used other tactics to improve their collection rate. 
Some have arrangements with commercial banks to facilitate the 
initiation of loans to cover medical expenses. Others have created 
open-ended credit accounts that are marketed as Trouble-Free Payment 
Plans but fail to disclose interest rates or other fees at the time of 
application. We even know of a hospital that is issuing its own credit 
card to patients.
    Some hospitals take drastic measures through their collection 
agents. Earlier this month, the Wall Street Journal reported on a 
practice in New York where hospital collection agencies attach the bank 
accounts of patients with hospital bills going back as far as 15 years. 
Some hospitals had even written off some of these bills and had 
received partial reimbursement from a state-run bad-debt pool.
    There should be no place for such high-pressure tactics used 
against low-income people who have the misfortune of getting sick.
    Given recent attention on this issue, the financial community is 
beginning to scrutinize hospital billing and collection practices. The 
Health Capital Group provides an illustration. The Health Capital Group 
offers services to hospitals and other medical providers relating to 
mergers, acquisitions and investment banking, as well as an array of 
other related ``transactional'' services including sophisticated 
valuation services. They recently expressed concern that hospitals 
failing to inform certain patients who might reasonably qualify for 
financial assistance or ``charity care'' would be exposed to class 
action lawsuits as well as the possibility of direct intervention from 
state attorneys general. They fear that this could create enormous 
contingent liabilities that could, in turn, significantly impair their 
access to capital.
    As a result The Health Capital Group announced that they will cease 
issuing valuation opinions, validating bond ratings, rendering 
creditworthiness opinions, certifying debt capacity, making 
recommendations to bond funds or issuing compliance comfort letters and 
related analyses unless a hospital or hospital system demonstrates that 
it has written policies and procedures to inform patients of financial 
assistance, pricing and collection policies and publicizes these 
policies and procedures.
    Just last week it was reported that a federal class action lawsuit 
was filed in federal courts in eight states against nearly one dozen 
non-profit hospital systems challenging whether tax exempt status 
should be granted to these institutions. Clearly the billing and 
collection practices of hospitals that have created problems for 
uninsured patients are now creating problems for the entire hospital 
industry.
    (3) A third misconception is that the ``truly needy'' are not 
billed or subject to aggressive collection actions because they qualify 
either for public programs or for hospitals' indigent care programs.
    While most hospitals do claim to have financial assistance programs 
to assist people without the means to pay for their medical care, 
research indicates that many who might qualify for these programs never 
learn about them. In our 2000 survey of the uninsured, almost half 
(48%) of those needing help paying for care said they were never 
offered financial assistance, such as being informed about the 
facilities' own charity care programs. Among those who received care in 
urban or suburban hospital emergency rooms, 70 percent said they were 
never offered assistance. This lack of information about available 
financial assistance is consistent with findings from subsequent 
research that The Access Project and others have done, and is a wholly 
avoidable cause of medical debt. Again, here is a comment from one of 
our survey respondents:
          ``I would like the hospital to make the help office, the one 
        that helps you pay the bill, more accessible to the people. 
        Because I have a lot of bills that could have been paid, had 
        they told me about that office sooner. Instead, my bills are 
        now in a collector's office when I qualified for financial 
        assistance, because they did not give me the necessary 
        information . . .''
    In this regard, I would like to share with you The Access Project's 
own experience trying to obtain hospitals' financial assistance 
policies. Last December, the American Hospital Association issued 
guidelines for its members recommending that all hospitals have written 
financial assistance policies that they disseminate widely in their 
communities. In 2003, both Tenet and HCA healthcare systems announced 
with fanfare programs to help the uninsured with discounts and sliding 
scales. Learning about the HCA program in the third quarter of 2003, 
and unable to find information on their website, I contacted the 
company to request a copy of the policy. I received no response. I made 
another request a month later. Finally, in December, I was told that 
while the policy had been implemented, HCA didn't want to post it until 
they saw if it ``worked as intended'', probably around the beginning of 
the new year. In February of this year, we invited HCA, along with 
Tenet and other area hospitals, to meet with community leaders in 
Florida to provide information about their financial assistance 
policies. Unfortunately, both HCA and Tenet declined to attend.
    Only in late April, more than six months after we first requested 
information, did the hospitals provide us with their policies. The 
Access Project is hopeful that working with these systems will be far 
easier in the future. However, I share this story to point out that if 
it takes the professional staff at a national health care resource 
center over half a year to find out about the hospitals' financial 
assistance program, one can imagine the difficulties faced by uninsured 
people who try to do so, especially while they are ill and vulnerable.
    It is possible for hospitals to inform uninsured patients of the 
financial assistance programs that are available to them. However, 
providing information is often not enough. Hospital can and must do 
more than that. We recently identified a program at The Cooley 
Dickinson Hospital in Northampton, Massachusetts. Cooley Dickinson case 
managers visit each uninsured patient and review their individual 
health care needs. They help patients complete program applications, 
they refer them to a local network of physicians offering care on a 
sliding fee scale and assist them in applying for hospital charity 
care. By providing this assistance, they have enrolled hundreds of 
patients in Medicaid and other programs. The hospital gains needed 
revenues and the patients avoid crushing debt. The hospital and the 
patient are both better off. The crucial point is that case managers 
review payment alternatives with patients at the front end of the 
process, not after the bills have been sent to collection. Without such 
help, many patients would be reluctant to go back to the hospital.
    (4) A final misconception is that hospitals and other healthcare 
providers bear the full burden of providing care for the uninsured.
    I have already discussed that the uninsured themselves in fact pay 
a significant portion of the costs of their care. In addition, while 
hospitals definitely do bear a portion of this burden, they also 
receive funding from a variety of sources to help defray these costs. 
As Secretary of Health and Human Services Tommy Thompson pointed out in 
a letter to the American Hospital Association, ``Medicare and Medicaid 
have a long history of doing their part to help the uninsured that 
includes paying hospitals $22 billion each year through the 
disproportionate share hospitals provisions to help hospitals bear the 
cost of caring for the poor and uninsured.'' In addition, most states 
and many counties and local communities have programs that help fund 
care for the indigent and uninsured.
    A word is warranted here about the ``uncompensated care'' that 
hospitals provide. Most hospitals report their uncompensated care as a 
combination of bad debt and charity care, without disaggregating the 
two. While both types of uncompensated care similarly affect a 
hospital's bottom line, their effects on patients are starkly 
different. ``Bad debt,'' even after a hospital has written it off, 
still burdens the patient. Collection efforts by outside collection 
agents may continue indefinitely, and the debt may be a blot on a 
consumer's credit record for years; it may hinder people from buying 
homes, getting loans, or even affect their employment. So while from 
the hospital's perspective the services are uncompensated (at least 
that portion of the bill a patient is unable to pay), from the 
patient's perspective the bad debt write-off is by no means 
``charitable'' and should not be confused with the legitimate benefits 
of a hospital's charity care program.
Recommendations
    The widespread problem of medical debt is clearly a symptom of much 
that is wrong with our fragmented health care system that leaves so 
many people exposed to lack of access to care and to financial ruin. 
While this situation cries out for systemic solutions, some steps can 
be taken in the interim to reduce the burdens of unaffordable health 
care costs on low-income uninsured people.
    (1) Offer uninsured hospital patients discounts equivalent to those 
extended to people with insurance.
    The current situation reflects the lack of clout that uninsured 
consumers have in the healthcare marketplace compared to all of the 
other players--employers, insurers, and providers. Charging the highest 
rates to those least able to pay is simply unfair, especially when it 
comes to necessary medical care.
    By itself, however, this is not sufficient. From the standpoint of 
the low- or even middle-income consumer struggling to pay his medical 
bills, the salient issue is not only the prices a hospital charges but 
also the availability of financial assistance programs. Even with 
changes in hospital pricing practices--the immediate concern of the 
subcommittee--problems of medical debt will remain for those who 
require medical treatment but are unable to pay the (albeit reduced) 
fees for which they are responsible. For low-income people, or those 
with very high bills relative to their income, even discounted prices 
may not prevent devastating medical debt. For a family earning slightly 
more than the federal poverty level, reducing a bill from $50,000 to 
$25,000 does not provide enough help. For people at this income level, 
a bill of a few thousand dollars, or even less, may simply be beyond 
their means to pay.
    (2) Screen uninsured hospital patients and provide assistance to 
all patients who are eligible for public programs to ensure that they 
are enrolled in them.
    This is a win-win situation for the hospital and the uninsured 
patient; it provides hospitals with some reimbursement for services 
rendered, and it helps prevent people from being saddled with 
unmanageable debt. We know of hospitals that have adopted very 
proactive programs to ensure that all of their uninsured patients know 
where to get help in applying for these programs. And they have 
continued to fund these programs because they have found them to be 
financially beneficial to the hospital as well as the patient.
    (3) Have consistent and well publicized charity care policies for 
hospital patients who are not eligible for public programs and stop 
aggressive collection actions as an integral part of a hospital's 
service to their communities.
    In this regard, we are hopeful that the recent HHS guidance on 
billing and collections practices, as well new guidelines from the AHA 
and a number of state hospital associations, will help to reduce the 
role hospitals play in imposing medical debt and its harsher 
consequences. Hospitals must take a proactive role in informing their 
patients of charity care and they must stop aggressive collection 
actions against uninsured patients. Such actions cost hospitals money 
and provide little financial return while ruining the credit of 
uninsured patients.
    (4) Establish clear rules of accountability for funds that 
hospitals receive through the Medicaid DSH program and other sources to 
help defray the costs of uncompensated care.
    Disproportionate Share Hospital payments provide vital funding for 
America's healthcare safety net. Hospital receiving DSH payments should 
be required to provide details on how this funding is used to support 
services to poor and uninsured patients.
    (5) Build on the American Hospital Associations Guidelines and 
Principles for Hospital Billing and Collection Practices by 
establishing a Financial Assistance Initiative for Uninsured Patients.
    We call on the AHA to create an initiative with the purpose of 
providing financial assistance to patients with no insurance. An 
essential part of this effort would be for hospitals to work in 
partnership with community and consumer advocacy organizations that 
work with, and represent, people with no health insurance. These 
community and consumer advocacy organizations could assure that 
hospitals have transparent policies that are understood and supported 
by their uninsured patients. Hospitals participating in this initiative 
would have clear, written policies governing their practice for 
screening uninsured patients for financial assistance, as well as for 
billing, charity care, and debt collection practices related to 
uninsured patients. The AHA should enroll hospitals in this initiative 
to bring clarity and decency to billing and collection practices. One 
basic principle could drive the initiative--Do No Harm. Hospitals must 
start treating their patients of limited resources with dignity, 
respect and justice. If hospitals are unwilling to comply, legislation 
might well be in order.
    It is only after hospitals improve their billing and collection 
systems, that they should seek additional funds to support the cost of 
providing health care to uninsured patients.
    (6) Create a system of affordable health care for all.
    We recognize that hospital bills are only one component of medical 
debt. As health care costs rise and employers and insurers shift more 
of the costs on to consumers, medical debt from all sources is likely 
to grow. While improved hospital financial assistance programs are an 
important step in alleviating this problem, systemic efforts that 
include all types of healthcare providers and significantly expand 
coverage will ultimately be needed to address the underlying factors 
that leave many patients--both uninsured and insured--with unmanageable 
medical debt.
    On behalf of the more than 43 million American with no health 
insurance, thank you for the opportunity to testify today.

    Mr. Greenwood. Thank you.
    Dr. Collins.

                  TESTIMONY OF SARA R. COLLINS

    Ms. Collins. Thank you, Mr. Chairman, for this invitation 
to testify today. I am a Senior Program Officer of The 
Commonwealth Fund. The recent reports of uninsured patients 
struggling to pay exorbitant hospital bills have lent a human 
face to a health care system under enormous strain. Growing 
numbers of Americans are experiencing gaps in their insurance 
coverage, gaps that expose them to the routine cost of 
preventive care, as well as the catastrophic cost associated 
with serious accidents and illnesses. The number of people 
without health insurance climbed to 43.6 million in 2002, 
nearly 4 million more than 2 years before. At the same time, 
national health care spending grew at a rate of 9.3 percent, 
the highest annual increase in a decade. Health insurance 
premiums rose even more rapidly, increasing by 13.9 percent in 
2003, the third consecutive year of double-digit inflation. 
Employers are responding to rising premiums by sharing more of 
their cost with employees and offering new insurance products 
that shift more financial risk to their workers.
    The Commonwealth Fund Biennial Health Insurance Survey, a 
nationally representative survey of more than 4,000 adults, 
interviewed people about the extent and quality of their health 
insurance coverage in late 2003. The survey reveals growing 
instability in insurance coverage, particularly among people 
with low incomes and among minorities. More than half of adults 
under age 65 in households earning less than $20,000 per year 
were uninsured for some time during 2003. Nearly half of all 
Hispanics experienced a time uninsured, and coverage for 
African Americans has worsened considerably over the last 2 
years.
    The survey also found evidence of an erosion in the quality 
of benefits received by people who have health insurance. 
Nearly half of those who are insured all year through private 
coverage said that they had experienced either an increase in 
the amount that they pay for premiums, an increase in their 
share of medical bills, or cutbacks or new limits in their 
health benefits. Erosion in coverage appears to be impeding 
Americans' ability to get health care. The share of people with 
and without insurance coverage who reported problems getting 
the health care that they needed because of cost climbed to 37 
percent in 2003. Those problems included not filling a 
prescription because of cost, and not going to a doctor when 
they were sick.
    In addition, the survey found high rates of medical bill 
problems among the insured and uninsured alike. More than 70 
million adults said that they had problems with their medical 
bills in the last 12 months, or were paying off medical debt 
accrued over the last 3 years. Problems included having 
difficult paying or being unable to pay bills, being contacted 
by a collection agency, or being forced to make significant 
life changes. Medical bills are creating financial hardship 
among many families. Among those who said they had a medical 
bill problem, more than one-quarter reported that they had been 
unable to pay for basic necessities like food, heat, or rent 
because of their bills. More than two in five said that they 
had used up all or most of their savings.
    The recent conflict between uninsured patients and 
hospitals over payment is a symptom of two underlying trends in 
the U.S. health care system, growing instability in insurance 
coverage and rapid growth in health care cost. The practice of 
hospitals billing uninsured patients more than negotiated rates 
with insurers is troublesome and will only increase access and 
medical debt problems for uninsured families, and some 
hospitals' methods to attempt to recover medical debt from 
patients, charging high interest rates, having collection 
agencies harass them, and placing liens on their homes are 
simply deplorable. Developing policies that would discourage 
hospitals from either practice is necessary but, in the 
meantime, the pressures that gave rise to this conflict will 
continue to grow apace. In the end, small policy changes will 
need to be accompanied by broad policy solutions that address 
the root cause of the affordability crisis in U.S. health care, 
policies that would expand access to affordable health 
insurance and reduce the rate of health care cost inflation. 
Thank you very much.
    [The prepared statement of Sara R. Collins follows:]

  Prepared Statement of Sara R. Collins, Senior Program Officer, The 
                           Commonwealth Fund

    Thank you, Mr. Chairman, for this invitation to testify today on 
the growing affordability crisis in the U.S. health care system. The 
recent reports of uninsured patients struggling to pay exorbitant 
hospital bills have lent a human face to a health care system under 
enormous strain.1 Growing numbers of Americans are 
experiencing gaps in their insurance coverage--gaps that expose them to 
the routine costs of preventive care as well as the catastrophic costs 
of serious accidents and illnesses. The number of people without health 
insurance climbed to 43.6 million in 2002, nearly 4 million more than 
were uninsured two years before (Chart 1).2 At the same 
time, national health care spending grew at a rate of 9.3 percent in 
2002, the highest annual increase in a decade (Chart 2).3 
Health insurance premiums rose even more rapidly, increasing by 13.9 
percent in 2003, the third consecutive year of double-digit inflation 
(Chart 3).4 Employers are responding to rising premiums by 
sharing more of their costs with employees and offering new insurance 
products that shift more financial risk to workers (Chart 
4).5 A severe fiscal crisis has led many state governments 
to restrict eligibility in public programs such as Medicaid and the 
Children's Health Insurance Program (CHIP)--a development that is 
likely to increase the number of people without coverage.6
---------------------------------------------------------------------------
    \1\ R. Abelson and J.D. Glater, ``Nonprofit Hospitals Said to 
Overcharge Uninsured,'' New York Times, June 17, 2004; L. Lagnado, 
``Dunned for Old Bills, Poor Find Some Hospitals Never Forget,'' The 
Wall Street Journal, June 8, 2004; C. Pryor et al., Unintended 
Consequences: How Federal Regulations and Hospital Policies Can Leave 
Patients in Debt (New York: The Commonwealth Fund, June 2003); C. Pryor 
and B. Seifert, Unintended Consequences: An Update on Consumer Medical 
Debt (New York: The Commonwealth Fund, June 2004).
    \2\ R.J. Mills and S. Bandhari, Health Insurance Coverage in the 
United States: 2002, Current Population Reports (Washington, D.C.: U.S. 
Census Bureau, September 2003).
    \3\ K. Levit et al., ``Health Spending Rebound Continues in 2002,'' 
Health Affairs 23 (January/February 2004): 147-59; K. Davis, Making 
Health Care Affordable for All Americans, Invited testimony before the 
Senate Committee on Health, Education, Labor, and Pensions hearing on 
``What's Driving Health Care Costs and the Uninsured?'' January 28, 
2004.
    \4\ J. Gabel et al., ``Health Benefits in 2003: Premiums Reach 
Thirteen-Year High as Employers Adopt New Forms of Cost Sharing,'' 
Health Affairs 22 (September/October 2003): 117-26.
    \5\ J. Gabel et al.; S.R. Collins, C. Schoen, M.M.Doty, and A.L. 
Holmgren, Job-Based Health Insurance in the Balance: Employer Views of 
Coverage in the Workplace (New York: The Commonwealth Fund, March 
2004).
    \6\ M. Nathansan and L.Ku, Proposed State Medicaid Cuts Would 
Jeopardize Health Insurance Coverage for 1.7 Million People: An Update 
(Washington, D.C.: Center on Budget and Policy Priorities, March 21, 
2003).
---------------------------------------------------------------------------
    The state of our nation's health care system is creating profound 
conflicts between providers, whose mission it is to care for patients, 
and patients, whose access to and trust in the health care system is 
crucial to the maintenance of a vital and productive society. Private 
and public health care providers spend an estimated $35 billion a year 
on care for uninsured patients that goes uncompensated.7 At 
the same time, evidence from the recent Commonwealth Fund Biennial 
Health Insurance Survey shows that being uninsured or having gaps in 
insurance coverage interferes with people's ability to get the health 
care they need.8 The Institute of Medicine warns that 
leaving more than 40 million people without insurance coverage costs 
the U.S. economy an estimated $65 billion to $130 billion annually in 
lost productivity.9
---------------------------------------------------------------------------
    \7\ J. Hadley and J. Holahan, ``How Much Medical Care Do the 
Uninsured Use, and Who Pays for It?'' Health Affairs Web Exclusive (12 
February 2003): W3-66-W3-81.
    \8\ S.R. Collins et al., The Affordability Crisis in U.S. Health 
Care: Findings from the Commonwealth Fund Biennial Health Insurance 
Survey (New York: The Commonwealth Fund, March 2004).
    \9\ Institute of Medicine, Hidden Costs, Value Lost: Uninsurance in 
America (Washington, D.C: National Academy Press, 2003).
---------------------------------------------------------------------------
    Rising health care costs are also creating conflicts in the 
workplace, as U.S. companies, for lack of other options, shift more 
health care risk to employees in the form of increased deductibles, 
greater premium sharing, and higher copayments. Yet, Americans already 
pay more out-of-pocket for their medical care than people in any other 
industrialized country.10 Higher cost-sharing thus raises 
concerns that even people who have insurance coverage will forgo needed 
medical care, face out-of-pocket costs that might consume substantial 
shares of their income, or drop their coverage altogether.11
---------------------------------------------------------------------------
    \10\ K. Davis, Making Health Care Affordable for All Americans, 
Invited testimony before the Senate Committee on Health, Education, 
Labor, and Pensions hearing on ``What's Driving Health Care Costs and 
the Uninsured?, January 28, 2004.
    \11\ S. Trude, Patient Cost-Sharing: How Much Is Too Much? Issue 
Brief No. 72 (Washington, D.C.: Center for Studying Health System 
Change, December 2003).
---------------------------------------------------------------------------
    The Commonwealth Fund Biennial Health Insurance Survey, a 
nationally representative survey of more than 4,000 adults, interviewed 
people about the extent and quality of their health insurance coverage 
in late 2003. The survey revealed growing instability in insurance 
coverage, particularly among people with low incomes and minorities. In 
addition, the survey found evidence of erosion in the quality of 
benefits among people who have health insurance. Gaps in insurance 
coverage and rising health care costs are preventing large shares of 
both uninsured and insured Americans from getting the health care they 
need. The survey also found high rates of medical bill problems among 
uninsured and insured alike. Many families with medical debt face stark 
trade-offs between life necessities like food and rent and paying down 
their debt. Key findings from the survey and other recent reports are 
discussed below.

          INSURANCE COVERAGE IS BECOMING INCREASINGLY UNSTABLE

    The Commonwealth Fund Biennial Health Insurance Survey shows that 
health insurance coverage is becoming increasingly unstable. In the 
survey, respondents were asked whether they were insured at the time of 
the survey and whether they had lacked insurance at any time during the 
previous 12 months. Twenty-six percent of adults ages 19 to 64 had 
experienced at least some time uninsured in 2003: 17 percent were 
uninsured at the time of the survey, and 9 percent had been uninsured 
during part of the previous 12 months (Chart 5). In 2001, the last year 
that the Commonwealth Fund survey was conducted, 24 percent of 
respondents were uninsured for at least part of the year.12
---------------------------------------------------------------------------
    \12\ Increase statistically significant at p < .05.
---------------------------------------------------------------------------
    Insurance instability is particularly acute among people with low 
incomes. More than half (52%) of adults ages 19 to 64 in households 
earning less than $20,000 per year were uninsured for some time during 
2003, up slightly from 49 percent in 2001.13 The erosion of 
health insurance was most marked for families with incomes between 
$20,000 and $35,000--35 percent were without coverage during the year, 
up from 28 percent in 2001.14 Sixteen percent of adults in 
households with incomes between $35,000 and $60,000 experienced a time 
without health insurance in 2003.
---------------------------------------------------------------------------
    \13\ Increase statistically significant at p < .05.
    \14\ Increase statistically significant at p < .05.
---------------------------------------------------------------------------
    Minorities experience similarly high rates of instability in 
coverage. Nearly one-half (47%) of Hispanics were without health 
insurance at some point during the year in 2003, with more than one-
third reporting that they were uninsured at the time of the survey 
(Chart 6). African Americans experienced a significant loss of coverage 
in the 2001-03 period: the share without coverage jumped from 27 
percent in 2001 to 38 percent in 2003, with most of the increase 
attributable to an increase in those who were uninsured at the time of 
the survey (14% to 23%).15
---------------------------------------------------------------------------
    \15\ Increase statistically significant at p < .05.
---------------------------------------------------------------------------
    Other recent analyses of surveys that track people over time shows 
that many low-income workers and minorities remain without coverage for 
years at a time. Research by Pamela Farley Short and colleagues found 
that from 1996 to 2000, 42 percent of children and adults under age 65 
with incomes less than 200 percent of poverty had been uninsured for 
more than one year, and nearly 3 of 10 (28%) were uninsured more than 
two years.16 Michelle Doty and Alyssa Holmgren of The 
Commonwealth Fund found that 37 percent of Hispanic workers with 
incomes under 200 percent of poverty who had been employed full-time in 
the 1996-2000 period were uninsured for the full four 
years.17
---------------------------------------------------------------------------
    \16\ P.F. Short and D.R. Graefe, ``Battery-Powered Health 
Insurance? Stability in Coverage of the Uninsured,'' Health Affairs 22 
(November/December 2003): 244-55; P.F. Short, D.R. Graefe, and C. 
Schoen, Churn, Churn, Churn: How Instability of Health Insurance Shapes 
America's Uninsured Problem (New York: The Commonwealth Fund, November 
2003).
    \17\ M.M. Doty and A.L. Holmgren, Unequal Access: Insurance 
Instability Among Low-Income Workers and Minorities (New York: The 
Commonwealth Fund, April 2004).
---------------------------------------------------------------------------
    Insurance instability is also a serious problem among young adults 
ages 19 to 29. In the Commonwealth Fund survey, 40 percent of young 
adults said that they were without coverage at some point during the 
year. This is nearly twice the rate found for those ages 30 to 64 who 
experienced a time without coverage in 2003. Age 19 is a critical 
turning point in insurance eligibility among both privately and 
publicly insured young adults. Nearly 60 percent of employers who offer 
health benefits stop covering dependent children at age 18 or 19 if 
they do not go on to college.18 The Medicaid and CHIP 
programs reclassify all children as adults at age 19, meaning that most 
low-income young adults become ineligible for public coverage, since 
eligibility for adults generally is restricted to very low income 
parents or disabled adults. Jobs available to young adults are usually 
low wage or temporary--the type that generally do not come with health 
benefits. A recent Commonwealth Fund report found that more than half 
of high school graduates who do not go on to college experience a time 
uninsured in the year following graduation (Chart 7).19 
Among those who do go on to college, graduation also marks a break in 
coverage--nearly two of five college graduates experience a time 
uninsured in the year following graduation.
---------------------------------------------------------------------------
    \18\ S.R. Collins, C. Schoen, M.M. Doty, and A.L. Holmgren, Job-
Based Health Insurance in the Balance: Employer Views of Coverage in 
the Workplace (New York: The Commonwealth Fund, March 2004).
    \19\ S.R. Collins, C. Schoen, K. Tenney, M.M. Doty, and A. Ho, Rite 
of Passage? Why Young Adults Become Uninsured and How New Policies Can 
Help (New York: The Commonwealth Fund, May 2004).
---------------------------------------------------------------------------
    Workers without insurance coverage are concentrated in small firms, 
which face greater costs for coverage than do large employers and 
higher financial risks from providing benefits to only a small pool of 
workers.20 But the long-term shift away from manufacturing 
in the U.S. economy, coupled with declines in the rate of unionization 
in the workforce, has led to an increase in the share of uninsured 
workers employed in large firms. A recent Commonwealth Fund report by 
researchers Sherry Glied, Jeanne Lambrew, and Sarah Little found that 
from 1987 to 2001, the proportion of uninsured workers who were 
employed by firms with more that 500 employees grew from 25 percent to 
32 percent (Chart 8).21
---------------------------------------------------------------------------
    \20\ J. Gabel and J.D. Pickreign, Risky Business: When Mom and Pop 
Buy Health Insurance for Their Employees (New York: The Commonwealth 
Fund, April 2004).
    \21\ S. Glied, J.M. Lambrew, and S. Little, The Growing Share of 
Uninsured Workers Employed by Large Firms (New York: The Commonwealth 
Fund, October 2003).
---------------------------------------------------------------------------
               THE QUALITY OF HEALTH BENEFITS IS ERODING

    In addition to declining insurance coverage, the Commonwealth Fund 
Biennial Health Insurance Survey also finds evidence of erosion in the 
quality of coverage among those with health insurance. Working-age 
Americans reported that they were now paying more for their insurance 
coverage and more for their medical care than they were one year ago. 
Two of five (43%) adults under age 65 with private coverage who 
contribute to their premiums said that the amount they pay for premiums 
had increased by a moderate amount or a lot in the past year, with 
nearly one of five (19%) saying the amount had increased a lot (Chart 
9, Table 1). More than half (58%) of those with coverage in the 
individual insurance market said that their premiums had risen by a 
moderate amount or a lot, with a third (34%) saying that their premiums 
had gone up a lot. More than a quarter (28%) of people with employer or 
individual coverage said that their share of medical bills had risen by 
a moderate amount or a lot.
    In addition to paying more for their care, many privately insured 
adults also reported that their health plans are cutting back or 
placing new limits on covered benefits. The survey asked whether people 
had experienced reductions in the benefits covered by their insurance 
plans. Reductions could dropping coverage for prescription drugs, 
dental care, vision care, or mental health, or placing limits on 
benefits. About one-fifth (21%) of people with private coverage said 
that their benefits had been curtailed.
    Taken together, increased premium shares, increased cost-sharing, 
and limits on benefits affected large percentages of the privately 
insured. Nearly half of those (49%) insured all year with private 
coverage said that they had experienced at least one of these erosions 
in the quality of benefits. People with coverage through the individual 
market were particularly hard-hit--61 percent reported a decrease in 
the quality of their benefits (Table 1). Among adults with employer 
coverage, erosion of health insurance benefits appeared to be most 
common among those in the highest income category, with 56 percent of 
those earning $60,000 or more reporting a decline in the quality of 
their coverage.

  MANY AMERICANS SPEND SUBSTANTIAL SHARES OF THEIR EARNINGS ON HEALTH 
                                  CARE

    Depending on their insurance status or the particular provisions of 
their health plans, Americans pay different amounts for their health 
care and their insurance coverage. Most people with private insurance 
(employer-sponsored or individual) contribute to their health insurance 
premiums. According to the Commonwealth Fund survey, more than 75 
percent of those with employer-sponsored coverage pay part of their 
premiums, with 10 percent of single policy holders and a quarter (26%) 
with family plans paying $2,500 or more annually (Table 2). Without an 
employer to shoulder part of their premium costs, and without the 
benefit of risk pooling in group plans, people with individual coverage 
pay much more for their premiums. One-third (34%) of single policy 
holders in the individual market pay $2,500 or more a year in premiums, 
and 15 percent have annual premiums of $5,000 or more. More than half 
(52%) of single policy holders in the individual market spend 5 percent 
or more of their income on premiums, and a quarter (26%) spend more 
than 10 percent.
    Most (66%) adults with private insurance coverage have a 
deductible. Of those with employer-sponsored coverage, 15 percent have 
deductibles of $500 or more per year and 5 percent have deductibles of 
$1,000 or more (Table 2). Three-quarters of adults with coverage in the 
individual market pay a deductible: 44 percent have deductibles of $500 
or more and 30 percent have deductibles of $1,000 or more.
    Nearly everyone with private coverage pays something out-of-pocket 
when they obtain health care services. The Commonwealth Fund survey 
asks adults how much they had to pay out-of-pocket over the last 12 
months, excluding premiums, for their own personal prescription 
medicines, dental and vision care, and all other medical services, 
including doctors, hospitals, and tests. Two of five (41%) adults with 
employer-sponsored coverage pay less than $500 annually in out-of-
pocket costs, a third (36%) pay between $500 and $2,000 per year, 13 
percent pay $2,000 or more per year, and 10 percent did not respond or 
did not know (Table 3). People with coverage in the individual market 
pay more than those with employer-sponsored coverage--23 percent have 
annual out-of-pocket costs of $2,000 or more.
    Adults with low or moderate incomes spend the greatest share of 
their earnings on out-of-pocket health care costs. Of those with 
private coverage who had annual incomes of less than $20,000, 29 
percent spent 5 percent or more of their income on out-of-pocket costs 
and 17 percent spent 10 percent or more (Chart 10). More than one-fifth 
(23%) of those in the next income bracket ($20,000 to $34,999) spent 5 
percent or more of their income on out-of-pocket costs. Among those 
with annual incomes of $60,000 or more, just 2 percent spent that much 
on out-of-pocket costs.
    The out-of-pocket costs of those who experienced a time uninsured 
are very different from those who were continuously insured by an 
employer. Nearly a quarter (23%) of those who were uninsured at the 
time of the survey had no out-of-pocket costs, while only 6 percent of 
those with employer coverage had no out-of-pocket costs (Table 3). This 
indicates that many of those without coverage did not access the health 
system, or received care that was partly or wholly subsidized. Still, 
for many of the uninsured, out-of-pocket payments account for a large 
share of their income: a third had annual out-of-pocket costs 
comprising 5 percent or more of their income, and 18 percent had costs 
of 10 percent or more. Those who were insured at the time of the survey 
but had experienced a time uninsured in the past year also spent large 
shares of their incomes on out-of-pocket costs. Nearly a quarter (23%) 
spent 5 percent or more of their income on out-of-pocket costs.
    People who are insured by public insurance programs incur much 
lower out-of-pocket costs than do those in private plans. A third (31%) 
of those insured continuously by public insurance programs said they 
had no out-of-pocket costs. Another third (34%) had costs amounting to 
less than $500 per year. Yet, even low health care costs can figure 
prominently as a share of a tight household budget. One-fifth (19%) of 
those with public insurance coverage and household incomes under 200 
percent of poverty spent 5 percent or more of their incomes on out-of-
pocket costs. Those with employer-sponsored coverage in that income 
range fared somewhat worse: a quarter (26%) spent that much of their 
income on out-of-pocket costs.
increasing shares of people with and without insurance report problems 

               GETTING NEEDED HEALTH CARE BECAUSE OF COST

    The decline in the quality of private health benefits and the 
increasing instability of coverage may be making it harder for people 
to access health care. The Commonwealth Fund survey asked respondents 
whether, in the last 12 months, they had not pursued medical care 
because of cost. Respondents were asked if they had not filled a 
prescription; had a medical problem but did not go to a doctor or 
clinic; skipped a medical test, treatment, or follow-up visit 
recommended by a doctor; or did not see a specialist when a doctor or 
the respondent thought it was needed. The share of people who reported 
any one of these problems increased from 29 percent in 2001 to 37 
percent in 2003 (Chart 11). Those who were uninsured or who reported a 
gap in coverage were most at risk of encountering these access problems 
(Chart 12). Around 60 percent of this group reported that they did not 
get the care they needed because of cost. But those with insurance 
coverage also reported deteriorating access to care. Nearly three of 10 
(29%) of those who were insured all year reported that they did not get 
the care they needed because of cost, up from 21 percent in 
2001.22
---------------------------------------------------------------------------
    \22\ Increase statistically significant at p < .05.
---------------------------------------------------------------------------
    Problems accessing the health care system also are related to 
income, even among those with health coverage. Nearly two of five (39%) 
adults who were insured all year with household incomes less than 
$35,000 said that they did not get the care they needed over the last 
12 months because of cost. Obtaining prescription drugs appeared to be 
a particular problem in this income group (Table 4). But even a quarter 
(24%) of people with coverage in higher income brackets reported that 
they did not get needed health care because of cost.

MEDICAL BILLS AND LINGERING MEDICAL DEBT ARE UNDERMINING THE FINANCIAL 
                     SECURITY OF AMERICAN FAMILIES

    Out-of-pocket costs for health care are negatively affecting the 
finances of those who have gaps in coverage as well as those who are 
continuously insured. The Commonwealth Fund survey asked people about 
their ability to pay their medical bills in the last 12 months, 
including whether there were times when they had difficulty or were 
unable to pay their bills, whether they had been contacted by a 
collection agency concerning outstanding medical bills, or whether they 
had to change their lives significantly in order to meet their 
obligations. People who reported no medical bill problems in the last 
12 months were asked if they were currently paying off medical debt 
that they had incurred in the last three years.
    The survey found that 41 percent of adults under age 65 either had 
medical bill problems in the last 12 months or were paying off accrued 
medical debt (Chart 13). The problem was most severe among those who 
were uninsured at the time of the survey or had experienced a time 
uninsured in the past year (Chart 14). Women were more likely to say 
that they were coping with medical bills or debt than men--70 percent 
of uninsured women reported medical bill problems or accrued debt 
(Chart 15).
    But even those adults who were insured continuously over the last 
12 months cited problems. More than a third (35%) reported that they 
had experienced problems with medical bills or were paying off accrued 
debt (Table 4). Moreover, among those with bill problems or past debt, 
three of five (62%) said the bills were incurred for themselves or a 
family member who had been insured at the time.
    Among those who had medical bill problems or outstanding debt, 27 
percent reported that they had been unable to pay for basic 
necessities, including food, heat, or rent because of medical bills 
(Chart 16). Two of five (44%) said that they used all or most of their 
savings in order to meet their obligations. One-fifth reported that 
they had run up large debts on their credit cards or had taken out 
loans against their homes in order to pay their bills. People who were 
uninsured for a time and/or had low incomes were the most severely 
affected (Table 4). More than half (51%) of those earning less than 
$35,000 a year--regardless of insurance status--said that they had used 
all or most of their savings to pay their bills. Forty-five percent of 
those who were uninsured in that income category had been unable to pay 
for basic living necessities.

                               CONCLUSION

    The recent conflict between uninsured patients and hospitals over 
payment is a symptom of two underlying trends in the U.S. health care 
system: growing instability in health insurance coverage and rapid 
growth in health care costs. Health insurance has become both less 
available and more expensive to workers and their families, and health 
care itself continues to become more expensive. Indeed, health care 
cost growth is expected to outpace the growth rate in the economy by a 
wide margin for the foreseeable future.23 Against this 
backdrop, patients, providers, employers, workers, labor unions, and 
federal, state and local governments are struggling to solve serious 
problems that stem from a far greater crisis. The practice of hospitals 
billing uninsured patients more than negotiated rates with insurers is 
troublesome and will only increase access and medical debt problems 
experienced by uninsured families.24 And some hospitals' 
methods to attempt to recover medical debt from patients--charging high 
interest rates, having collection agencies harass them, and placing 
liens on their homes--are simply deplorable. Developing policies that 
would discourage hospitals from either practice is necessary. But in 
the meantime, the pressures that gave rise to this conflict will 
continue to grow apace. In the end, small policy changes will need to 
be accompanied by broad policy solutions that address the root cause of 
the affordability crisis in U.S. health care--policies that would 
expand access to affordable health insurance and reduce the rate of 
health care cost inflation. Thank you for the opportunity to be here 
today.
------
    23 B.C. Strunk and P.B. Ginsburg, ``Tracking Health Care 
Costs: Trends Turn Downward in 2003,'' Health Affairs Web Exclusive (9 
June 2004): W4-354--W4-362.
    24 R. Abelson and J.D. Glater, ``Nonprofit Hospitals 
Said to Overcharge Uninsured,'' New York Times, June 17, 2004; L. 
Lagnado, ``Dunned for Old Bills, Poor Find Some Hospitals Never 
Forget,'' The Wall Street Journal, June 8, 2004; C. Pryor et al., 
Unintended Consequences: How Federal Regulations and Hospital Policies 
Can Leave Patients in Debt (New York: The Commonwealth Fund, June 
2003); C. Pryor and B. Seifert, Unintended Consequences: An Update on 
Consumer Medical Debt (New York: The Commonwealth Fund, June 2004).

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    Mr. Greenwood. Thank you, Dr. Collins.
    The Chair would notify the subcommittee that we will do one 
round with 10 minutes each for the members, and recognizes 
himself for 10 minutes. And let me begin by making my own 
personal stipulations about this issue.
    No. 1, I believe that most hospitals treat most of the 
uninsured fairly most of the time. I believe that many 
hospitals treat many patients very unfairly many times. I would 
stipulate that people who have financial obligations that they 
can reasonably manage should be expected to meet those 
obligations, and I would stipulate that we haven't solved the 
issue of universal health coverage yet. We are not going to do 
that today. No one in this Congress has figured out how to 
develop an approach to that for which he or she can gain 
consensus among the stakeholders. That is why we haven't solved 
that problem yet.
    Now, having said that, I have a question that I would like 
to pose to each of the panels, and that is, is there any reason 
for any hospital to charge any uninsured or self-pay patient 
its charges, ever? Dr. Anderson.
    Mr. Anderson. No, I don't think so. I think when you are 
talking about the full-charge master file, which is anywhere 
from two to four times what everybody else pays, I don't think 
there is a reason to charge more than that.
    Mr. Greenwood. More than----
    Mr. Anderson. More than what the Medicare program, what the 
highest amount that a commercial insurer pays. I think that--
and maybe just a little bit more than that.
    Mr. Greenwood. Which seems to me to be a no-brainer.
    Mr. Anderson. Exactly.
    Mr. Greenwood. Seems to be obvious. Someone is already--
unless Donald Trump decides to go bare and walk into a hospital 
and say, ``I can just cover the charges,'' fine, that is not 
what we are talking about. We are talking about people who 
don't have insurance because either they have never had it, 
they can't afford it, they have lost it, that is what we are 
talking about for the most part--or the young people who don't 
think they need it, whatever the issue may be. But the fact of 
the matter is, it seems to be quite obvious to me that those 
people, they either go into the charity care portion, or the 
hospital should give them a bill that reflects something like 
what insurance companies pay.
    Mr. Anderson. So, somebody who makes $50,000, $75,000, and 
has a heart attack in Pennsylvania, is going to have a $30,000 
bill, and I think Medicare would have a $10,000 bill, Medicaid 
would have a $9,000 bill, Aetna might have an $11,000 bill. 
That seems like a reasonable amount that person who makes 
$50,000 or $75,000 should pay, not $30,000.
    Mr. Greenwood. And to me, that is the whole point of this 
investigation and this hearing, and it isn't rocket science. 
Ms. Jacoby?
    Ms. Jacoby. I have heard no such reason, but I do want to 
state the limitation that I come to this from a very different 
perspective from studying debt and bankruptcy, and therefore 
will defer to my colleagues on that.
    Mr. Greenwood. That is okay. You agree with me, so you are 
probably right. Mr. Rukavina?
    Mr. Rukavina. Well, we have concerns for uninsured, low-
income uninsured patients, and believe that the fees should be 
set that they enjoy the benefits that insured patients do, 
also.
    Mr. Greenwood. Right. So you are agreeing with the 
proposition that the uninsured shouldn't be charged 
significantly more than the insured.
    Mr. Rukavina. Absolutely.
    Mr. Greenwood. Okay. Dr. Collins?
    Ms. Collins. I definitely agree that the uninsured 
shouldn't be charged more than the insured.
    Mr. Greenwood. Next series of questions for everyone. How 
widespread do you think, if we know--and I think this is a 
difficult thing to get a handle on--is the practice by which 
hospitals, in fact, do charge uninsured patients their full 
charges?
    Mr. Anderson. Well, I think they start out trying to get 
full charges from everybody.
    Mr. Greenwood. Now, let us put a point on this. When you 
say ``they,'' you mean you think that is the widespread in most 
hospitals?
    Mr. Anderson. I think they, first of all, start out trying 
to get full charges. Then what they do is they have a series of 
discounts that they do if you are below a certain level of 
income.
    Mr. Greenwood. And this is very important because this is 
our concern--and I don't know the answer to this question--and 
that is, if an uninsured person is about to be discharged, and 
in comes the billing clerk, I don't know whether most hospitals 
say, ``Okay, you are uninsured, let us begin by seeing if you 
fit into our charity category, or let us begin by taking a look 
at what your earnings and assets are,'' or whether they usually 
begin by saying, ``Do you have a VISA card?''
    Mr. Anderson. I think it depends on the extent of the bill. 
If it is $1,000, I think they will go for the VISA card. I 
think if it is $30,000, they recognize that most people don't 
have $30,000, except for Donald Trump and a few others, and 
then they will start the negotiation process. But it is not 
over their charges, it is over a discount that they will do for 
charity care. But they will start with the charges, which are 
very high.
    Mr. Greenwood. And you said, I think, is that based on some 
statistical evidence?
    Mr. Anderson. We have looked at the hospital industry--and, 
again, every hospital is different and every system is 
different--but only about 1 in 20 people that walk out of the 
hospital have negotiated a charge that is lower than the full 
rack rate when they leave the hospital.
    Mr. Greenwood. Does that include those that need to 
negotiate because they weren't asked to pay it all?
    Mr. Anderson. That would not include those individuals. So, 
it is just the people that actually went through a negotiation 
process.
    Mr. Greenwood. So you are already excluding the charity 
care.
    Mr. Anderson. I am already excluding the people----
    Mr. Greenwood. You are already excluding Medicaid/Medicare 
insurance.
    Mr. Anderson. Certainly I am doing that.
    Mr. Greenwood. You are saying that the uninsured who 
actually end up with some obligation because they are not 
charity care, only 5 percent of those folks ever really have an 
opportunity to negotiate.
    Mr. Anderson. Only do negotiate.
    Mr. Greenwood. Only do negotiate. Ms. Jacoby, do you feel 
competent to respond to the question of how widespread this 
problem is?
    Ms. Jacoby. Well, I am under oath, so I should qualify that 
the limited data or evidence that I have seen makes me very 
concerned about the efforts to get money first and ask for 
eligibility information later. The prophecies that I am 
familiar with do seem to encourage charity care eligibility 
considerations to come way later in the process, or at least 
have the possibility of coming way later in the process, and 
allowing collection to go forward on presumably the full charge 
before considering that eligibility or having those two 
prophesies wound up with each other, and of course that is a 
very big concern to me.
    Other data that I have seen suggests that most patients do 
not even think to negotiate their bills with their health care 
providers and especially at hospitals.
    Mr. Greenwood. Mr. Rukavina?
    Mr. Rukavina. Well, I would defer to the hospital panel in 
terms of how widespread the issue is.
    Mr. Greenwood. You will take their word for it, will you?
    Mr. Rukavina. Well, I would hope that----
    Mr. Greenwood. They will be under oath as well.
    Mr. Rukavina. [continuing] they will be under oath as well. 
But we do know, in working with groups across the country, that 
this problem is experienced by individuals in communities in 
many States across the country, and that hospitals appear to 
acknowledge that they are charging higher rates, and oftentimes 
stating--prior to Secretary Thompson's clarification, 
certainly--stating that they need to do that because of Federal 
Medicare rules and regulations.
    Mr. Greenwood. Dr. Collins?
    Ms. Collins. I can actually only point to anecdotal 
evidence, too. I don't know how widespread the problem is.
    Mr. Greenwood. Fair enough. Dr. Anderson, I think it was in 
your opening statement that you made reference to--you were 
describing why the charge masters exist to begin with, and you 
talked about the Medicare formula, or formulae, that looked to 
outliers, saw the outlier issue, and that it is advantageous 
for them to have these higher charges when that calculation is 
occurring.
    Mr. Anderson. Correct.
    Mr. Greenwood. That leads me to think that if that is the 
only reason they have them--well, let me rephrase that. That 
leads me to think that the outlier issue should be resolved 
using a different number.
    Mr. Anderson. I think it should, in fact, be, and it is 
only----
    Mr. Greenwood. And using a different number for the charge. 
Let us say you told them to use the average of insurance 
compensation rates. You could change the formula in a second 
way so that they could still wind up with the same number of 
dollars.
    Mr. Anderson. You could do it that way, but it is one 
reason why the reasons are so high, because the Medicare 
program calculates outliers based upon full charges.
    Mr. Greenwood. So, it would seem prudent to me to change 
that situation so you would give the hospitals at least one 
less reason to--so we wouldn't be skewing the system creating 
an incentive, having the Federal Government and the Medicare 
program create an incentive for hospitals to make up 
mythological charges.
    Mr. Anderson. I agree.
    Mr. Greenwood. Anyone else want to comment on that point?
    [No response.]
    Final question for each of you. The time can now be sort of 
demarked by as that before our investigation and before the 
communication with the Hospital Association and the Secretary, 
when there was this question about whether they were required 
to do that, and then the point at which the hospitals have 
taken, I think, some commendable steps to solving this problem. 
Have you noticed or had the opportunity to observe any 
difference?
    Mr. Anderson. I have not.
    Mr. Greenwood. Because it doesn't exist, or you just 
haven't had the chance?
    Mr. Anderson. I just have not had the opportunity. It is 
just too recent to have a chance.
    Mr. Greenwood. Anyone else want to comment on whether you 
think the world has changed in this regard since the hospitals 
have initiated their voluntary efforts?
    Mr. Rukavina. I would like to comment, Mr. Chairman. I 
think that there is an openness on the part of the Association 
and many of the hospitals to try and address this problem. Many 
of the groups that we work with unfortunately have expressed 
some frustration with the lack of actual written policies that 
do explain the discount, that do explain the collection 
procedures used by the hospitals and, very importantly, a lack 
of information on the process for informing patients of these 
programs, the steps used to ask questions.
    Mr. Greenwood. Do you think Congress should require that 
patients be given some kind of information, that the hospital 
give them some information upon admission, as to what their 
options are for payment?
    Mr. Rukavina. We would hope that that information would be 
supplied to all self-pay patients, that the hospitals would in 
fact work with those patients to ensure that the information is 
given to them about existing programs, and assistance also 
provided to them to enroll in those programs. Again, we think 
it would be financially beneficial to the institutions, and 
helpful to these patients.
    Mr. Greenwood. Dr. Collins, anything to add on this 
subject?
    Ms. Collins. No. I do think that transparency would be very 
helpful in terms of people having access to information.
    Mr. Greenwood. Thank you. My time has expired. The 
gentlelady from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman. First of all, let me 
say that I agree with the chairman that charging the uninsured 
exorbitant rates compared to, say, the insurance companies, I 
disagree with that, too. But I want to explore with you how 
much reducing these fees would really help solve the problem.
    I believe, Dr. Anderson, you testified there are a range of 
reasons why people are uninsured, but the primary reason people 
are uninsured or underinsured is because they can't afford to 
pay for insurance, correct?
    Mr. Anderson. Correct.
    Ms. DeGette. And most of those people tend to be lower-
income individuals, that is all the anecdotal evidence we have 
read and testimony we have seen, is that correct?
    Mr. Anderson. That is correct.
    Ms. DeGette. Does anybody disagree with that?
    [No response.]
    So, here is my question. Let us say--and I don't believe 
that the chairman or anyone in the Majority would pass 
legislation like this, but let us say we passed a law that 
required hospitals to charge only a certain amount above 
Medicare or above their highest insurance rate, so we capped 
it. Would that really solve the problem of the uninsured being 
able to pay their hospital bill?
    Mr. Anderson. I don't believe it would solve the problem, 
but it would mean that the collections would go down because 
instead of being responsible for a $30,000 bill, you would be 
responsible for a $10,000 bill.
    Ms. DeGette. Okay, I understand that, but for most of these 
people--and I agree it should go down, but for most of these 
individuals, some I read about in the excellent series in the 
Wall Street Journal and other places, they can't even pay a 
$1,000 bill, correct? So that is not going to help them, is it?
    Mr. Anderson. No, but if you are getting a 50 percent 
discount on $30,000, it is still $15,000. If you are getting a 
50 percent discount on $10,000, now it is $5,000. We are 
starting to get to a range where at least some of the more 
affluent uninsured individuals can, in fact, pay.
    Ms. DeGette. Do you have any statistics about how many more 
would be able to pay in that circumstance?
    Mr. Anderson. I do not, but I think somebody making $50,000 
or $75,000 might be able to pay a $5,000----
    Ms. DeGette. What percentage of the uninsured are making 
$50,000, because you had just testified that most of the 
uninsured are lower income individuals. So, how many of the 
uninsured are the people that are making $50-75,000?
    Mr. Anderson. About 10 percent.
    Ms. DeGette. Ten percent. So the rest of them are making a 
lot less, aren't they? Mr. Rukavina, what do you think about 
that? I mean, again, I agree people shouldn't be charged these 
exorbitant rates, but I am not sure that most uninsured could 
even pay reduced rates.
    Mr. Rukavina. I think that the discounts--we believe they 
are necessary, though not sufficient. It is a fairness issue in 
terms of the discounts being offered.
    Ms. DeGette. Exactly right.
    Mr. Rukavina. Many of the uninsured that we have 
interviewed--SEIU is here today, and they have interviewed a 
number of uninsured individuals, a lot of the groups we work 
with across the country--the uninsured are actually interested 
in paying something for their care. And it isn't until they 
actually receive the bills, that are oftentimes quite 
eyepopping, that they kind of throw their arms up in despair.
    Ms. DeGette. And that is where we get back to the other 
component, that the hospitals should really work with folks 
from the front end to establish payment plans and to explain, 
so that some poor person is not sitting there recovering in 
their home and they get a $30,000 bill.
    Mr. Rukavina. We believe that would be the fiscally prudent 
approach for both the hospital and the uninsured patient.
    Ms. DeGette. Now, Edith just told me that half of the 
uninsured are below 200 percent of the poverty rate, does 
anybody disagree with that?
    [No response.]
    Okay. And my second question is that a lot of people think 
that the solution to this problem are the health savings 
accounts, that if we let people have a health savings accounts 
which would have high deductibles, that might solve the 
problem. What do you think about that, Dr. Anderson?
    Mr. Anderson. I am not a fan of health savings accounts 
because I don't think that the American public--two things: One 
can frequently negotiate with doctors, with hospitals, 
whatever, one-on-one. You have got Aetna and everybody else 
negotiating hundreds on one, thousands on one, why should an 
individual be able to negotiate?
    The second thing is, I think patients don't have the 
clinical information to make decisions as well, quite often. 
And so they are not the best informed, especially the Medicaid 
and Medicare recipient are not the best informed individuals to 
make a lot of their decisions.
    Ms. DeGette. Anyone else have an opinion on the health 
savings accounts? Mr. Rukavina?
    Mr. Rukavina. Well, we think that more exposure will not 
help the problem, that if people are more financially exposed--
--
    Ms. DeGette. You mean if they have to pay, say, $1,000?
    Mr. Rukavina. $1,000, $2500, that, in fact, it will be 
harmful to the individual, and also to the hospital.
    Ms. DeGette. It will be much harder to collect and it makes 
the problem a lot bigger because you are not just trying to 
collect from a small percentage of uninsured.
    Mr. Rukavina. Again, I was asked the question earlier about 
the hospitals and changes since earlier this year when some of 
this has come to the fore. We hope to work with some of the 
hospitals to better understand this problem as it affects 
insured patients, and actually are looking at the increase in 
these high deductible policies and whether they do contribute 
to the medical debt problem, and the uncompensated care 
problems of the hospitals in the country.
    Ms. DeGette. Dr. Collins, what do you think about that?
    Ms. Collins. I just wanted to cite some research by the 
Center for Study in Health System Change that found if all 
Americans had a $1,000 deductible health plan, a third would 
spend more than 10 percent of their income on their health care 
in the event that they were hospitalized. So, you are still 
looking at charges that could exceed large shares of people's 
income, particularly at the lower level income ladder.
    Ms. DeGette. Even for some of those people, it might send 
them into bankruptcy and cause other severe financial problems 
just trying to pay their deductible, correct?
    Ms. Collins. Yes.
    Ms. DeGette. I didn't get to you with my last question. I 
am wondering if you think that the solutions which we all can 
agree are important short-term bandaid type fixes--charity care 
and discounting for the uninsured--are going to solve the 
financial problems with health care of the uninsured in 
America.
    Ms. Collins. I think that they are short-term solves to 
this problem. They certainly will not solve the problem in the 
long-run, and there is no question that with the growing cost 
in health care, that employers are going to continue to have to 
shift more of their burden to their workers, raising the 
concerns that workers will become more underinsured or drop 
their coverage all together. So, now I think that there really 
needs to be a broader policy solution to increase coverage of 
the uninsured.
    Ms. DeGette. Now, in your study, in fact, that you cited 
today, it seemed to me like everything is getting worse. There 
is more uninsured. Insurance is more expensive, it covers less. 
Public health care systems are being cut back, and people can't 
pay their medical bills. Do you see anything reversing those 
trends in the next 5 years?
    Ms. Collins. Improving economy will certainly help, but 
research by Paul Ginsberg just recently on health care costs 
predicts that health care costs will continue to outpace the 
growth rate in the economy for the foreseeable future.
    Ms. DeGette. One of the things I noticed also in your study 
was that the largest companies, the ones that employ 500 people 
or more, the ones who should be providing excellent insurance, 
now have 32 percent of their workers uninsured. This compares 
to the medium size companies which actually had a small 
decrease in the number of uninsured. What is happening with 
those larger employers, are they following sort of the Wal-Mart 
method of having temporary or part-time employees, or what is 
going on?
    Ms. Collins. What really reflects broader changes in the 
economy away from manufacturing and toward the service industry 
is the larger firms are now firms that are like Wal-Mart that 
tend not to offer insurance coverage to all of their employees, 
or not any of their employees, so looking more like small 
employers. Small employers certainly--workers in small firms 
currently make up the largest share of the uninsured, but it 
certainly is growing in the large firm sector.
    Ms. DeGette. Ms. Jacoby, getting to you with the questions 
I was asking, do you think that instituting this charity care 
and discounting are really going to help the uninsured that you 
looked at in your research?
    Ms. Jacoby. I think that--do you mean in terms of discounts 
to a lower amount----
    Ms. DeGette. Because of the population we are talking about 
here, is it really practically going to make them not have to 
take bankruptcy if they have the lower bills, and can you 
quantify how many people?
    Ms. Jacoby. I am concerned that even smaller bills can be a 
big problem for the families that we are talking about. I think 
if we look at the bankruptcy data, credit report data, and even 
the published case law of hospital lawsuits against patients, 
we are finding a real range of bills.
    Ms. DeGette. What are some of the average medical bills in 
these bankruptcies?
    Ms. Jacoby. Well, in the average medical bills in 
bankruptcies, some of the latest data would suggest that they 
are well over $10,000, on average, since illness onset, at the 
time of filing. We need to be careful because that may not 
include amounts that are included on credit cards. I know that 
The Access Project has done other work on this finding that 
nearly half of all bankruptcy filers have medical debt in their 
bankruptcy files, and that is in addition to people who may 
have mortgages on their homes already from medical debt, who 
may have used credit cards and have higher interest payments on 
those as well. So, I do think there is a range of bill sizes, 
but the average is actually fairly high for families with the 
incomes that we are talking about.
    Ms. DeGette. Thank you.
    Mr. Greenwood. The time of the gentlelady has expired. The 
gentleman from Oregon, Mr. Walden, is recognized for 10 
minutes.
    Mr. Walden. Thank you very much, Mr. Chairman. I want to go 
to a comment you made, Dr. Collins, regarding insurance and the 
$1,000 deductible portion because I will tell you what I hear, 
having been a small employer for 18 years now, and we provide 
insurance for our employees, health insurance. As I talk to 
small employers in my district and around, it is the price of 
the premium that is driving them away from providing insurance. 
The annual increase is sometimes 30 or 40 percent. And they are 
having to make some really difficult and unwanted choices. And 
with the advent of the health savings accounts, I am finding a 
renewed interest and a new availability of policies where you 
could actually insure a family for catastrophic care at, say, 
$300 a month. Now, albeit the deductible can be high, but the 
employer can contribute to that, which then goes into the HSA. 
And they are saying, ``Gee, maybe I can continue to provide 
health insurance for a while longer.'' Some are adding it for 
the first time.
    And I am wondering in terms of your studies and others on 
the panel, do you look at that and what that means because, if 
I am a moderate to low-income person and my small employer--
which is where most of us work and get our insurance--if they 
are able to continue to insure, they are preventing a 
catastrophic loss--because when you have a heart attack and you 
are on a gurney, you are not negotiating price at the door of 
the hospital, and it may be the only hospital within 20 miles. 
So, do you look at those data as well? Would the loss be higher 
if you are uninsured than if you have a catastrophic stop-loss?
    Ms. Collins. Well, certainly, if you had a catastrophic 
stop-loss, your losses would be less if you had a catastrophic 
event. The problem is that you are going to be so underinsured 
for first-dollar event, so the preventive care. And so people 
are going to have similar access to care that the uninsured 
have simply because those dollars, preventive care dollars, are 
not available to them.
    Mr. Walden. Right. But it seems to me that if I have got, 
let us say, a $1,000 deductible HSA policy, health savings 
account policy, I am out $1,000 up front, certainly. I may be 
out some form of co-payment--and I don't know what that would 
be, 80-20, 90, whatever, to a stop-loss period--but once I am 
out that, then I am covered, right? So my heart attack that may 
be $11,000, I am paying $1,000. Without any insurance, I am 
getting hit for not $11,000, but $30,000, according to Dr. 
Anderson, which is outrageous.
    So, I am looking at this--and I have worked on this issues 
as an employer, on a small community hospital board, in the 
State Legislature, I chaired the committees after my first 
session that implemented the Oregon Health Plan and expanded 
the high-risk pool, and did all these things. I haven't found a 
silver bullet yet that solves this problem, but what I find is 
there are a bunch of little things you can do that fit 
different pieces, and we try and get more people covered.
    And so I look at HSAs and say, maybe this is one piece that 
works for a certain segment that can insure the uninsured that 
otherwise would be walking away from the table today, and are.
    Ms. Collins. Yes. The concern, of course, is whether or not 
people have a comprehensive benefit package that leaves them 
covered when they need it. It gives them good access to the 
health care system and not underinsured. And whether or not 
there are other options for small employers buying into large 
group pools, for example, that might provide more affordable 
care for their employees.
    Mr. Walden. Right.
    Mr. Anderson. When people have first-dollar coverage, the 
things that they don't do are preventive services, so the women 
do not get mammograms, they do not get pap smears because they 
can defer those things until the next year and the year after 
that. Those are the things, when we have this lack of first-
dollar coverage, are the things that we go without. I mean, 
that is just----
    Mr. Walden. Right, but if your alternative is you have no 
coverage, how are you any better?
    Mr. Anderson. You are clearly better off having coverage 
than no coverage, but the whole idea behind managed care, the 
whole idea behind----
    Mr. Walden. Prevention.
    Mr. Anderson. [continuing] is prevention.
    Mr. Walden. Sure, and that was the whole idea behind the 
Oregon Health Plan, which for the Medicaid population said ``we 
can immunize for preventive work for thousands where we can do 
one high-risk procedure for an 80, 90-year-old that wanted a 
liver transplant, is an alcoholic, diabetic, whatever.
    Mr. Anderson. And that is what the health savings accounts 
will still pay for.
    Mr. Walden. I understand that, but there is a certain 
amount of personal responsibility when it comes to health care, 
and people do make decisions about whether or not they have 
satellite TV and a new car. I mean, there are other financial 
decisions. I am sure you see it in your bankruptcy work, don't 
you? Half of it is medical, certainly, and those are those out-
of-the-blue charges like you are saying, $30,000 that shouldn't 
be $30,000, but there are other--and I guess that is what I 
wrestled with on the hospital board because we looked at the 
list of people who owed us money, and as community leaders we 
knew some of them. And you would say, ``Wait a minute, I just 
saw them buying a new whatever, and they are driving in town, 
or they are in a business or something,'' and they should pay 
and they should be held accountable.
    Mr. Anderson. But if they are being asked to pay $30,000 
for something you know everybody else is buying for $10,000----
    Mr. Walden. I don't disagree with that. But the issue, too, 
is, don't those who are insured--don't the insurance companies 
bring some efficiencies to the hospital? I mean, just like--
well, in theory, Medicare does, but I think it just brings more 
regulation and cost, frankly--but, in theory, there is an 
advantage to having a third-party payer handle that, whether 
you are a doctor or a hospital. So, I can see a reason to be 
able to negotiate--have to have some room to negotiate some 
reductions for that opportunity, right?
    Mr. Anderson. Sure. And the savings occur mostly in the 
billing and administrative side, they don't--once you get on 
the surgical table, it doesn't matter who is insuring you.
    Mr. Walden. And it seems to me that part of the problem 
with this market is--I look again at my district, I have got 20 
counties, three of whom don't have doctors or hospitals, and 
you drive 100 or 150 miles to the first one, literally. And so 
if you walk in with chest pains, you are not going to say, 
``Well, I am going to go to the Dow, it is 19 miles away, and I 
can get it for 100 bucks less.'' So, it isn't really a market 
process where you can negotiate that kind of price.
    Mr. Anderson. Certainly if you just had a heart attack.
    Mr. Walden. Right. Now, if you are doing cosmetic surgery 
or something--our colleague, Greg Ganske, used to talk about 
people got three prices before they came and made their 
decision. You look at lasik eye surgery and things, it is 
advertised based on price, and I am not sure I want the 
cheapest one, but--but it is a voluntary choice in that case. 
And what you are looking at is emergency care and others.
    Mr. Anderson. Correct.
    Mr. Walden. But does it make sense to, in effect, get into 
a price setting, say, 25 percent above Medicare. Does that work 
everywhere, and is that--what are they collecting now off the 
charge master?
    Mr. Anderson. Most of them are collecting very little off 
the charge master.
    Mr. Walden. So it raises the issue, why do we have a charge 
master?
    Mr. Anderson. Exactly. Well, we had a charge master from 
1900 on because people originally paid charges, and in 1960, 
1965, and 1990, the charge master meant something. After about 
1990, the charge master has no market forces to determine it at 
all, it is just raised two, three times faster than health care 
costs have risen.
    Mr. Walden. How much of that is because of cost shift from 
lower, like Medicare and Medicaid, that don't always pay the 
full freight, and how much of that is just that those final 
folks left have no negotiator?
    Mr. Anderson. I would say that it is mostly that those 
final folks have no negotiator.
    Mr. Walden. And it seems to me, too, on debt--and maybe, 
Ms. Jacoby, you can address this--as a small business owner, 
when I have a client that is behind 30, 60, 90 days, I am much 
better off to sit down and cut a deal because I am never going 
to see anything--even if I go through bankruptcy, the 
opportunity to collect is pretty slim.
    Ms. Jacoby. I think that is what has struck some of us on 
the debtor/creditor side about the situation about attempts to 
collect through the formal process, that it is a little unusual 
as compared to what institutional lenders are doing and how 
they are handling the situation.
    Mr. Walden. It is not very effective. Okay. Then where in 
the process do you make this work? I am in the radio business, 
so I can negotiate a sales price when we go in the door and out 
the other side and all that. But if I am a patient coming into 
the hospital in need of emergency care, I don't want to wait 
around, I want somebody to look at me. Where do you make this 
thing work? Where should these hospitals make it fit?
    Ms. Jacoby. Well, this is a big concern, as I tell my 
contract students, this is very different from even the other 
standard form contracts that patients and consumers enter into 
every day, that there really is no opportunity for negotiation 
when they need the care, and often their family members are 
signing agreements that have terms in them that they barely are 
reading because they have very important things on their mind 
and would sign them in any event. It is a very difficult 
situation to find the right time when people aren't involved in 
regular care. If they are involved in more regular and 
preventive care, they might have a better----
    Mr. Walden. That is a different issue. One final point, 
because the census data I have here somewhere indicated that I 
think the figure was 43.3 percent of those who have no 
insurance for an entire year are not citizens of the United 
States. That means--and we saw it in our hospital, we have a 
very high Hispanic population. A lot of them are not legal 
citizens of the United States. How do we cope with that because 
they are not going to want to give data, and you know why. I 
mean, they don't want a free ride back to their country where 
they are citizens.
    Ms. Jacoby. Even those who are citizens may not have the 
data that are necessary in order to process their charitable 
care eligibility in terms of pay stubs and the like, if that is 
what you are referring to.
    Mr. Walden. Well, but when you are talking about signing up 
for charity care in this environment, some of them won't. Well, 
that means they are probably not paying taxes because you could 
always turn in a copy of your tax return, I would think. So, 
where do you help the hospitals here who are saying, ``Okay, I 
do have a charity program, but you have got to work with me. 
You have got to give me some data here``. How do we address--
what do you recommend? You are the certified smart lawyer here, 
I am not.
    Ms. Jacoby. Well, I will wear that hat then today. I don't 
see a magic bullet to the situation, and I hope I was clear 
that I don't see the hospitals as being fully responsible for 
the situation. I think at every level of our legal system, from 
the county level to the State to the level to the Federal 
level, we do have a system where the charges are not known to 
the patient often until afterwards, and that we treat patients 
as debtors through our whole legal system and our whole health 
care system. And I think just as that has developed over a very 
long period of time, I don't think it can be solved overnight.
    Mr. Walden. Okay. I have overrun my time here. Your 
comments have been very helpful, thank you very much.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes the gentlelady from Chicago, Ms. Schakowsky, for 10 
minutes.
    Ms. Schakowsky. Thank you, Mr. Chairman, and thank you, 
panel. This has been a very interesting conversation that we 
have been having. As someone who supports some kind of 
universal health care plan, I would like to see a national 
health care plan. One consensus that seems to be here is that 
the market doesn't work. People are talking about whether the 
uninsured should get the same rate as people who are insured, 
so we start talking about price setting and that kind of thing. 
The market in health care and in hospital care seems to have 
absolutely failed us.
    I want to talk a little bit about people with insurance 
because I am looking at something from one of the hospitals, 
Quality Health Care For Those in Need, and the guidelines that 
they have. It begins with the charity care program, and 
basically it deals with people who are uninsured.
    So I want to ask the witnesses to talk a little bit more 
about people who have insurance with very high deductibles, 
about what is happening to them in terms of their financial 
fragility.
    Ms. Jacoby. Well, many medical bankruptcy filers have some 
insurers in their families at least at some point. One study 
that I was involved with originally found that 80 percent of 
bankruptcy filers with medical problems had some insurance at 
the time of filing.
    Ms. Schakowsky. I want to underscore that because I think 
it is really important. When we think of these problems with 
medical bills, very often we talk about people who find 
themselves uninsured. But you are saying that bankruptcies due 
to medical bills involve people, 80 percent of whom are at 
least partially insured. That is a serious problem.
    Ms. Jacoby. I agree. Follow-up research is trying to dig a 
little bit deeper and see what those numbers mean, and I think 
what we are finding is that many of those people have had gaps 
in coverage in the past, so they may have incurred some of 
these debts while they are insured at least for some family 
members. It also could go the other way, they are insured at 
the onset of their illness and later become uninsured, and then 
are facing some of these problems. So, I think it is more 
complex than just the label of insured or not insured, it is 
the quality of their coverage, but also the continuity of their 
coverage that is showing up in bankruptcy.
    Ms. Schakowsky. I wonder, Dr. Collins, if you could comment 
on that as well?
    Ms. Collins. Yes. The survey conducted The Commonwealth 
Fund asked people about their medical debt, and 35 percent of 
people who were continuously insured said that they had had a 
medical bill problem or had accrued medical debt. Forty-five 
percent of those who were continuously insured, who earned less 
than $35,000 a year, said that they had had a medical bill 
problem or accrued medical debt. So, we are clearly seeing that 
people who are insured continuously are having problems paying 
their bills. In fact, when we asked people whether when the 
bill was incurred, if they had a medical bill problem or debt 
problem, if they were insured at the time of the bill problem 
or the time of the event, 60 percent said that they had been 
insured at the time. So, we are clearly seeing this is a 
problem of underinsurance as well as uninsurance.
    Ms. Schakowsky. I don't know if anyone else----
    Mr. Rukavina. I would like to comment on this as well. We 
worked with a nonprofit consumer credit counseling service and 
found similar figures. About 40 percent of the people seeking 
the services of this consumer credit counseling service were 
there because of a medical incident, and nearly I think it was 
70 percent of those people that were there because of a medical 
incident were insured at the time of the medical incident.
    Mr. Anderson. We also know the characteristics of these 
individuals, generally. A few of them have a catastrophic thing 
that was unexpected, but most of these people that have these 
debts are people with chronic conditions, with multiple chronic 
conditions. They are somebody who is going to the doctor 
repeatedly. They are going to the hospital repeatedly, year in 
and year out, and they are the ones that find--and the health 
system and the health insurance system doesn't cover them 
adequately. If you have got an acute care problem, the 
insurance takes care of it, generally. If you have a chronic 
problem, the health care system doesn't cover you as well, and 
you are the ones having most of the expenditures.
    Ms. Schakowsky. The other thing about that is that it may 
be an accumulated debt over a period of time where the 
individual charges may seem manageable but, in fact, over time, 
are not.
    Mr. Anderson. If you have diabetes and congestive heart 
failure and three other things wrong with you, you are seeing a 
lot of different doctors and you are incurring a lot of bills, 
and you are doing that not just 1 year, but year in and year 
out. And so those medical bills pile up. And a lot of times, 
with co-insurance and other things, you are paying 20 percent 
of the doctor bill, a portion of the hospital bill, and with 30 
doctor visits and 50 prescriptions and all sorts of things that 
you fill in a year, that is a lot of money.
    Ms. Schakowsky. I think it is important for us to paint a 
picture of the people who are facing this problem as most often 
having jobs, working, and in many, many cases, also have 
insurance. In fact, it sounds like in some cases having a job 
can be--I am looking at a document, ``Collection Practices 
Prohibit Legal Action Against Unemployed Individuals.'' Well, 
if you are employed and still can't pay, then that doesn't 
apply to you. It prohibits liens on a patient's residence if it 
is the sole real asset. Well, what if you don't have a house 
and you are a renter? So, you are employed, you have insurance, 
and you are a renter, then your wages could still be garnished 
and you can't pay your rent. It seems to me that there are just 
so many, many holes in here.
    I am concerned about the women who traveled here from 
Chicago to talk about their situation. We hear about charity 
care being offered. The hospital did work to help her apply 
under the Victims Assistance Fund, but she was denied, and then 
she was sued.
    If charity care doesn't work, do they then just turn these 
over to collection agencies? When do they start suing?
    Ms. Jacoby. I guess we should let the next panel answer 
that in some measure, but my belief is that turning medical 
accounts over to collection is quite a routine matter, and it 
is happening earlier and earlier, perhaps earlier than it would 
happen with other types of debts that consumers and patients 
face.
    Ms. Schakowsky. Then do the hospitals claim to no longer 
have--I guess we could ask the next panel.
    Ms. Jacoby. Again, I stand to be corrected, but my 
understanding is that they are mostly not selling the debt 
outright, but assigning it to a primary and then perhaps a 
secondary collector, and therefore are taking the 
responsibility for overseeing that process.
    Ms. Schakowsky. Is the rate of lawsuits increasing?
    Ms. Jacoby. I don't have a way to measure that.
    Ms. Schakowsky. Does anybody know if there are more 
lawsuits? Both of these instances ended up in a lawsuit. Even 
in the case of Ms. Perez working out a payment plan and with 
payments being made on time, she was sued. So my concern is 
that, after all is said and done, if you can't even work out a 
payment plan without getting sued, this sounds like an 
intractable problem. I don't know if anyone wants to comment on 
where we need to go with this.
    Ms. Jacoby. Just looking at the trends in the health care 
system right now, rising costs, rising numbers of uninsured, 
there is no question that this problem will continue to grow. 
We probably will continue to see lawsuits and growing numbers 
of lawsuits, just because of the drivers in the system right 
now.
    Ms. Schakowsky. My concern is the problem that the 
uninsured pay this premium price. It is also true, by the way, 
in the cost of prescription drugs where those who have a 
prescription drug plan that has been negotiated by their HMO or 
their insurance company pay less, and the people who can't 
afford it end up paying the premium price. Mr. Waxman's studies 
have shown that. So, that is one problem that the hospitals are 
charging premium prices. Nonetheless, hospitals need to recover 
some costs as well. We are not asking them to do complete 
charity care.
    At some point, Mr. Chairman, it just seems to me that we 
need to get to the core issue. You said we are not going to 
solve the issue of universal health care today, but I just feel 
that we keep marching around the edges here. At some point we 
are going to have to jump right into the middle and deal with 
the core problem. I thank the witnesses.
    Mr. Greenwood. The Chair thanks the gentlelady. The 
gentleman from New Hampshire, Mr. Bass, is recognized for 10 
minutes.
    Mr. Bass. I am going to pass, Mr. Chairman.
    Mr. Greenwood. The gentleman from Michigan, Mr. Ferguson.
    Mr. Rogers. Rogers.
    Mr. Greenwood. Rogers--I am sorry.
    Mr. Rogers. Wow. Has it been that long since I have been in 
committee, Mr. Chairman?
    I do appreciate it. Thank you, Mr. Chairman, and I 
appreciate the panelists today, and I am adamantly opposed to 
national health care. We see it just north of our border. They 
ration, they have very few choices on prescriptions, and many 
places in the system they stop people from getting care 
determined by age and illness and other things that I just 
think is un-American.
    I was curious, Dr. Anderson, something struck me that you 
said about the lack of first-dollar coverage would stop people 
from getting preventative care. Have you done any study on any 
of the new folks who have embraced HSAs--and I know it is a 
relatively new phenomenon, people are just getting into the 
system and getting started--but do you have any studies on the 
folks who have actually signed up within the last few months 
and are participating in these programs?
    Mr. Anderson. I do not, but if you look at programs like 
the Rand Health Insurance experiment that ran in the 1970's and 
early 1980's. they in fact did have something very similar to 
the HSA type of thing. The services that people chose not to 
get were the preventive services. So we have a large national 
experiment that was done in the 1970's and 1980's, and maybe 
people are different now, but I don't think so.
    Mr. Rogers. You don't think people may be more price 
sensitive today than in the 1970's? Let me tell you why I ask 
you this. There was a group--and I am just trying to figure out 
if you are right or they are right--but there was a group of 
about 18 to 20 small businesses, under 500, who had gone to 
HSAs, and we assembled them in a room and said, ``Tell us the 
good and the bad and the ugly about these things, are they 
working or are they not?''
    And they had some interesting percentages on the people 
that were involved in those programs--and they could have been 
an anomaly, I suppose--but 45 percent of the membership in 
these agencies were brand new. They had never had health care 
before, which I thought was pretty staggering. And what they 
found is that they were 30 percent more likely to go into 
preventative care than the folks in the old system that had 
first-dollar coverage. And they were certainly more price 
sensitive, and most of them--and I forget the percentage--had 
engaged in negotiations for things like annual physicals where 
they went into the doctor and said, ``I don't care what you are 
charging, this is what I am going to pay. Do you still want me 
as a patient?''
    And to some degree I thought that was very encouraging 
news. That may have reverse in the trend, and if there is 
finally--and one of the things I think is broken about our 
health care system is the consumer is really never in charge. I 
am told what to do by everybody else--third-party 
administrators, your employers, the hospital gets their say. At 
the end of the day, I end up with a collection agency, and I am 
not really sure what in the heck happened.
    My theory is that if we had this sense of price 
sensitivity, maybe the $9 aspirin would have gone away a long 
time ago. Somebody would have said, ``Hey, wait a minute, I am 
not paying nine bucks for this.'' I am encouraged by it, and I 
was just curious.
    Mr. Anderson. Well, I think what you have got to look at is 
the 43 million uninsured who do have an incentive to negotiate 
with their hospital, negotiate with their physician, negotiate 
with anybody they can negotiate with over price, and very few 
of them are able to do it, and certainly cannot negotiate rates 
that are comparable to what Aetna can do, or what anybody else 
can do when they walk into a hospital.
    Mr. Rogers. Of course, under an HSA, you have leverage. If 
I have absolutely no insurance and nowhere to go, I have no 
leverage. At least I know I have got some money to pay, No. 1, 
and I have catastrophic coverage, No. 2, so I have got some 
leverage. You and I can work together because I have got some 
money to give you.
    Mr. Anderson. Right. And the other thing is that many of 
the HSAs--not all of them, but many of the HSAs, in fact, 
negotiate for you, so that if the HSA is run by Aetna or is run 
by somebody else, they are actually negotiating the rates on 
your behalf, and you are essentially piggybacking on those 
rates.
    Now, maybe you can even negotiate a better rate than Aetna 
is going to do for you, but I doubt it.
    Mr. Rogers. Interesting. I am actually fairly hopeful for 
it, so I hope you will get involved in some of those studies in 
the future with actual participants, and maybe we can see where 
those numbers--I was encouraged by that first batch of folks 
coming in.
    This is a very difficult issue, in some cases very 
difficult to understand about what care is compensated and 
isn't, and I have a feeling at the end of the day we are going 
to find that there are several people that at fault for the 
problems that we found in the system, and one of those problem-
makers is policymakers. The way we develop policy for 
uncompensated care creates some kind of really anomalies in the 
system that makes very compassionate, kindhearted people do 
some kind of things we all look at and scratch our head and 
say, ``Why would we do that?''
    So, I hope that through this that we can fix those kind of 
things. And I guess, Mr. Rukavina, I would ask, there are five 
systems joining us today, and they said--at least have told 
us--that they have taken steps to enhance and revisit their 
billing system. Have you found that to be true and, if so, what 
has that done for the patients?
    Mr. Rukavina. Well, we are talking to several of those 
systems. They are, in fact, taking steps to address some of the 
problems that have been highlighted, and I think that frankly 
it is too early to tell.
    I received a call from an attorney recently that had a 
patient in one of these systems that will be here today. We 
have addressed it with the system directly. A patient was 
identified as possibly having another source of payment, an 
uninsured patient possibly having a source of payment. There 
were some problems, probably problems resulting from actions 
the hospital took and actions the patient took, but the end 
result was that the bill was sent to collection after 30 days, 
and the first call that this patient received after being 
released from the hospital was from a collection agent that she 
felt was fairly intimidating. And, again, we are hopeful. I 
think it is too early to tell. And I think that it has been 
raised earlier by others asking the question, the details of 
how these programs are implemented will be of utmost 
importance. How people are informed of the program, the kind of 
information that is actually shared with patients, when it is 
shared, and the whole series of questions that get asked 
regarding patients and their ability to pay will be very 
crucial, and we hope that these systems and others and the 
American Hospital Association and State associations will work 
hand-in-hand with community and consumer groups that we believe 
are resources that could help the hospitals and patients solve 
some of these problems.
    Mr. Anderson. One of the problems is the charge master 
file. A charge master file has about 10,000 different items on 
it. You walk into the hospital, even in a nonemergency 
situation, you don't know which of these 10,000 items you 
should negotiate on the basis of. So, you can negotiate 
afterwards and try to lower your rates on a certain set of 
things, but you don't know a priori when you walk in what 
services you are going to need. Are you going to need an x-ray? 
How many x-rays are you going to need? What type? Are you going 
to need an MRI? What type are you going to need? Ten thousand 
items, you can't negotiate on that. You have got to have 
something for somebody that you can, in fact, negotiate on, and 
that is probably what is your day rate, what is your DRG rate, 
what is something simple that somebody can negotiate on, not 
10,000 items, of which probably 9,950 of them you will never 
use.
    Mr. Rogers. Interesting. I know this problem is complex. I 
appreciate all you being involved in it. I hope we don't give 
up on probably one of the better health systems in the world--
and it is not perfect. It has got bumps and bruises and warts 
and it is ugly, but if we want to remove compassion and care 
from a system, nationalize it. Ask the Canadians, ask the 
British, they are all having problems with the weight of these 
large, unmanageable, uncaring--intentions are great, the 
outcomes are awful, and I just don't think we ought to really 
hinder the innovation of our health care system that does 
miraculously well for a pretty unhealthy population, quite 
frankly, and that is America as a whole. Thank you, Mr. 
Chairman, I yield back.
    Mr. Greenwood. The Chair thanks the gentleman. The 
gentleman from Maine is recognized.
    Mr. Allen. Thank you, Mr. Chairman. Dr. Anderson, I would 
like to pursue some of this. I have a different view than my 
friend from Michigan, about how the Canadian health care system 
works. I think every country has its own unique system, and we 
are not going to adopt any other country's system, but whenever 
elections are held in Canada, it is pretty clear how the 
Canadians feel about their health care system. They know it has 
problems, but substantial majorities are very positive about 
it. In fact, all the polling shows the Canadians like their 
health care system better than Americans like ours.
    I was intrigued by one of your comments, and you were just 
pursuing it with Mr. Rogers. This notion of bargaining for your 
health care makes some sense to me when you are part of a very 
large group, which is essentially what happens with our 
insurance companies. They negotiate rates on behalf of their 
members, their beneficiaries, and then, without even knowing 
it, the beneficiaries get the benefit of that negotiated rate 
for a whole range of services, but they can do it simply 
because they are pooled in a large group. But I was struck by 
your testimony, your written testimony, about the constraints 
on the bargaining power of the uninsured.
    You say perhaps the most important constraint on their 
bargaining power, however, is that they do not know what 
services they will ultimately need. They do not know how long 
they will remain in the hospital, what x-rays or lab tests they 
will need, and therefore they cannot know in advance what 
services they will require and which of the 10,000 prices they 
should negotiate. And if they could negotiate those prices, you 
would still have an individual trying to negotiate with a 
hospital, which doesn't work very well, except it works, as the 
testimony has shown, after the services have been rendered in 
terms of how much you are going to pay on a bill that has been 
rendered.
    And so that point seems to me to be particularly compelling 
in terms of our expectations about what we really expect here. 
I don't know if you want to elaborate on that anymore, you 
already commented to the gentleman from Michigan, but do you 
have anything further you would like to say on that?
    Mr. Anderson. I think to allow the marketplace to work, 
people have to have good information. And one of the key things 
you have got to know is what services are you going to need.
    Mr. Allen. You touched on how to move ahead, and I was 
struck by your DRG+25 percent. Probably doesn't stand much of a 
chance in Congress because we prefer complexity to simplicity 
here, at least that is the trend. Give us as much complexity as 
we possibly can have, and I offer the Medicare law as the prime 
example. But it does seem to me that it highlights the tradeoff 
that we have here. If you are going to have stability and 
predictability and equity, and you come to this particular 
problem--and I take the testimony of the panel as a whole to be 
saying essentially we are really going to operate in the 
margins here. We are not going to fix the problem of the 
uninsured, we are trying to deal with what started out being 
the subject of this hearing, which is the fact that some people 
are charged way more--way more--than others, and that looks 
unfair. That looks abusive. But if you have--I guess this is 
probably for the other panelists.
    You could say Medicare+25 percent, you could say 
Medicare+35 percent, you could say Medicare+10 percent. You 
could say almost anything. But if you did that system, it would 
be a simple system. You wouldn't be trying to figure out what 
insurers for a particular hospital get reimbursed or are 
charged for their beneficiaries.
    So, if we remove--for all the other panelists--if you 
remove the element of how much above Medicare the reimbursement 
is--and Medicare is often under-reimbursed--how would you react 
to, say, DRG-10 percent as opposed to DRG+--do you catch my 
drift--DRG+10 instead of DRG+25 percent? Is the concept of 
having a simpler system one that makes sense to the rest of 
you? I know it does to you, Dr. Anderson.
    Ms. Jacoby. Well, I think simplicity would assist patients, 
and that could be done in a lot of different ways. But I think 
that one problem that they are experiencing is trying to figure 
out what they owe, if it is owed right away, if it is owed over 
installments, what their legal situation is. So, I am certainly 
in favor of simplicity. I don't have an opinion on any 
particular way to make the system more simplified, but from the 
patient's perspective, they already aren't--if they are not 
negotiating the rates in their care very much, then that is one 
way to at least let them know how they can handle their 
financial affairs.
    Mr. Rukavina. I think that clearly a more simpler billing 
system would be helpful. Transparency would be helpful all 
around. Hospitals, as Secretary Thompson pointed out, are 
reimbursed by the Federal Government $22 billion per year to 
pay for the care of poor and uninsured patients. I think that 
it is oftentimes confusing to figure out what the gap is in 
terms of the services provided, the cost of those services, and 
what providers, hospital and other providers, are actually 
reimbursed for the cost of that care, reimbursed from the self-
pay patient and from the various subsidies that come from 
Federal, State, and oftentimes local governments. So, clearly 
transparency would help. But, again, a system that is caring 
and compassionate on the finance side we believe would benefit 
the providers and the patient.
    Mr. Allen. Dr. Collins?
    Ms. Collins. I certainly think that that would be an 
improvement over the current situation. In the long-term, it 
might be helpful if people without insurance coverage could 
actually buy into a group insurance program like the Medicare 
program, so that could be sort of a long-term goal and this 
being a step to fixing the current problem on the way to 
getting to that.
    Mr. Allen. We are doing an experiment in Maine, we call it 
Derigo Health. The State government is essentially contracting 
with an insurance company to cover a pool of people who are 
essentially working for small businesses and most likely be 
uninsured. That is another whole speech.
    I want to ask one other question, maybe primarily for you, 
Dr. Anderson. Put yourself in the position of a hospital CFO. 
The change is needed. But any change that is made can easily 
lead to an increased cost-shifting. Unless we do something 
about Medicaid reimbursement, Medicaid and Medicare--unless we 
do something about those reimbursement systems, any loss of 
revenue anywhere in the system for a particular hospital can 
lead to more cost-shifting to the commercial side, and at least 
in my State, the small business community in particular, but 
even large businesses are really struggling.
    Any thoughts about how to deal with that particular 
problem, if we basically laid down some ground rules for what 
hospitals could do with respect to the uninsured in terms of 
how they charge and how they collect from the uninsured? Any 
thoughts on how we deal with the other side, the potential loss 
of revenue and the risk of more cost-shifting to commercial 
insurers?
    Mr. Anderson. Well, essentially, most of the uninsured have 
difficulty paying these bills, most of them do not pay the 
bills. Only about 3, 4 percent of hospital revenue actually 
comes from the uninsured. So it is not a big number that we are 
talking about here in terms of loss of revenue for the hospital 
industry because many of these people don't pay.
    So, as a result, I don't think that it is going to have a 
whopping big impact on the bottom line, and Medicaid and 
Medicare could do it more substantially by increasing the rates 
by 1 percent than all the hospitals tripling the rates on the 
uninsured. It would have a much bigger impact on the hospital's 
bottom line.
    Mr. Allen. Thank you. Anyone else? I have 30 seconds left.
    [No response.]
    Thank you, Mr. Chairman, I yield back.
    Mr. Greenwood. The Chair thanks the gentleman, and the 
Chair thanks our panel of witnesses for your help this 
afternoon. Happy birthday, Dr. Anderson, go and enjoy your 
birthday dinner. You are excused.
    The Chair calls forward our second panel consisting of 
Anthony R. Tersigni, Chief Operating Officer and Interim CEO of 
Ascension Health; Kevin Lofton, President and Chief Executive 
Officer of Catholic Health Initiatives; Jack O. Bovender, Jr., 
Chairman and Chief Executive Officer, HCA, Nashville; Herbert 
Pardes, M.D., President and Chief Executive Officer, New York 
Presbyterian Hospital; and Mr. Trevor Fetter, President and 
Chief Executive Officer of the Tenet Healthcare Corporation.
    Gentlemen, we welcome you, and let me begin by thanking all 
of you for being here. I know how difficult it was to arrange 
your schedule so that you could be with us this afternoon, and 
that is appreciated.
    It is the practice of this committee to take testimony 
under oath, and so I need to ask if any of you gentlemen have 
objections to giving your testimony under oath this afternoon?
    [No response.]
    Seeing no such objection, I would advise you that under the 
rules of this committee and the House of Representatives, you 
are entitled to be represented by counsel. Do any of you wish 
to be represented by counsel this afternoon?
    Mr. Tersigni. No.
    Mr. Greenwood. Dr. Tersigni says no. Mr. Lofton, you are 
represented by counsel? Would you identify your attorney by 
name?
    Mr. Lofton. Mr. Paul Newman is seated directly behind me.
    Mr. Greenwood. Mr. Bovender, are you represented by an 
attorney?
    Mr. Bovender. No.
    Mr. Greenwood. Dr. Pardes, are you represented by attorney?
    Dr. Pardes. No.
    Mr. Greenwood. Mr. Fetter?
    Mr. Fetter. No.
    Mr. Greenwood. Okay. Then I would ask if you would please 
stand and raise your right hands.
    [Witnesses sworn.]
    Mr. Greenwood. You are under oath and, Dr. Tersigni, we 
will begin with you. Again, welcome, and you are recognized for 
your opening statement, sir.

   TESTIMONY OF ANTHONY R. TERSIGNI, FASCHE, CHIEF OPERATING 
  OFFICER AND INTERIM CEO, ASCENSION HEALTH; KEVIN E. LOFTON, 
    PRESIDENT AND CHIEF EXECUTIVE OFFICER, CATHOLIC HEALTH 
    INITIATIVES; JACK O. BOVENDER, JR., CHAIRMAN AND CHIEF 
  EXECUTIVE OFFICER, HCA; HERBERT PARDES, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, NEW YORK PRESBYTERIAN HOSPITAL; AND TREVOR 
FETTER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, TENET HEALTHCARE 
                          CORPORATION

    Mr. Tersigni. Thank you. Mr. Chairman and members of the 
subcommittee, thank you for the opportunity to appear this 
afternoon. I am Anthony Tersigni, the new President and CEO of 
Ascension Health. This is my fourth day on the job, and I am 
pleased to be here.
    Mr. Greenwood. You are under oath, Dr. Tersigni.
    Mr. Tersigni. Ascension Health was formed just four and a 
half years ago when the Sisters of St. Joseph of Nazareth and 
four provinces of the Daughters of Charity united their health 
ministries to continue their ministries as one. I am grateful 
that three of our sponsors have joined me here today, and I ask 
that they stand to be recognized--Sister Bernice Corell, Sister 
Maureen McGuire, and Sister Mary Kate Terrell.
    They are here today because we are as concerned as the 
subcommittee about the issues brought forth today. Ascension 
Health carries on our sponsors' strong commitment, which has 
been in place for over 400 years, to the healing ministry of 
Jesus. It is central to our mission to serve those who are poor 
and vulnerable. In 2003 alone, Ascension Health provided more 
than $500 million dollars in charity care and community 
benefits. In other words, for every dollar we made from our 
operations, we spent nearly $4 on charity care and community 
benefits.
    Each day our hospitals--or as we call them, our health 
ministries--save the lives and relieve the suffering of 
hundreds of people without insurance. We receive letters every 
day from patients, thanking us for the care they received. I 
have several sample letters with me today, and there are 
thousands of stories just like them that go untold. I would 
respectfully request that these letters be made part of the 
record.
    That Ascension Health gets many things right is not to say 
we get everything right. We are still a young system in the 
process of integrating many management and information systems. 
As a part of this effort, which began in early 2003, we re-
examined our billing and collection policies and identified 
several areas for improvement. The subcommittee's work also 
prompted us to further review our policies more carefully.
    We determined that, because Ascension seeks out the poor in 
our communities, we need more clarity and consistency in this 
area. Last December, our System Board approved a system-wide 
billing and collection policy for all uninsured patients. I 
call your attention to the chart above, which is Attachment 3 
of my statement, describing the minimum guidelines which are 
clear and simple, and must be posted in our hospitals for 
patients to see. ``We will write-off your bill if you are at or 
below the poverty line; we will provide you a sliding scale 
payment plan if you are financially needy; we will give you a 
discount based on our best paying payers regardless of your 
income if you have no insurance.''
    Under our policy, extended payment options must be offered 
to all uninsured patients. Every one of our CEOs, CFOs, and BPs 
of mission have committed in writing to carry out the letter 
and spirit of the policy. I respectfully ask that a sample be 
entered into the record.
    Mr. Greenwood. Without objection, it will, sir.
    Mr. Tersigni. Ascension Health will not take action to 
cause bench warrants. For those who qualify for charity care or 
financial assistance, we will not seek liens on personal 
residences, we will not authorize a collection effort that will 
result in a bankruptcy, we will require collection agencies to 
follow our system-wide policy for billing and collection. While 
we believe these limits generally were being followed in our 
Health Ministries, our new policy is unequivocal.
    Let me address the claim that hospitals make money on 
uninsured care. Our mission is to care for the poor, not to 
make money on their suffering. As shown in our submission to 
the subcommittee, we collect between 5 and 10 percent of the 
total charges for uninsured patients. Each health ministry 
reported losses on uncompensated services to the uninsured. In 
the aggregate, Ascension Health lost $222 million on 
uncompensated care in 2003.
    Mr. Chairman, Ascension Health does all it can to respond 
to the needs of the poor. We have committed 350 financial 
counselors and 1500 registrars to identify and assist those in 
financial need. Our Call to Action commits us to work for 100 
percent access to healthcare in the communities we serve.
    We urge Congress to support our efforts and those of many 
others to achieve access for all Americans.
    I thank you, and I look forward to answering any questions.
    [The prepared statement of Anthony R. Tersigni follows:]

    Prepared Statement of Anthony R. Tersigni, President and Chief 
                  Executive Officer, Ascension Health

    Mr. Chairman and Members of the Subcommittee: Thank you for the 
opportunity to appear before you. Ascension Health commends the 
Subcommittee on Oversight and Investigations for its interest in 
uninsured patients.
    I am Anthony R. Tersigni, Ed.D., FACHE, President and Chief 
Executive Officer of Ascension Health, one of the nation's largest 
nonprofit Catholic health systems. Ascension Health was formed in 1999 
when sponsors of two Catholic hospital systems that shared a centuries-
old commitment to care for the poor--the Sisters of St. Joseph of 
Nazareth and four provinces of the Daughters of Charity--agreed to 
unite their health systems and continue their ministries as one.
    Today, Ascension Health carries on our sponsors' strong commitment 
to care for the poor and the uninsured. It continues to be central to 
our mission--and the work of the Catholic sponsors that remain active 
in the leadership and operation of Ascension Health. It is reflected in 
the principles and strategies that guide our operations [See attachment 
1]. In 2003 alone, Ascension Health provided more than half a billion 
dollars in charity care and community benefits. In other words, for 
every dollar we made from our operations, we spent nearly four dollars 
on charity care and community benefits.
    Because of our tradition of caring for the most vulnerable among 
us, our hospitals and clinics--or, as we call them, our health 
ministries--play a unique and extremely important role in our society, 
serving as a healthcare safety net for millions of uninsured Americans. 
For the thousands of religious and lay persons who work in our 
hospitals, this is a calling. It is humbling to lead an organization 
whose origin, as well as its Mission moving forward, is due to women 
who have dedicated not just their careers, but their lives, to 
providing care to people who are poor.
    Today, I want to address three points:

 What we do right
 How in the past we fell short in some areas and what we're doing to 
        address these issues
 Our response to the Subcommittee's request for information
    Later on in my statement I will also lay out in greater detail our 
Call to Action initiative. It is perhaps the best expression of our 
Mission, Vision and Values. Our Call to Action has as its goals the 
achievement of 100 percent access to healthcare for every person who 
lives in the communities we serve--certainly an ambitious goal, but one 
that speaks to our compassion for the poor and vulnerable.

What We Do Right
    Every one of our health ministries has had charity care policies in 
place for years, if not decades. We publish and post our charity 
policies throughout our health ministries. Our financial counselors are 
dedicated professionals who share our values and who strive to do the 
right thing. They answer patient questions over the phone about our 
charges. They seek out patients who may be in need before they go home 
and make attempts to contact patients later on to discuss how their 
financial obligations could be eased. They help patients qualify for 
financial assistance so they can get the healthcare they need.
    In addition, the men and women who work in our health ministries 
every day save the lives or relieve the suffering of hundreds of people 
who do not have health insurance. The Subcommittee need not take our 
word for it. Our patients are our toughest judges, and it is in their 
words that our success is revealed [See attachment 2].
    For example, we received a letter from a woman who was a patient at 
SETON Southwest Healthcare Center in Austin, Texas:
          I am writing . . . today to tell you how thankful I am that 
        your organization was able to assist me on 100% of the hospital 
        bill I accumulated while a patient at Seton SW . . . 
          Earlier this year, my world fell apart. I lost my job and my 
        health insurance. Shortly there after, my fiance left me for 
        someone else. I lost my home and--pretty much the life that I 
        had planned on. It was at that point, I thought I had lost 
        everything and then I lost my health. Once that was gone, I 
        grasped on to all that I had left which was my family, friends 
        and faith . . . Being that sick, was one of the most humbling 
        experiences of my life. I was unable to work and very worried 
        about how I would pay my hospital bill. Stress doesn't help my 
        medical condition at all. Please know that it was a wonderful 
        surprise to hear that my bill was taken to a zero balance.
          It is said that everything happens for a reason. I would like 
        you to know that I had a wonderful experience while in Seton. 
        The nursing staff was excellent and they inspired me. I have 
        decided that I want to be a nurse. I am feeling better now and 
        plan to enroll in nursing school next year. I hope that I can 
        offer the same compassion and inspiration to someone else in 
        their time of pain and illness . . . 
    From another letter we received from a patient:
          I recently had an operation to remove my gall-bladder. The 
        operation went well, and I am now in recovery. I don't know how 
        to thank you. Words cannot express my gratitude. The cost of 
        the operation had been a big burden to me. I had just started a 
        new life in America and was financially unstable; in addition, 
        I had no medical insurance.
          Thankfully, you heard of my situation . . . and funded my 
        operation. Because of you, I was able to have the operation 
        safely. I believe that all of this is due to your organization, 
        which truly personifies the love and spirit of Christ. I thank 
        you . . . with all my heart. I do not know how I will ever be 
        able to repay you for all your help. Right now, all I can do is 
        pray, and I will pray for you and your hospital continuously 
        and diligently. I will also do my best to follow your example 
        and help others with the love of Christ. Again, I thank you for 
        the love you have shown me. I will always be praying for your 
        hospital and your mission.
    Mr. Chairman, for every letter like those two, there are hundreds, 
maybe thousands, of positive stories just like it that are not told. I 
have additional representative letters from patients from across the 
nation. I request that these letters be made a part of the record 
[Attachment 2]. Each one is a very personal story, and each one thanks 
the health ministry that provided care--in some cases, life-saving 
emergency care. Each person expresses heartfelt gratitude to Ascension 
Health for reducing or eliminating his or her hospital bill or 
eliminating it entirely.

How We Fell Short in Some Areas and What We're Doing to Address These 
        Issues
    That Ascension Health gets many things right is not to say we get 
everything right. Formed just four and a half years ago, Ascension 
Health is a young system that is still in the process of integrating 
the many management and information systems used by our health 
ministries. As a part of that effort, which began in early 2003, we 
reviewed the billing and collection policies that existed throughout 
our system and determined that we, as a system, needed more clarity and 
consistency in this important area. The Subcommittee's work also 
prompted us to examine our policies more carefully, which led to our 
identifying a number of opportunities for improvement.
    We learned, for example, that our policies were not always explicit 
and each health ministry did things a little differently. Consequently, 
we could not speak to an Ascension Health system-wide billing and 
collection policy. Nor did we have a process that could measure the 
effectiveness of our health ministries' charity care programs in 
reaching those in need. Our billing and collection practices were not 
receiving the level of attention or oversight by our senior management 
team that, in retrospect, they should have received. And we had no 
system-wide policy that addressed the level of charges for uninsured 
patients.
    As a result, we believe too many patients, even if only one, had 
come to our emergency rooms and, in spite of the charity care and 
financial assistance programs our health ministries have had in place 
for years, they had returned home fearful and anxious about the bills 
they could not pay. Unfortunately, there are times when patients do not 
respond to our communications and their needs are not fully met.
    Regrettably, it has on occasion become necessary for hospitals, 
even those such as ours that are dedicated to the poor, to refer cases 
to collection agencies. And the truth is, we have not wanted to be in 
the business of bill collecting. We have learned through this 
investigation that there have been instances, and I believe they are 
rare, when collection agencies have been more aggressive in their 
practices than our values would support. That there may only be a few 
instances does not excuse us.
    We concluded from this review that the experience the poor and 
uninsured have when they come to us for care is too important to allow 
completely local variation. Although Ascension Health is newly formed 
and somewhat decentralized, we determined that we needed a level of 
consistency throughout Ascension Health regarding the care and billing 
of the uninsured. As a system, we needed assurances that our charity 
and financial assistance programs were meeting certain minimum 
standards and reflecting our values.
    In December 2003, a single, system-wide policy was approved by our 
Board of Trustees, subject to approval by the Centers for Medicare and 
Medicaid Services (CMS). It is important to point out that this policy 
is a ``floor''--it is the least that we require of our health 
ministries, many of which have been and will continue to be more 
generous in their care for the poor and uninsured than this new floor 
requires.

Ascension Health Policy Regarding Care for the Poor and Uninsured
    The Ascension Health policy is premised on several core values and 
principles, including our commitment to, and reverence for, human 
dignity and the common good; our special concern for, and solidarity 
with, poor and vulnerable persons; and our dedication to distributive 
justice and stewardship.
    The Ascension Health policy establishes minimum guidelines relating 
to the level of charges, if any, that would apply to an uninsured 
patient, depending upon his or her particular circumstances: those who 
are poor based on poverty guidelines; those who face special 
circumstances; and those who are determined or presumed (by not 
applying for financial assistance) to have the means to pay [See 
attachment 3]. The policy is as follows:
    Charity Care. For the poorest patients, Ascension Health covers 100 
percent of their hospital bills. To qualify, a patient must have 
household income at or below the federal poverty level (FPL). Those 
with household incomes between 101 and 200 percent of FPL will have 
their charges reduced on a sliding-scale basis. The poverty limits will 
be adjusted at each health ministry based on area wages.
    Financial Assistance. Income is not the only determinant of need. 
So our Financial Assistance program considers a broader picture of a 
patient's financial resources and circumstances. Each health ministry 
must have a written policy that considers income as well as the 
patient's assets, size of the medical bill and other financial 
obligations (e.g., for housing, transportation and childcare). For 
example, a married adult male with annual income of $14,500 a year is 
making 120 percent of FPL and, therefore, would be entitled to a 
sliding scale adjustment of his hospital bill, leaving him responsible 
for, say, 20 percent of it. However, if the bill is $30,000, he would 
still owe $6,000. If he had no assets or had other obligations, he 
could have problems paying his medical bill.
    Finally, because of the complexity and subjectivity of its 
guidelines, our health ministries are required to have review boards 
that consider patient appeals of adverse determinations.
    Uninsured Patients with Means to Pay. Not all uninsured patients 
are poor and even those who are don't always apply for financial 
assistance (out of reluctance to fully disclose finances, fear or 
embarrassment, or other reasons). In the interests of fairness and 
clarity, these patients are charged a rate comparable to the discounted 
rate each local health ministry has negotiated with its ``best paying'' 
insurers. This portion of the policy is subject to approval of CMS. 
(The commercial payers whose rates are used as the benchmark must 
account for at least 3 percent of that particular health ministry's 
patient volume.)
    Mr. Chairman, I would like to reiterate that this policy represents 
the floor. It represents the least any of our health ministries will 
do. We are a system that believes in distributed leadership. Local 
health providers know more about local needs than those at the home 
office, so if an Ascension Health ministry wants to go above and beyond 
the policy I just explained to the Subcommittee, it may. In fact, many 
of our health ministries currently are going above and beyond what is 
required in our new policy.
    The Ascension Health policy on discounts for the uninsured also 
addresses billing and collection practices. The policy requires that 
employees and agents of each health ministry treat patients and their 
families with dignity, respect and compassion. Patients must be 
provided prompt access to charge information and be advised of 
applicable policies, including charity care and financial assistance, 
in easily understood terms and in the language common to the community. 
Policies must also be posted in hospital reception and registration 
areas.
    Patients qualifying for financial assistance are to be provided 
with both extended payment options that are appropriate for their 
financial status and access to financial counseling. Outstanding 
balances on accounts are to be pursued fairly and consistently.
    With respect to collection practices, the system-wide policy adopts 
several key principles:

 Ascension Health will not take action to cause bench warrants to be 
        issued.
 Liens on personal residences will not be sought against individuals 
        who qualify for charity or financial assistance.
 Ascension Health will not authorize a collection effort that will 
        result in a bankruptcy.
 Interest may only be charged to patients not qualifying for charity 
        or financial assistance, and only if they are not complying 
        with payment arrangements.
 Collection agencies must follow Ascension Health's system-wide policy 
        for billing and collection.

Ascension Health's Response Highlights Our Charity Care & Values
    In October of 2003, Ascension Health complied with a request from 
this Subcommittee for detailed information regarding four key areas: 
billing and collection policies and practices for the uninsured; 
collections from uninsured patients; operating incomes overall and from 
uninsured patients; and mark-ups for services. Ascension Health worked 
diligently with 44 health ministries to assemble the requested 
information at a cost of over $400,000 [See attachments 4 and 5]. A 
brief outline of our submission follows:

 Each of these health ministries has a billing and collection policy 
        for the uninsured. Furthermore, all of our health ministries 
        reported offering charity care to the poor, and all reported 
        providing assistance to patients for enrolling in public 
        health-insurance programs.
 The aggregate data collected from the 44 Ascension Health ministries 
        shows that uninsured collections as a percent of uninsured 
        charges ranged from only 5 to 10.0 percent for the various 
        periods reported [See attachment 4, p. 14-17]. In fact, our 
        health ministries lost $222 million on uncompensated services 
        to the uninsured in 2003.
 Services provided to the uninsured had a negative impact on margins 
        at every health ministry during the periods reported. Let me 
        reiterate that point, because the claim has been made by some 
        that hospitals ``make money'' from these services: every 
        Ascension Health hospital lost money on the services provided 
        to the uninsured.
    Mr. Chairman, I direct the Subcommittee's particular attention to 
the attached chart, entitled ``Charges, Costs and Collections on a Per 
Equivalent Patient Day Basis'' [Attachment 6]. As you can see, the 
collections from the uninsured represent the smallest portion of 
collected services. As I mentioned, some have suggested that hospitals 
are somehow ``making money'' by providing these services. However, we 
provide them because it is our mission to serve those most in need, and 
we are unsure, as experienced healthcare administrators, exactly how 
anyone could recoup 100 percent or more of the aggregate costs of 
services for uninsured patients.

Moving Forward: ``Healthcare That Leaves No One Behind''
    Although the purpose of this statement is to address issues raised 
by the Subcommittee relating to billing and collection practices, we 
believe a full understanding of our fundamental operating principles 
and some system-wide achievements in serving the uninsured will help 
inform the work of the Subcommittee. I will now describe several 
important and representative activities.
    Our Mission, Vision and Values are reflected every day in our 
ministry to care for the poor and uninsured. Their best expression is 
found in our Call to Action, a strategic initiative that dedicates 
Ascension Health to achieving ``Healthcare That Works; Healthcare That 
Is Safe; and Healthcare That Leaves No One Behind.''
    Our Call to Action's last component has as its goal 100 percent 
access to healthcare for everyone in the communities we serve. In 
furtherance of 100 percent access, Ascension Health is providing 
leadership at the national level to sustain and strengthen the safety 
net for the poor and uninsured throughout the United States. Ascension 
Health worked closely with Congress to help craft the Healthy 
Communities Access Program that provides infrastructure dollars to 
local communities to strengthen the local safety net. Ascension Health 
was then the only organization in the country that made a commitment to 
match first-year federal funds for expanding access.
    Ultimately, Ascension Health contributed over $7 million, which was 
used to catalyze local leadership in eight communities to achieve 100 
percent access. Dollars were invested to design and implement 
information systems to link all safety-net providers, hire case 
managers, screen uninsured individuals for insurance eligibility, 
design disease management programs for the uninsured, and facilitate a 
number of other critical activities to bring health services to 
uninsured persons. With four years of experience and results, we are 
now designing model programs that other communities can replicate in 
their efforts to achieve 100 percent access to healthcare.
    For example, in Tawas City, Michigan this year, Ascension Health 
ministry leadership brought together all of the local safety-net 
providers in a public-private partnership that now provides healthcare 
to the uninsured. This safety net coalition has received close to $1 
million of federal funding.
    In Austin, Texas, our SETON Healthcare Network recently joined with 
the Travis County Medical Society in an effort to have every private 
primary care physician in the city voluntarily take ten uninsured 
patients into his or her practice, and every private specialist take 20 
uninsured patients. Although still in its early stages, this combined, 
community-wide program has already provided ``medical homes'' to 250 
individuals without insurance and has set its sights on doing the same 
for all of Austin's uninsured.
    In Detroit, Michigan, a coalition of the city's three major health 
systems (Ascension Health's St. John Health, Henry Ford Health System 
and the Detroit Medical Center) are working in partnership with the 
Detroit Health Department and three local federally qualified health 
centers to enroll uninsured patients into a ``virtual HMO'' that case 
manages their care across multiple providers. The program also 
collaborates with several other safety net healthcare providers in the 
city.
    In New Orleans, Louisiana, the Ascension Health primary clinic for 
the poor has joined forces with the public hospital and all other 
safety-net providers to expand access to healthcare. In some parishes, 
the number of uninsured exceeds 80 percent of the population. In 
Nashville, Tennessee, the health department is working with our Saint 
Thomas Health Services to provide free pharmaceuticals to the 
uninsured.
    Our five-year goal for the ``Healthcare That Leaves No One Behind'' 
initiative is to achieve 100 percent access to healthcare in the 
communities we serve. Each of our hospital chief executive officers is 
charged with the responsibility to work towards 100 percent access 
within his or her own community and is held accountable for these 
efforts by me and our board.
    In addition to our hospitals, Ascension Health owns and operates 
dozens of clinics for the uninsured throughout the country. Ascension 
Health is currently leading an effort by the nation's major Catholic 
health systems to work with the federal government on ways to expand 
these services to the uninsured.
    In furtherance of our Call to Action, Ascension Health was the only 
health system in the country last year to have 100 percent 
participation in ``Cover the Uninsured Week,'' which was sponsored by 
numerous national organizations to raise awareness of the plight of the 
uninsured. At every Ascension Health hospital, activities were held 
during the week, enrolling thousands of eligible poor persons into 
insurance assistance programs offered by states and the federal 
government. Today, these thousands carry an insurance card when they 
seek healthcare services, thanks to the collective work of Ascension 
Health ministries.
    Finally, our ministry to the poor extends beyond healthcare. The 
commitment our hospitals have made to pay a ``living wage'' is just one 
example. We believe that the people who work in our health ministries 
should have a decent standard of living and be able to live within our 
communities.

Conclusion
    Mr. Chairman, Ascension Health and our original sponsors take our 
tradition and commitment to care for the poor and uninsured very 
seriously. For us it is both a social and solemn obligation. I have 
described for the Subcommittee how the men and women who staff our 
hospitals and clinics work tirelessly to care for individuals who are 
poor and uninsured. I have also presented the numerous efforts across 
the country in which Ascension Health employees, working closely with 
public and private partners, are striving to increase access to 
healthcare for everyone in their communities.
    It is true that, throughout the nation, Ascension Health is 
responding to the needs of the poor and vulnerable. Our new billing 
policy will prevent some of the problems the uninsured have faced in 
the past. But the work of ten Ascension Health systems or 100 or 1,000 
would still fall short and leave many of the health needs of the poor 
unmet. We as a nation can do better.
    We therefore urge Congress to adopt policies and provide adequate 
funding to achieve universal healthcare access for all Americans. The 
change that is necessary to address the needs of the nation's 44 
million uninsured will take a much greater collective effort than any 
one hospital system can undertake.
    Thank you, Mr. Chairman. I look forward to answering any questions 
the Subcommittee may have.

    Mr. Greenwood. Thank you, sir.
    Mr. Lofton, you are recognized for 5 minutes for your 
opening statement. Welcome.

                  TESTIMONY OF KEVIN E. LOFTON

    Mr. Lofton. Thank you, Mr. Chairman and members of the 
subcommittee. Thank you for inviting Catholic Health 
Initiatives to participate in today's hearing. My name is Kevin 
Lofton, and I am President and CEO of Catholic Health 
Initiatives. I have committed my entire career to serving the 
needs of the poor, uninsured, and underinsured. I joined 
Catholic Health Initiatives in 1998, and became President and 
CEO last August.
    I also want to acknowledge and ask to stand, Sister 
Elizabeth Windo, a Sister Charity who is a member of the CHI 
Board of Stewardship Trustees.
    CHI hospitals take care of patients in need, regardless of 
ability to pay. We are proud of our policies and practices. I 
am pleased to update you on our improved billing and collection 
practices. These improvements are important, but they will not 
substitute for long-overdue structural reform in health care 
delivery and financing.
    Catholic Health Initiatives believes the solution is 
universal health care coverage. The CHI health system includes 
68 hospitals and 44 facilities offering health-related services 
such as long-term care. We serve 19 States, 68 rural and urban 
communities, and employ more than 67,000 dedicated men and 
women.
    Care for the poor, uninsured, and underinsured has been the 
mission and tradition of CHI hospitals for more than 100 years. 
Last year, CHI's total measurable benefit for the poor and 
broader community was $644, or 10.6 percent of our total 
revenue. Community benefit includes things such as free clinic 
grants and mobile medical vans. CHI hospitals provided $108 
million in direct charity care.
    CHI does not consider its $326 million in bad debt expense 
as part of our community benefit or charity care commitment. In 
the last 3 years, our hospitals committed $1.9 billion to 
improve the overall health of our communities.
    Chairman Greenwood, I commend you, the subcommittee and 
staff for your attention to hospital billing and collection 
issues. It prompted CHI to examine our billing and collection 
practices, and to aggressively seek clarification and guidance 
from HHS to ensure we were doing the right thing. As a result, 
we are proactively reforming our billing and collection 
policies.
    All CHI hospitals have amended contracts with third-party 
collection agencies, to include the following standards: First, 
no collection agency will request bench or arrest warrants. 
Second, no collection agency will seek liens requiring the sale 
or foreclosure of a primary residence. And, third, no 
collection agency will seek court action without hospital 
approval. Several collection agencies refused these new 
standards, and the hospital terminated these contracts.
    We also require collection agencies to be trained on our 
mission, core values, and standards of conduct, to make sure 
that all patients are treated with proper dignity and respect.
    Mr. Chairman, we all share in the heartbreak of people who 
suffer under the current system of hospital billing and 
collection. However, we must acknowledge that hospitals have an 
obligation to seek payment so they can continue to provide 
services to the community.
    The goal of providing fair and compassionate health care 
financial services requires that healers, policymakers, 
administrators, and regulators truly understand the complexity 
of hospital pricing.
    Recent guidance from HHS allows greater flexibility in 
discounting for individuals in the case of medical indigence. 
As a result, our hospitals are expanding their definition of 
who qualifies for charity care so even more people qualify.
    We met with Secretary Thompson and various representatives 
from HHS and CMS over the course of three meetings, to discuss 
other improvements and services to the uninsured such as 
presumptive eligibility. These changes will bring some overdue 
rationality to a small corner of the problems of the uninsured.
    I respectfully suggest that it is impossible for any one 
hospital to solve the complex issue of financing care for the 
uninsured and underinsured. We must address it as a country. We 
must rationalize and simplify our payment system.
    Our hospitals can provide charity care and discounted 
services and improve financial services, yet the biggest 
problem remains unsolved. There are too many people who are 
uninsured. There are too many people without access to health 
care in an appropriate setting. The system is clearly broken. 
The solution is universal health care coverage.
    Catholic Health Initiatives wants to work with Congress and 
other policymakers to achieve comprehensive reform. If coverage 
for all cannot be achieved immediately, we should adopt a 
phase-in plan, one that begins with coverage of the most 
vulnerable members of our society.
    Mr. Chairman, we pledge our cooperation, and thank you for 
allowing us to testify today.
    [The prepared statement of Kevin E. Lofton follow:]

 Prepared Statement of Kevin E. Lofton, President and Chief Executive 
                  Officer, Catholic Health Initiatives

    Chairman Greenwood and members of the Subcommittee, thank you.
    My name is Kevin Lofton. I am the President and Chief Executive 
Officer of Catholic Health Initiatives. Thank you for inviting us to 
join you today to discuss how we may all work together to achieve 
quality health care services AND fair, efficient and compassionate 
health care financing for all Americans, particularly persons who are 
poor, uninsured and underinsured.
    Catholic Health Initiatives hospitals take care of patients in 
need, regardless of ability to pay. Providing charity and discounted 
care to persons who are poor, uninsured and underinsured is core to our 
mission. In that regard, we appreciate the opportunity to respond to 
the Subcommittee's invitation to testify on the subject of hospital 
billing and collection practices. I am proud of our policies and 
practices, and am pleased to provide you with an update on our improved 
billing and collections procedures. Further, we appreciate the 
assistance of these valuable hearings and the increased guidance from 
the Department of Health and Human Services (HHS).
    Improved billing and collection practices--while important--will 
not substitute for the long-overdue structural reforms in health care 
delivery and financing. Catholic Health Initiatives is a strong 
advocate for universal health care coverage, and urges the Congress to 
consider meaningful expansion of health care coverage to all Americans.
    That view is not only the view of Catholic Health Initiatives; it 
is my view as well. I have committed my entire professional career to 
working with public, inner city and faith-based health care 
organizations, all of which have been dedicated to serving the needs of 
poor, uninsured and underinsured persons. I joined Catholic Health 
Initiatives in 1998 as a Group President and was later promoted to 
Chief Operating Officer and Executive Vice President. In August 2003, I 
was appointed President and Chief Executive Officer.
    Prior to joining Catholic Health Initiatives, I was Chief Executive 
Officer of the University of Alabama Hospital in Birmingham, a 908-bed 
university teaching hospital. I have also served as the Chief Executive 
Officer of Howard University Hospital in Washington, D.C., and Chief 
Operating Officer at the University Medical Center, the urban campus of 
the University of Florida Health Science Center in Jacksonville, 
Florida.
    I received a master of health administration degree from Georgia 
State University in Atlanta and a bachelor of science degree in 
management from Boston University. A copy of my curriculum vitae is 
attached to this testimony.
    Catholic Health Initiatives is a national non-profit corporation 
based in Denver, Colorado. The CHI health system, which is comprised of 
affiliated non-profit corporations located in 19 states, includes 68 
hospitals, 44 long-term care, assisted and independent living and 
residential facilities and five community-based health organizations 
serving 68 rural and urban communities. CHI hospitals, facilities and 
community health organizations are non-profit health corporations in 
the states in which they operate and have fiduciary boards of 
directors, although Catholic Health Initiatives has some approval 
rights over these other non-profit entities. Collectively, these health 
providers employ more than 67,000 dedicated men and women. All of us 
are bound together by a common mission and vision.
    Catholic Health Initiatives was formed to advance and strengthen 
the Catholic health ministry into the 21st century and is unique among 
health care systems in the United States. During the last decade, 
religious sponsors of Catholic health care ministries recognized that 
the changing health care environment meant greater resources would be 
needed to develop programs, structures and services in the next 
century. In early 1995, a group of visionary leaders in Catholic health 
care began to explore ways to preserve and strengthen the health 
ministry for the future. They envisioned a national Catholic health 
care organization, sponsored by multiple congregations of women 
religious and governed by a religious-lay partnership whose mission was 
to transform health care delivery and create new ministries to promote 
healthy communities. The result was the formation of Catholic Health 
Initiatives through the consolidation of Catholic Health Corporation, 
Omaha, Nebraska; Franciscan Health System, Aston, Pennsylvania; the 
Sisters of Charity Health Care Systems, Cincinnati, Ohio; the Sisters 
of Charity of Nazareth Health System, Bardstown, Kentucky; and the 
Sisters of St. Francis of the Immaculate Health of Mary, Hankinson, 
North Dakota.
    Catholic Health Initiatives is committed to creating new models of 
health care, based on collaborative relationships and partnerships with 
community groups, agencies and other health care organizations. Since 
1997, the Catholic Health Initiatives Mission and Ministry Fund has 
awarded 123 grants, totaling more than $11 million, to improve the 
health of communities served by its facilities. Through this national 
healthy communities commitment, hospitals and health services 
throughout the organization are developing unique programs to address 
the root causes of serious social and health issues, such as domestic 
violence and the inability to access basic health care services, so we 
can create solutions for the long term.
    In our testimony, we hope to provide a better understanding of how 
the Catholic Health Initiatives mission and vision motivates our deep 
commitment to charity and discounted health care services to persons 
who are poor, uninsured and underinsured; our resolve to proactively 
improve collections and billing for patients; and our strong advocacy 
commitment to national health care reform.

  CATHOLIC HEALTH INITIATIVES: A COMMITMENT TO CHARITY AND DISCOUNTED 
     HEALTH CARE FOR THE POOR, THE UNINSURED AND THE UNDERINSURED.

    First and foremost, Catholic Health Initiatives cares for and cares 
about poor, uninsured and underinsured persons. Catholic Health 
Initiatives has designed charity care standards to meet the needs of 
the uninsured and the underinsured. This has been the mission and 
tradition of Catholic Health Initiatives hospitals for more than 100 
years. As part of this commitment to persons who are poor, alienated 
and underserved, Catholic Health Initiatives uses financial resources 
to emphasize human dignity, social justice and the promotion of healthy 
communities. Several examples of CHI's commitment to the poor and 
underserved include: free clinics at many CHI hospitals; $24 million in 
direct community investments, which are no- or low-cost loans to 
institutions or projects that promote access to jobs, affordable 
housing, child care, education, environmental protection and health 
care for low-income and minority communities; and $11 million in 
Mission and Ministry grants.
    When determining eligibility for charity and discounted health 
services, Catholic Health Initiatives facilities have considered 
income, family size, available assets and extenuating circumstances. 
CHI facilities use the Department of Housing and Urban Development 
(HUD) income guidelines because they are more inclusive than other 
poverty guidelines and more accurately reflect the economic differences 
of the 68 urban and rural communities in 19 states served by CHI 
hospitals and health care facilities. In 26 of those communities, a CHI 
hospital is the only hospital serving that community.
    In an effort to be inclusive, CHI hospitals provide charity and 
discounted health care services on a sliding scale. For example, at St. 
Anthony Hospital in Denver, the community in which I live, a family of 
four with an income of up to $74,000 would qualify for assistance.
    With the recent guidance from the Department of Health and Human 
Services, Catholic Health Initiatives hospitals are revising their 
charity care policies. For example, the policies will now cover more 
people and will further simplify the application process. If a patient 
is unable or unwilling to provide financial information, but that 
person has other evidence of indigence, such as a person who is 
homeless, he or she will be covered by the charity care policy.
    Catholic Health Initiatives and its hospitals are responding to the 
needs of the poor and underserved and the broader community in very 
direct ways. In fiscal year 2003, CHI's total measurable benefit for 
the poor and the broader community was $644 million, which includes 
grants, free clinics, mobile medical and dental vans and educational 
programs. That was 10.6 percent of our total revenues.
    As part of that, CHI hospitals provided $108 million in direct 
subsidization of charity care. This is the estimated cost of providing 
the care, not what was charged. Over the last three years, Catholic 
Health Initiatives-sponsored hospitals provided $1.9 billion in 
measurable benefits to improve the overall health of our communities.
    Let me give you a few examples:
    Good Samaritan Hospital in Kearney, Nebraska, has lowered the rate 
of mortality from heart disease by 34 percent in its rural Nebraska and 
Kansas communities through a program to make advanced cardiac care 
available and accessible to the people in these farming communities. 
Good Samaritan staff members have driven more than a half million miles 
to outreach sites since the program began.
    St. Elizabeth Health Services in Baker City, Oregon, is a critical 
access hospital in an isolated, rural community in eastern Oregon. St. 
Elizabeth's provides prescription medications to persons who do not 
have the means to purchase them. These medications help the recipients 
recover more quickly from their illnesses, better manage chronic 
conditions and avoid costly hospitalizations and interventions.
    St. Joseph Medical Center in Towson, Maryland, provides free or 
low-cost health care services to underserved residents of the greater 
Baltimore community through a mobile medical van staffed with bi-
lingual health care providers. The van regularly stops at a soup 
kitchen, and the staff serves clients who face homelessness, mental 
illness and drug addiction.
    Our Lady of the Way Hospital in Martin, Kentucky, handles more than 
18,000 emergency department and urgent care visits each year. Nearly 60 
percent of the 42,000 people living in Floyd County have a family 
income below 200 percent of the federal poverty level and nearly half 
of the adults in the county have less than a high school education. The 
hospital's outreach program provides care for more than 25,000 people. 
To combat the county's high teenage pregnancy rate, Our Lady of the Way 
Hospital initiated the RESPECT Program for girls in grades six through 
eight. RESPECT is a nine-week program designed to build self-esteem, 
develop career skills and encourage young teenage girls to postpone 
sexual activity. More than 400 girls have completed the program and 
there have been only three teen pregnancies among program participants.
    Finally, Lakewood Health Center in Baudette, Minnesota, is a 
founding partner of Communities Caring for Children, a program 
involving 13 counties in northwestern Minnesota, that offers free care 
to pregnant women and children up to age five. The goals are to 
encourage healthy deliveries and to increase the number of children who 
receive well-child exams and immunizations.

    CATHOLIC HEALTH INITIATIVES: PROACTIVELY IMPROVING BILLING AND 
                              COLLECTIONS

    Chairman Greenwood, I would like to commend you, the Subcommittee 
and staff for your attention to this issue. It prompted Catholic Health 
Initiatives to examine our own billing and collections practices more 
closely, and to aggressively seek clarification and guidance from the 
Department of Health and Human Services to ensure we are doing what is 
right. As a result, Catholic Health Initiatives is proactively 
reforming its own billing and collection policies. Let me be specific:
    All Catholic Health Initiatives hospitals have been asked to amend 
the contracts they hold with third party collection agencies to include 
the following standards: neither CHI hospitals nor their collection 
agencies will request bench or arrest warrants; neither CHI hospitals 
nor their collection agencies will seek liens that would require a sale 
or foreclosure of a primary residence; and no collection agency may 
seek court action without hospital approval. Several collection 
agencies refused to agree to these new standards and the hospitals 
terminated their contracts.
    As of June 30, 2004, we will require that collection agencies be 
trained on the Catholic Health Initiatives Mission, Core Values and 
Standards of Conduct to make sure all patients are treated with dignity 
and respect. Catholic Health Initiatives will continue to work with the 
hospitals so that all patient financial services staff show respect for 
the individual, regardless of the source of payment for care.
    Improving billing and collections--what we charge and how we 
collect--are important. Catholic Health Initiatives is committed to 
fair, efficient and compassionate billing and collection policies and 
practices.
    To be fair to the community, patients in a hospital have an 
obligation to pay if they can or, if they cannot, to provide 
information so they can seek to be qualified for government or charity 
programs. Hospitals have an obligation to seek payment so they can 
continue to provide services to people in the community.
    Some of our patients qualify for charity care and discounts based 
on income levels, but many others fall outside the charity care 
guidelines and cannot afford adequate insurance. It is for those 
uninsured and underinsured patients that we must do better as health 
care providers, as policy makers and as a nation.
    However, the goal of providing fair and compassionate health care 
financial services requires that healers, policy makers, administrators 
and regulators truly understand the complexity of hospital pricing.
    Catholic Health Initiatives appreciates the guidance given by the 
federal government regarding charges and discounting to better serve 
the community, including people who are uninsured and underinsured. 
This guidance, provided by Secretary Tommy Thompson and HHS, allows 
greater flexibility in discounting for individuals in the case of 
medical indigency, and as a result, Catholic Health Initiatives 
hospitals are expanding their definition of who qualifies for charity 
care.
    We have also been meeting with the Centers for Medicare and 
Medicaid Services to discuss other improvements to the provision of 
services to the uninsured, such as presumptive eligibility, so that 
people in any of several situations, such as those living in subsidized 
housing or migrant farm workers living in transient housing, are 
presumed to be eligible for charity care. I am convinced that these 
changes will bring some overdue rationality to at least a small corner 
of the problems of the uninsured.
    But as CEO of Catholic Health Initiatives, I respectfully suggest 
that it is impossible for any hospital to solve the complex issue of 
financing care for persons who are uninsured and underinsured. We must 
address it as a country from the standpoint of day-to-day regulatory 
and operating reality.
    We need to rationalize and simplify our payment systems. These 
systems are well-past complex and have evolved so that list prices 
(charges)--which are used in the formula for Medicare reimbursement, 
workers compensation plans and private insurance discounts--may or may 
not have a relationship to the actual cost of providing services--and 
also have nothing to do with what most hospitals are actually paid. An 
indirect and unintended consequence of these forces is that they have 
created hardship for uninsured patients. The system is clearly broken.
    At Catholic Health Initiatives, we believe that quality health care 
and fair, efficient, compassionate billing and collection policies 
should not, and cannot, be separated.
    Information about hospital charges may be useful in helping 
patients ask better questions. However, obtaining accurate charge 
information in advance is made difficult by the many uncertainties 
involved in predicting the course of treatment for any one individual. 
No two patients, diseases or injuries are alike.
    Average charge information may be useful for a simple procedure--
such as an x-ray--or for diagnoses that are common and have a great 
deal of standardization--such as the normal delivery of a baby. 
However, the average charge would be misleading for patients when the 
diagnosis is unclear--and so diagnostic tests are needed--or where 
there are greater ranges of possible treatments.
    Charges will depend on the specific items and services ordered by 
the patient's physician and on complicating diseases the patient may 
have such as diabetes or hypertension. For example, in Colorado where 
charges are publicly available, the average statewide charge for 
hospitalization for simple pneumonia is about $6,000 for a patient 
without complications and more than $31,000 for a patient with extreme 
complications. One might question if publishing the overall average 
charge of $12,000 for pneumonia provides any useful information to a 
patient.
    In the end, however, the bottom line for Catholic Health 
Initiatives is social justice. All Americans should have access to 
affordable care. The number of uninsured persons continues to grow. St. 
Anthony Hospital in Denver has seen the number of self-pay patients 
(who are typically uninsured) in the emergency department grow from 21 
percent to 33 percent in two years.
    Catholic Health Initiatives can provide charity care and discounted 
services and improve patient financial services. Yet, the biggest 
problem remains unsolved: too many uninsured people, too many persons 
without access to health care in an appropriate setting. Again, the 
system is broken.
    The solution is universal health care coverage.

  CATHOLIC HEALTH INITIATIVES: STRONG ADVOCACY COMMITMENT TO NATIONAL 
                          HEALTH CARE REFORM.

    While incremental change that benefits patients is good . . . it is 
not the solution.
    Catholic Health Initiatives believes all Americans should have 
health care coverage. All Americans should have access to quality 
health care services: the right care, at the right time, at the right 
place.
    Uninsured Americans are up to three times more likely to have poor 
health outcomes. Studies show nearly 40 percent of uninsured adults 
skipped a recommended medical test and 20 percent say they have needed 
but have not gotten care because they did not have insurance. The 
Institute of Medicine recommends that the problems caused by 
uninsurance in the United States require a national and coherent 
strategy aimed at covering the entire population.
    Further, as a matter of social justice, it is important that all 
people have access to routine, consistent primary care in accessible 
settings that will be less costly. Many persons without insurance come 
to the hospital through the emergency department. Often, an uninsured 
person does not have a primary care physician and as a result will have 
had no routine or preventive care. The emergency department does not 
have the medical background or history and physical from a primary care 
physician that an insured patient with access to primary care will 
have. More clinical and diagnostic tests are needed, and they must be 
done in this more expensive setting.
    In addition, a patient without access to a primary care physician 
is more likely to have chronic diseases that have been untreated--
diseases like diabetes and hypertension. The Institute of Medicine has 
found that people without health insurance have diminished health, 
poorer outcomes and are less likely to get preventive services or the 
care they need for chronic conditions. Simply put, patients least able 
and least likely to pay may be among the most expensive to treat.
    Catholic Health Initiatives wants to work with Congress and other 
policy makers to achieve comprehensive reform. And, if coverage for all 
cannot be immediately achieved due to current budget and political 
constraints, we should adopt a phased-in plan that begins with coverage 
of the most vulnerable members of our society, including women and 
children.
    We encourage Congress to start by enacting legislation that: 
removes the prohibition on legal immigrant children and pregnant women 
receiving Medicaid/SCHIP coverage during their first five years in this 
country; expands Medicaid/SCHIP programs to cover additional uninsured 
children from low-income families; and provides Medicaid/SCHIP coverage 
for family members of children covered by these programs.
    Mr. Chairman, we pledge our cooperation. Thank you.

    Mr. Greenwood. Thank you very much, sir.
    Mr. Bovender, welcome.

               TESTIMONY OF JACK O. BOVENDER, JR.

    Mr. Bovender. Thank you, Mr. Chairman. My name is Jack 
Bovender, and I am the Chairman and CEO of the Hospital 
Corporation of America. We own and operate 190 hospitals and 82 
outpatient surgery centers in 23 States and two foreign 
countries, with about 190,000 employees. Last year, we treated 
over 14 million patients in our facilities.
    I appreciate this opportunity to share our company's 
insight into the issues surrounding the uninsured, hospital 
pricing and collection policies, our escalating bad debt 
problems and, in particular, our charity care discount policy, 
which has been used as a model by many other hospitals and 
hospital systems in the country.
    In my 34 years in hospital administration, I have never 
seen another time in which the level of uninsured using 
hospital emergency departments has been as great, or the 
amounts we are writing off to bad debts and charity care have 
risen so high. The numbers are staggering.
    Families, USA recently reported that nearly 82 million 
people went without health insurance at some point during the 
last 2 years. Specific to HCA, we have seen our bad debt 
expense rise from 8.5 percent of net revenue to about 11.7 
percent. Put another way, HCA hospitals provided free or 
discounted care to over 1 million patients. For HCA, the cost--
the cost, not charges--of providing this unreimbursed care was 
over half a billion dollars last year.
    Hospitals in this country have become virtually the only 
safety net for the uninsured needing health care. The 
pharmaceutical companies do not give us free of charge their 
expensive anti-thrombolytic drugs for use with the uninsured 
heart patient. The medical device companies are not giving away 
free of charge the expensive cardiac stints we implant in the 
uninsured patients. And the managed care companies are 
certainly not coming into our communities offering free or 
significantly discounted insurance policies to the uninsured. 
This unshared burden has driven hospital margins in this 
country down to 3.5 percent. These are historic lows, so low 
that even the short-term viability of many hospitals is now 
threatened. Compare this 3.5 percent margin to those in the 
pharmaceutical and medical device industries, which range 
between 13 and 15 percent.
    While hospitals have been castigated recently in the press 
for charging and collection practices related to the uninsured, 
and in many cases with great justification, hospitals are not 
the problem. They are merely the symptom of a much bigger 
problem. The problem is how are we as a society going to 
guarantee that every American has some form of health 
insurance, health insurance that adequately reimburses 
hospitals and doctors for the health care they render?
    Before I discuss HCA's charity discount policy, I would 
like to spend a minute on hospital charges. The charge master 
system on which hospitals rely to set pricing and billing codes 
have a 40-year history of changes that have distorted the 
relationship between price and cost. It grew out of a time when 
decreasing Medicare reimbursement prompted cost-shifting to the 
private sector, and this was exacerbated in the 1990's by 
aggressive managed care discounting. I am not here to try to 
justify this, and it really needs to be fixed.
    HCA has focused on developing a pricing structure for the 
uninsured that more closely mirrors pricing to managed care. We 
believe recent pronouncements by CMS allow us to do this 
without as much reliance on complicated indigence tests. In the 
interim, we believe our charity care and financial discount 
policy provides necessary relief to those in financial need.
    Our charity care program offers free or discounted 
nonelective care for those not covered by private insurance or 
government health assistance programs. For individuals with 
income up to 200 percent of the Federal poverty level, care is 
free. For those between 200 and 400 percent of the Federal 
poverty level, a sliding scale of discounts is applied.
    To give you an idea of who benefits from these discounts, a 
family of four with a gross income of $37,700 receives free 
care. At 400 percent above the poverty level, a family of four 
with a gross income of up to $75,400 would qualify for a 
discount as high as 65 percent. Such a discount places the 
pricing into the same zone as those negotiated with some of the 
Nation's largest health insurance providers.
    Now, I will be the first to admit that we are not perfect. 
We have been criticized for the effectiveness of our 
implementation, and assertions have been made that every HCA 
patient who is eligible is not receiving free or discounted 
care. That is undoubtedly the case, but I assure you it is not 
for either a lack of effort or a lack of intent. We are making 
every effort to provide financial relief to those individuals 
who qualify. While we and other hospitals can improve pricing 
and collection practices, this will not solve the mushrooming 
problem of the uninsured. We need a comprehensive strategy that 
guarantees coverage for all Americans.
    The problem is that we as a nation are actually going in 
the other direction. More and more businesses are dropping 
health insurance coverage, or shifting more and more of the 
burden to the employee with higher premium sharing and higher 
co-pays and deductibles. Many are pushing higher levels of 
part-time employment, thereby avoiding coverage of ever-larger 
segments of employees. About 60 percent of the uninsured are 
employed.
    I believe we need to move to a system of employer-mandated 
health insurance in this country, a system that would require 
all businesses above a certain size to provide health 
insurance. Limits on premium-sharing, deductibles and co-pays 
should be defined, thereby leveling the playing field with 
regards to benefits across all businesses.
    Small businesses should be allowed to form purchasing 
consortia, as has been advocated by the National Federation of 
Independent Businesses, in order to receive the best insurance 
rates.
    Finally, some form of Federal and/or State coverage must be 
provided for the unemployed. This population needs regular 
access to routine and preventive care to reduce health care 
crises necessitating hospitalizations. Hospitals cannot long 
continue to incur ever greater increases in bad debt and 
charity. We need help from other segments of the health care 
industry. More importantly, we need a new paradigm that 
provides a reasonable level of health insurance coverage for 
all Americans. We will continue to do our part, but we cannot 
do this alone.
    Thank you.
    [The prepared statement of Jack O. Bovender, Jr. follows:]

    Prepared Statement of Jack O. Bovender, Jr., Chairman and Chief 
           Executive Officer, Hospital Corporation of America

                              INTRODUCTION

    Mr. Chairman, members of the Committee and staff--good morning. My 
name is Jack Bovender. I come before you today as a 34-year veteran of 
the healthcare industry and current Chairman and Chief Executive 
Officer of the Hospital Corporation of America (``HCA'').
    I grew up in hospitals, and I have spent my life around healthcare 
professionals. My mother was a nurse. My wife was a nurse. My first 
civilian job was in a hospital, and I began my career in hospital 
administration in the Navy, at the Naval Regional Medical Center in 
Portsmouth, Virginia. So I feel qualified to say the issue of the 
uninsured is one the healthcare industry has always faced--it has been 
with us for as long as I can remember, but at no other time in my life 
has this challenge been of the magnitude it is today.
    The cost of providing healthcare services to the uninsured is the 
most significant issue currently facing hospitals and, I believe, one 
of the most important domestic concerns for our country. And the issue 
of the uninsured is the responsibility of every one of us--the business 
community, the government, and the individual, not just hospitals. We 
must all play a role if this situation is to be ameliorated.
    I appreciate this opportunity to share my personal experience, and 
the experiences of HCA, working on behalf of this vulnerable and 
growing population. We welcome the invitation to work with members of 
the Congress to find a real solution to this escalating problem, and we 
are hopeful that with this Committee's help, Congress will reach beyond 
today's hearing to engage those groups and individuals who can also 
play a role in this process.
    Let me tell you a little bit about our company and what we are 
doing to address this critical issue. Headquartered in Nashville, 
Tennessee, HCA affiliates operate nearly two-hundred hospitals and 
eighty-two outpatient surgery centers in twenty-three states, England, 
and Switzerland. Our facilities currently employ some 190,000 people. 
Certainly no organization has a greater interest in addressing the 
present crisis in health insurance coverage. In many cases and for 
many, many people, we are the nation's safety net for the uninsured. 
Last year alone, our hospitals provided healthcare services to over one 
million uninsured patients--let me repeat that number--one million 
uninsured patients. Add to that the 1.6 million Medicaid patients we 
served last year, and you have an idea of the magnitude of the care we 
provide for the underserved.
    Our hospitals are dedicated to delivering healthcare services to 
meet the needs of all Americans, regardless of whether they are or 
aren't the beneficiary of health insurance. The costs of providing 
medical services to the uninsured fall disproportionately upon the 
hospital industry, whose emergency rooms routinely function as the 
primary (and largely uncompensated) point of access to healthcare for 
this vulnerable population.
    My testimony today will detail HCA's charity care plan and discount 
policy for uninsured patients receiving treatment at any of our 
hospitals nationwide, as well as recommendations for improved 
coordination of resources to decrease the number of uninsured 
Americans.

                        CARING FOR THE UNINSURED

    While hospital management and medical personnel certainly can't 
solve the root causes for the vast numbers of uninsured individuals, 
every day our people are on the front lines in the struggle to care for 
this population's health and well-being. The Committee is undoubtedly 
aware that hospitals equipped with emergency rooms must provide medical 
evaluation and required treatment to everyone, regardless of their 
ability to pay. This burden has grown even heavier in recent years, 
with the advent of physician-owned limited-care hospitals, which skim 
profitable service areas for low-risk patients, and leave larger, full-
service facilities the task of handling uninsured patients within their 
community.
    In addition, the uninsured cannot visit a pharmacy and expect to 
receive free or discounted drugs; they cannot visit a physician's 
office and expect to receive free or discounted medical services; they 
cannot visit a physical therapist and expect to receive free or 
discounted rehabilitation treatment; nor can they go to an insurance 
company and expect to receive a free or discounted insurance policy. 
But in every HCA hospital's emergency room, they are assured of 
receiving the critical medical care they need, without consideration 
for their financial condition or health insurance coverage.
    America's hospital emergency rooms have become our de facto public 
healthcare system, the primary point of access to quality healthcare 
services for the nation's uninsured. For HCA hospitals, medical 
treatment of the uninsured has represented a substantial and growing 
segment of the patient population.
    And contrary to a prevailing myth, the treatment of the uninsured 
is far from a profit center for hospitals. Last year, the one million 
uninsured patients we treated contributed less than one percent to our 
net revenues. On average, we received about $200 in payments from each 
of the one million uninsured patients we cared for, and many paid 
nothing at all. Said another way, we lost a staggering half billion 
dollars in un-reimbursed expenses for treating the uninsured. Again, I 
am not talking about un-reimbursed charges, I'm talking about real 
costs we incurred for which we were not paid. Our hospitals incur both 
the internal costs generated by the hospitals' own medical services, 
such as nursing salaries and utilities charges, and costs from outside 
vendors, like prescription drugs, over the counter medications, medical 
devices, and other supplies necessary for the patient's care and 
treatment.
    In many instances, these goods and services are being provided to 
individuals whose needs are less acute and who would, were it not for 
their inability to pay, seek treatment at a physician's office. The 
cost of ensuring healthcare coverage of this nature is straining both 
the physical and financial capacity of the hospital industry; it cannot 
continue to be borne solely by hospitals, or medical services may not 
be available when Americans need them. The responsibility for the 
uninsured must be shared by all sectors of the healthcare industry, and 
by society at large.
    The financial pressures facing hospitals today, including the 
growing non-reimbursed costs of providing care for the uninsured, are 
illustrated in declining hospital profit margins (See Chart I). It is 
this margin that makes capital available to insure hospitals will be 
here to serve future generations. It is this margin that provides 
funding to cover our wage increases for our nurses and other 
caregivers. The most recent estimates from the American Hospital 
Association show U.S. hospital margins at approximately 3.5%. Over the 
last five years, the net profit margins for U.S. hospital companies 
have been substantially below margins of both pharmaceutical and 
medical device companies, and in 2003, margins of health insurance 
companies were more than double that of public hospital companies (See 
Chart II). For the most recent year (2003), public hospital company 
margins were 1.5%, while health insurance company margins were 4.3%, 
pharmaceutical companies margins were 13.8% and medical device 
companies margins were 15.6%.
    The lower margins for hospitals reflect the disproportionate 
uninsured burden carried solely by hospitals. As illustrated in Chart 
III, hospitals' bad debt (primarily arising from uninsured) totaled 
9.9% of net revenues in 2003, compared to bad debt levels of 0.1% for 
insurance companies and 0.3% for pharmaceutical and medical device 
companies. Further, the percentage growth in spending for hospital care 
between 1991 and 2002 was substantially below the growth in spending 
for prescription drugs (three times the growth in hospital spending) 
and private health insurance (two times the growth in hospital 
spending) (See Chart IV).

                THE HCA CHARITY CARE AND DISCOUNT POLICY

    Charity care has always been a part of our mission at HCA, and part 
of the service provided at our nearly two hundred hospitals nationwide. 
However, in order to respond to the recent growth of the uninsured 
population, last year we developed an enhanced, system-wide charity 
care and financial discount policy. In March 2003, we submitted our 
proposed discount program for uninsured patients to CMS for approval. 
In June 2003, we received a letter from CMS advising us while they 
``applauded HCA's efforts to improve access to quality healthcare to 
financially needy patients,'' we still needed to ``pursue our 
proposal'' with our (five) fiscal intermediaries (FI's) before 
implementation. After discussions with our FI's in the fall, we 
initiated our new policy nationwide, effective October 1, 2003.
    Our standardized charity care programs offer free or discounted 
medical care to patients in financial need who come to our emergency 
rooms and are not covered under any private health insurance policy, 
and cannot qualify for any state or federal health payer assistance 
programs. For individuals whose income is up to two hundred percent of 
the federal poverty level, care is free; for those who make between two 
hundred and four hundred percent of the federal poverty level, a 
sliding scale of discounts is applied. To give you an idea of who 
benefits from these discounts, a family of four with a gross income of 
$37,700 receives free care. At four hundred percent above the federal 
poverty level, a family of four with a gross income of up to $75,400 
would qualify for a discount as high as sixty-five percent. These 
uninsured individuals benefit from a pricing structure competitive with 
the reduced rates negotiated by the nation's largest health insurance 
providers.
    Eligibility for charity care relates only to the patient's or 
responsible party's gross income and family size; the potential value 
of other available family assets and resources are not considered when 
determining the appropriate rate of reduction in hospital charges. 
Moreover, free or discounted benefits are available under these 
programs at any time after care is rendered and the account is in the 
process of being settled. This permits write-offs of outstanding 
charges or restructuring of payment plans for patients who lose their 
insurance or suffer a substantial change of income. In addition, 
patients may request consideration under the charity and discount 
programs for costs associated with previous hospital visits. Each of 
our hospitals employs a team of patient representatives available to 
discuss an individual's particular situation and develop an appropriate 
solution.
    HCA's assistance is not just limited to providing medical care. We 
are also committed to helping patients who are eligible to receive the 
full range of government benefits. To that end, our hospitals employ a 
full-time staff of specially trained benefits counselors who are 
responsible for educating and enrolling patients in Medicaid or other 
state health benefit programs. Once enrolled in these federal and state 
medical benefit programs, patients can access physicians and other 
healthcare providers for critical preventive and follow-up care. Last 
year, HCA facilitated the enrollment in Medicaid of one in five of the 
uninsured patients who presented at our hospitals.
    In summary, our philosophy is clear and simple. When a patient 
arrives at one of our hospitals in need of emergent care, we provide 
that care regardless of whether or not they are insured. And if they 
tell us they cannot afford to pay for that care, we will write off 
those costs or discount the charges. While these programs cannot be a 
long-term substitute for private health insurance or government health 
assistance programs, they may for now be the only recourse for a 
patient lacking insurance and unable to afford essential medical care.

            HCA'S HOSPITAL BILLING AND COLLECTIONS PRACTICES

    Like all hospitals, HCA relies upon a chargemaster as the central 
repository of charges and associated coding information used to develop 
claims. These charges are determined on a local hospital-by-hospital 
basis. To put it simply, the chargemaster system on which hospitals 
rely to set pricing and billing codes has a forty-year history of 
changes that has distorted the relationship between price and cost. It 
grew out of a time in our industry's history, during the advent of 
managed care, when the inadequate level of Medicare reimbursement 
prompted cost-shifting. Therefore, HCA is now seeking to develop a 
pricing structure for the uninsured that is more reflective of the 
actual cost of providing the care, and which will provide prices 
comparable to managed care pricing for all aspects of uninsured care. 
In the interim, we believe our charity care and financial discount 
policy provides necessary relief for those individuals who are in 
financial need.
    With regard to collections, we have worked hard to develop a policy 
that strikes a careful balance between our fundamental belief that 
people who receive medical care should pay a fair price for those 
services, and an understanding that many in our nation lack the 
financial ability to do so. But despite the substantial reduction of an 
individual's medical expenses through the discount policy, HCA 
appreciates that many patients will lack the readily available 
financial resources needed to meet what are often unanticipated health 
care costs. Medical debt is, and is likely to remain, a difficult issue 
for hospitals and patients across the country, and I believe will 
become an increasing concern for this nation as a whole. As a medical 
services provider, HCA recognizes its fundamental obligation to be a 
steward of public health in its local communities. The HCA charity care 
and discount policy ensure compassion and consideration for those among 
us who simply cannot afford to pay hospital bills.
    We feel the process we have in place is one that seeks to help 
patients who are needy and willing to work with us to resolve their 
debt with our facilities. HCA hospitals will provide individuals with 
payment plans that are interest-free and tailored to each patient's 
distinct needs and financial ability. One of our challenges in making 
these options available, however, is in communication with the patients 
themselves. We find some patients do not answer our phone calls and 
letters, discuss their financial status, talk about payment plans, 
receive assistance with public benefits coverage, or apply for a 
reduction under the charity care or discount policy. It is difficult to 
effect assistance or financial relief if a patient is unable, or in 
many cases, unwilling to give us information.
    HCA does employ a collections process, but even then we do our best 
to work with our patients as individuals, with sensitivity to their 
personal and financial circumstances. If we receive no response to our 
phone calls and letters, we eventually place the account with an 
external collection agency, which continues to attempt to contact the 
patient to work out a reasonable and workable payment plan. In some 
instances, this collection effort still yields no response from the 
patient, and litigation is the remaining alternative to resolve the 
debt; however, we have no desire to compel payment from patients who 
have no ability to pay.
    We believe our collection policies are reasonable and reflect an 
understanding of individual circumstances. Unfortunately, patients who 
are financially able yet choose not to pay affect the cost and 
availability of healthcare resources to the entire population. When an 
individual who is able to pay for medical care refuses to do so, the 
resulting debt is a cost of doing business that must be absorbed by the 
hospital; and, as with any business, that cost is partially passed on 
to the consumer. More importantly, the drain on hospital resources 
compromises its ability to continue providing everyone in the community 
with quality, affordable care. This situation is magnified at HCA, 
because we have nearly two hundred hospitals, but through our 
experience we know that every day, in cities all across America, 
hospitals are struggling to balance a community's healthcare needs with 
a way to pay for care given when the recipients either cannot or will 
not contribute financially to the effort.

                      SUMMARY AND RECOMMENDATIONS

    As previously indicated, the cost of ensuring healthcare coverage 
for everyone cannot be borne solely by hospitals. I believe Congress, 
the Administration, the nation's employers, and all sectors of the 
healthcare industry--hospitals, pharmaceutical companies, medical 
device manufacturers, insurance carriers, and the physician community--
must work cooperatively and with equal participation to solve this 
enormous problem. And if every participant in the process were to play 
a meaningful role--as hospitals already do--think how much greater the 
potential would be for finding a real solution.
    Specifically, I recommend examination of appropriate discounts from 
all healthcare industry participants, not unlike the charity care 
discounts being provided by hospitals. And I strongly suggest working 
with the insurance industry to develop more affordable coverage for the 
self-employed, and for small business owners and their employees. We 
advocate small business health plans or association health plans.
    Let us not forget the individual as well. This country has been 
very good to me and to my family, and I believe in its strength and 
fundamental fairness; but I also believe each individual plays a part 
in his or her destiny. So whatever solution is devised, it must include 
an accountability for individuals to take part in the management of and 
payment for their healthcare needs. Ultimately, I believe all employers 
should be required to provide coverage for their employees.
    Finally, I believe some universal healthcare coverage must be 
provided for the unemployed. Since the implementation of our charity 
care and financial discount policy, our statistics show that over 95% 
of those who qualify fall in the vastly lower income levels, and many, 
though ineligible for Medicaid, live just above the poverty level. 
These people must be given a means by which to receive regular and 
preventive medical care.
    The bottom line is this: hospitals cannot continue to absorb more 
bad debt as they strive to maintain a quality healthcare system for 
Americans. As more insurance plans shift a greater burden of the cost 
of care to individuals, through higher co-pays and deductibles, the 
situation will only get worse. This financial picture will not improve 
without the intervention and support of other sectors of the healthcare 
industry, the greater business community, the assistance of the 
government, and the leadership of individuals such as the membership of 
this Committee.
    Thank you, Mr. Chairman and members of the Committee for your time 
and attention. I will be happy to respond to your questions.

    Mr. Greenwood. Thank you.
    Dr. Pardes.

                   TESTIMONY OF HERBERT PARDES

    Mr. Pardes. Mr. Chairman, distinguished members of the 
committee, and staff, good afternoon. Thank you for convening 
this hearing on hospital billing and collection practices 
related to the uninsured. The committee's inquiry into these 
matters has raised public awareness regarding a serious problem 
facing millions of Americans--the lack of health insurance 
coverage and ability to pay for necessary medical treatment. 
There are more than 43 million Americans living without health 
insurance, and millions of others lack coverage for 
catastrophic health care expenses. As a result, U.S. hospitals 
treat millions of patients each year who can make only minimal 
payment, or no payment at all for the medical services they 
receive.
    My name is Dr. Herbert Pardes, President and Chief 
Executive Officer of the New York Presbyterian Hospital. I have 
served there for 4 years as CEO, and appreciate the opportunity 
to testify and share my insight into and experience with New 
York Presbyterian's charity care and collection policies. New 
York Presbyterian has always strived to treat each patient 
fairly when it comes to how charity care is provided and how 
uninsured patients are billed. Through my testimony, I hope to 
convey New York Presbyterian's commitment to these important 
issues.
    After providing a brief description of the New York 
Presbyterian Hospital and the community it serves, my testimony 
will focus on our charity care efforts as well as our 
collection policies and charges.
    New York Presbyterian Hospital is the largest single 
hospital and academic medical center in the New York 
Metropolitan Area. It is comprised of four separate campuses, 
collectively serving a large geographic area with many diverse 
communities. The vast majority of communities served by New 
York Presbyterian are ethnically diverse and economically 
distressed, with a large percentage of Medicaid-eligible, 
uninsured and underinsured individuals and families, so we 
treat a high percentage of Medicaid and uninsured patients.
    As a nonprofit, New York Presbyterian maintains strong and 
long-standing commitment to meeting the diverse medical and 
social needs of the communities it serves. It is especially 
committed to our obligation to provide care both to the 
uninsured and underinsured in our service area. Each year, we 
forego some $70 million in charity care, write off an 
additional $70 million in bad debt. We also expend significant 
resources in support of very expensive community benefit 
programs. Many of our initiatives are directed to the uninsured 
and underinsured populations, including a facilitated Medicaid 
enrollment program, prenatal assistance program, community 
outreach program, and a number of others.
    New York Presbyterian is committed to enrolling patients 
who are eligible into Medicaid and other government programs We 
routinely screen patients for Medicaid eligibility, and assist 
them with the enrollment process. For those patients ineligible 
for Medicaid and otherwise not insured, we offer charity care 
and other financial aid.
    New York Presbyterian has implemented a charity care policy 
that applies across its campuses. Under this policy, New York 
Presbyterian provides charity care and financial aid to 
patients with incomes up to 300 percent of the Federal poverty 
level, which equates to some $56,550 for a family of four. In 
addition, New York Presbyterian routinely assesses patients' 
eligibility for assistance from a philanthropic fund. The 
philanthropic fund is supported by private donations and used 
to pay the medical bills of patients experiencing financial 
hardship. To the extent that a patient is ineligible for either 
charity care or the philanthropic fund, New York Presbyterian 
makes every attempt to establish flexible payment arrangements 
based on the patient's individual circumstances. On average, we 
collect only 12 to 13 percent of the charges for services to 
uninsured patients. After making reasonable efforts to collect 
the balances, we must frequently write off some, if not all, of 
the uninsured patients' balances, and these write-offs approach 
nearly $70 million per year.
    New York Presbyterian works to ensure the fair collection 
of outstanding patient debts. We have internal policies and 
procedures as well as written agreements with our outside 
collection agencies. Our collection agencies do not pursue 
income executions on a patient's spouse, and we do not permit 
foreclosure on a patient's primary residence.
    New York Presbyterian must establish charges for thousands 
of different items and services. We review our charges 
periodically to ensure that they cover costs and are in line 
with charges in the New York Metropolitan Area. Inevitably, 
increases in health care costs lead to increases in charges. 
The increase in health care cost in recent years can be 
attributed to a variety of factors, including increased cost of 
technology, research, pharmaceuticals, employees, insurance, 
and facility expansion and improvement.
    Third-party payers are frequently able to negotiate 
discounts on these charges based on factors such as volume of 
service providers, reduced transaction cost, assurance of 
timely payment. New York Presbyterian understands that 
uninsured patients do not have the benefit of negotiated group 
rates, and so we offer free or reduced-charge care to uninsured 
and underinsured patients, and are flexible in establishing 
payment arrangements based on patient's individual 
circumstances.
    At the end of the day, New York Presbyterian stands 
committed to meeting the medical and social needs of the 
communities we serve. We are also committed to the promotion of 
meaningful industry-wide change in how charity care is provided 
and the uninsured are billed. We welcome this opportunity to 
discuss our charity care and collection policies, and we will 
continue to buildupon them to further our commitment to 
patients' needs.
    Thank you.
    [The prepared statement of Herbert Pardes follows:]

  Prepared Statement of Herbert Pardes, New York Presbyterian Hospital

    Mr. Chairman, distinguished members of the Committee and staff--
good morning, and thank you for convening this hearing on hospital 
billing and collection practices related to the uninsured. The 
Committee's inquiry into these matters has raised public awareness 
regarding a serious problem facing millions of Americans--the lack of 
health insurance coverage and ability to pay for necessary medical 
treatment. There are more than 43 million Americans living without 
health insurance, and millions of others lack coverage for catastrophic 
healthcare costs. As a result, U.S. hospitals treat millions of 
patients each year who can make only minimal payment, or no payment at 
all for the medical services they receive.
    My name is Dr. Herbert Pardes, and I am the President and Chief 
Executive Officer (``CEO'') of the New York Presbyterian Hospital 
(``NYPH'' or ``NYP''). I have served as the CEO of NYPH for four years. 
I appreciate the opportunity to testify and share my insight into and 
experience with NYPH's charity care and collection policies. NYPH has 
worked to promote change in how charity care is provided and how 
uninsured patients are billed. Through my testimony, I hope to convey 
NYPH's commitment to these important issues.

                              I. OVERVIEW

    New York Presbyterian Hospital (``NYPH'') is the largest, single 
hospital and academic medical center in the New York Metropolitan area. 
NYPH is comprised of four separate campuses, which collectively serve a 
large geographic region with many diverse communities. The vast 
majority of communities served by NYPH are ethnically diverse and 
economically distressed, with a large percentage of Medicaid-eligible, 
uninsured and underinsured individuals and families. As a result, NYPH 
treats a high percentage of Medicaid and uninsured patients.
    As a non-profit institution, NYPH maintains a sincere and 
longstanding commitment to meeting the diverse medical and social needs 
of the communities it serves. NYPH is especially committed to its 
obligation to provide care to both the uninsured and underinsured in 
its service areas. Each year, NYPH spends nearly $70 million in charity 
care, and writes off an additional $70 million in bad debt resulting 
from the unpaid balances of self-pay patients. NYPH also expends 
significant resources in support of its Community Benefit Initiatives, 
many of which are directed at the uninsured and underinsured 
populations.
    NYPH is committed to enrolling eligible patients into Medicaid and 
other government programs. NYPH routinely screens patients for Medicaid 
eligibility and assists eligible patients with the enrollment process. 
For those patients who are ineligible for Medicaid and who are not 
otherwise insured, NYPH offers charity care and other financial aid. 
NYPH has implemented a charity care policy that applies across all of 
its campuses. Under this policy, NYPH provides charity care/financial 
aid for patients with incomes up to 300% of the federal poverty level, 
or $56,550 for a family of four. In addition, NYPH routinely assesses 
patients' eligibility for assistance from the Philanthropic Fund, a 
fund which is used to pay the medical bills of patients experiencing 
financial hardship. To the extent that a patient is ineligible for 
either charity care/financial aid or the Philanthropic Fund, NYPH makes 
every attempt to establish flexible payment arrangements based on the 
patient's individual circumstances.
    NYPH also works to ensure the fair collection of outstanding 
patient debt. NYPH has internal policies and procedures, as well as 
written agreements with its outside collection agencies. NYPH's 
collection agencies do not pursue income executions on a patient's 
spouse, and do not force a foreclosure on a patient's primary 
residence. On average, NYPH collects only 12-13% of the charges for 
services to self-pay patients. After making reasonable efforts to 
collect the outstanding monies, NYPH must frequently write off some, if 
not all, of the uninsured balances. As noted above, these write-offs 
approach nearly $70 million per year. While a portion of this is 
reimbursed to NYPH through the New York State Bad Debt and Charity Care 
Pool, the write off of bad debt is still a substantial burden on NYPH.

                           II. NYPH'S CHARGES

    NYPH recognizes that rising health care costs are a significant and 
growing concern. Increases in health care costs lead to increases in 
our charges. The increase in health care costs in recent years can be 
attributed to a variety of factors, including the increased costs of 
technology, research, pharmaceuticals, employees, insurance, and 
facility expansion and improvements. NYPH must absorb these increased 
costs, and must update its chargemaster accordingly. Generally 
speaking, NYPH's charge increases in recent years have been due to an 
overall increase in these types of operational expenses.
    NYPH understands that uninsured patients do not have the benefit of 
negotiated group rates. As such, NYPH has been and remains committed to 
providing free or reduced charge services that are medically necessary 
to persons who are determined to be unable to pay for their care, in 
whole or in part, based on their financial situation. A description of 
NYPH's charity care efforts is set forth below.

                 III. NYPH'S PROVISION OF CHARITY CARE

    As the largest hospital in the New York metropolitan area, NYPH is 
serious about its commitment to provide medical care to both the 
uninsured and underinsured in its community. NYPH is continually 
modifying and improving its charity care policies to meet the three-
fold challenge of surviving in the face of burgeoning costs and 
cumbersome federal and state regulation, continuing to provide high-
quality, innovative medical care, and serving the needs of the 
uninsured and underinsured patients in its community. To this end, NYPH 
has recently revised its charity care guidelines in order to implement 
a new Charity Care/Financial Aid Policy (``Charity Care Policy'') 
across all four of its campuses. NYPH's Charity Care Policy allows NYPH 
staff to consistently and fairly assess each patient's ability to pay 
for medical services, and provides a level of assistance commensurate 
with their resources.
    NYPH's provision of charity care/financial aid is not intended to 
be a substitute for existing government entitlement or other assistance 
programs. Based on the individual circumstances of each patient, NYPH 
makes every reasonable effort to explore appropriate, alternative 
sources of payment and coverage through Medicaid or other public and 
private programs. Eligibility for charity care/financial aid will be 
determined only after eligibility for Medicaid and other public and 
private programs has been assessed. This allows NYPH to provide charity 
care/financial aid to those patients that are most in need of 
assistance.

A. Charity Care/Financial Aid Policy

1. Eligibility and Application Process
    NYPH's Charity Care Policy defines charity care/financial aid as 
``the provision of free or reduced charge services that are medically 
necessary to persons who are determined to be unable to pay for their 
care in whole or in part, based on their financial situation.'' While 
charity care/financial aid is aimed at NYPH's uninsured population, 
insured patients who face extraordinary medical costs, not covered by a 
third party payer, may be eligible for assistance. As a general rule, 
other than cases of medical emergency, NYPH offers charity care/
financial aid to individuals who reside within the communities it 
serves.
    In assessing a patient's eligibility for charity care/financial 
aid, NYPH asks applicants to provide certain information and/or 
documentation related to their financial resources. NYPH asks 
applicants to submit the following:

 Household income for the most recent three months;
 Household income for the most recent twelve-month period;
 Number of persons in the household and their relationship to the 
        applicant;
 Net assets (e.g., value of personal and real property, insurance 
        policies, bank accounts, and other investment accounts); and/or
 Form 1040 (U.S. Individual Income Tax Return) or, in the absence of a 
        Form 1040, any other documentation that can be used to 
        substantiate household income.
    NYPH reviews the application and documentation in making a decision 
regarding the patient's ability to pay for the services provided, and 
eligibility for charity care/financial aid. NYPH will provide free or 
reduced care to uninsured applicants with incomes below 300% of the 
federal poverty level (i.e., $56,550 for a family of four), and who 
have no significant assets other than their primary residence. The 
federal poverty level is listed in the Federal Poverty Guidelines for 
Non-Farm Income, which is published on an annual basis. Exceptions to 
the income levels may be authorized by a designated hospital executive. 
If a patient is found to be ineligible for charity care/financial aid 
based on their available assets and income, the patient's eligibility 
may be re-evaluated at a later date. Regardless, NYPH attempts to 
establish flexible payment arrangements based on the patient's 
individual circumstances.

2. Communication of NYPH's Charity Care Policy to the Community
    NYPH has made an effort to disseminate information about its 
Charity Care Policy to the communities it serves. NYPH has shared 
information about the policy with various community health agencies and 
other local organizations that assist individuals in financial need. 
NYPH also provides information about its charity care/financial aid 
programs in the Emergency and Admitting Departments of each of its 
facilities. In so doing, NYPH provides the information in the primary 
language spoken by the patients served by that facility. Finally, NYPH 
has trained the personnel who come in contact with uninsured and 
underinsured patients so they may educate such patients about the 
availability of, and process for obtaining charity care/financial aid.

B. The Philanthropic Fund
    NYPH's Philanthropic Fund is used to provide aid to patients 
experiencing financial hardship. The Philanthropic Fund, which is 
supported by private donations, contains approximately three million 
dollars in available funding on an annual basis.
    Both insured and uninsured patients may apply for financial aid 
from the Philanthropic Fund. In order to receive monies from the Fund, 
the patient must submit a letter of hardship which details their 
financial circumstances, and explains why the patient is unable to pay 
his or her medical bills. The patient may also be required to submit 
financial documentation, such as W-2 forms, Form 1040s and mortgage 
statements. Upon receipt of the patient's letter and documentation, 
NYPH will make a determination as to the eligibility of the patient. If 
the patient is deemed to be eligible, NYPH will forgive the patient's 
entire balance due to the hospital, subject to the availability of 
funds. Monies from the Philanthropic Fund are allocated on a first-
come, first-served basis.

                IV. NYPH'S COMMUNITY BENEFIT INITIATIVES

    In addition to providing nearly $70 million in charity care per 
year, NYPH expends significant resources in support of its Community 
Benefit Initiatives. Through these initiatives, NYPH collaborates with 
various local health agencies to ascertain and respond to the myriad of 
health care needs of its communities. NYPH incorporates the outcome of 
these assessments into its strategic and program planning process in an 
effort to target needed services to residents of its communities. NYPH 
currently funds approximately twenty Community Benefit Initiatives. The 
following initiatives are directed at the uninsured and underinsured 
populations:
    NYPH's Facilitated Medicaid Enrollment Program is aimed at 
enrolling the uninsured in the Medicaid Program. NYPH funds community-
based organizations, throughout its five targeted neighborhoods, which 
hire bi-lingual community-based staff to serve as liaisons. These 
liaisons seek out the uninsured by visiting public housing, homeless 
shelters, churches, schools, health fairs and other community events. 
The liaisons pre-screen uninsured individuals to determine if they are 
eligible for Medicaid, assist them in completing the application and 
gathering required documentation, and provide referrals to Medicaid 
application offices located throughout the City. As a result of these 
efforts, approximately 6,500 uninsured individuals have been enrolled 
in the Medicaid Program in a single year.
    NYPH's Pharmacy Assistance Program makes affordable pharmaceuticals 
available to the uninsured and underinsured patients who do not have a 
prescription drug benefit. The Pharmacy Assistance Program currently 
works with over 130 pharmaceutical manufacturers to offer more than 
1100 legend drugs to eligible patients. Under this Program, patients 
pay a $5 co-payment for a three-month supply of medicine. Since its 
inception in August 2002, the Pharmacy Assistance Program has assisted 
many uninsured and Medicare patients to obtain the prescriptions they 
need at an affordable cost.
    NYPH's Prenatal Care Assistance Program seeks to enroll low-income 
pregnant women into the Medicaid Program. NYPH Medicaid counselors, at 
both the Columbia Presbyterian and Cornell campuses, pre-screen female 
outpatients in an effort to determine if they are eligible for 
participation in the Prenatal Care Assistance Program. The Prenatal 
Care Assistance Program is a State-sponsored initiative that expands 
the Medicaid eligibility criteria to include pregnant and postpartum 
women. NYPH maintains an electronic Medicaid application program that 
allows eligible pregnant women to receive Medicaid numbers within 48 
hours.
    In 1998, the Columbia University School of Dental and Oral Surgery, 
in partnership with NYPH, the Mailman School of Public Health, Harlem 
Hospital, and Alianza Dominicana, became one of thirteen sites 
nationwide to be awarded a Community Voices Health Care for the 
Underserved Initiative grant by the W.K. Kellogg Foundation. This led 
to the formation of Northern Manhattan Community Voices Collaborative 
(``NMCVC''). NMCVC is a partnership of over 35 community-based 
organizations, faith-based groups, health care providers, and 
institutions working to address the health care needs of the Central 
Harlem and Washington Heights/Inwood communities. Under the NMCVC 
Program, NYPH has worked collaboratively with its partners to increase 
Medicaid and Child Health Insurance Plus (``CHIP'') enrollment in the 
targeted communities.
    NYPH's Community Outreach Program is also aimed at enrolling the 
uninsured into health insurance programs. NYPH substantially expanded 
its Community Outreach Program in 2001, when the number of Outreach 
staff grew from 12 to 36. The increase in staffing allowed NYPH to 
develop a grassroots strategy aimed at the uninsured members of the 
community. Outreach staff approach individuals in schools, day care 
centers, supermarkets, check cashing centers, Department of Labor 
sites, consulates and many other community locations. The staff members 
educate the patients about health insurance options and attempt to 
enroll them into CHIP, Family Health Plus and Medicaid plans.
    NYPH's Breast Cancer Screening Partnership is a program, directed 
by Columbia Presbyterian Hospital, which provides free breast and 
cervical cancer screening to uninsured and underinsured women. To be 
eligible for the program, a woman must be over the age of 40, and have 
either no insurance coverage or insurance that does not cover medical 
screenings. The Partnership conducts outreach, which includes education 
and recruitment of women, through community-based and faith-based 
institutions. The Partnership provides ease of access through its two 
mobile mammography units, and through formal referral linkages with 
Harlem Hospital and the Union Health Center.
    The Community Benefit Initiatives, described above, clearly 
demonstrate NYPH's strong commitment to the economically disadvantaged 
communities that it serves. NYPH makes every effort to obtain health 
insurance for the uninsured and underinsured, as evidenced by the 
Facilitated Medicaid Enrollment Program, the Prenatal Care Assistance 
Program and the Community Outreach Program. To the extent that patients 
are not eligible for Medicaid programs, NYPH provides low cost 
prescription drugs and free preventative services through several of 
its Community Benefit Programs.

                     V. NYPH'S COLLECTION POLICIES

    NYPH works to ensure the fair collection of all outstanding patient 
debt. NYPH's handling of outstanding patient bills differs depending on 
a variety of factors, including the amount of the balance, whether the 
services were performed in the outpatient or inpatient setting, and the 
age of the account. For example, outpatient balances under $1,000 are 
handled by NYPH's Patient Financial Services Department. 
Representatives in the Patient Financial Services Department may take 
varying approaches based on the particular patient's needs and 
circumstances. The patient representative may assess a patient's 
eligibility for Medicaid, settle the account for less than the full 
balance, negotiate flexible payment arrangements, or assess the 
patient's eligibility for charity care from the Philanthropic Fund. The 
patient representative's goal is to tailor the arrangement to the 
individual patient's ability to pay.
    NYPH has internal policies and procedures, as well as written 
agreements with its outside collection agencies and law firms 
(hereinafter ``outside collectors''). NYPH's outside collectors do not 
pursue income executions on a patient's spouse, and do not foreclose on 
a patient's primary residence. NYPH's outside collectors routinely 
assess patients' eligibility for Medicaid and other government 
programs. To the extent the patients are ineligible, the outside 
collectors provide the patient with multiple opportunities to pay on 
the account. NYPH's outside collectors are expected to negotiate 
flexible payment arrangements based on the patient's individual 
circumstances, and to settle accounts for a percentage of the balance.
    On average, NYPH collects only 12-13% of the charges for services 
to uninsured patients. After making reasonable efforts to collect the 
outstanding monies, as required under the Medicare program, NYPH must 
frequently write off some, if not all, of the uninsured or self-pay 
balances. NYPH's bad debt expense approaches nearly $70 million per 
year.

    Mr. Greenwood. Thank you.
    Mr. Fetter.

                   TESTIMONY OF TREVOR FETTER

    Mr. Fetter. Thank you, Mr. Chairman. I appreciate this 
opportunity to address the subcommittee.
    My name is Trevor Fetter. Last September, I was named Chief 
Executive Officer of Tenet Healthcare Corporation. Prior to 
that, I had served since November 2002 as President of Tenet. I 
have spent nearly 9 years as an executive in the health care 
field.
    Tenet is America's second largest investor-owned hospital 
company. Last year, we treated more than 9.5 million patients 
at our 99 hospitals in 14 States across the Nation. We employ 
more than 100,000 people in our hospitals. Every one of us at 
Tent is very familiar with the growing uninsured crisis in our 
country. We deal with it every single day, and the burden is 
rapidly increasing.
    Tenet, like most hospital operators, has always provided 
charity care to those truly indigent patients with no ability 
to pay. But in recent years, we have been forced to absorb the 
sharply rising cost of treating uninsured patients who are not 
indigent, but for a variety of reasons can't or won't pay for 
the services that we provide.
    It is important to note that the uninsured crisis is 
definitely not confined just to the unemployed and to the 
indigent. In some communities that we serve, as many as a third 
of the uninsured patients have jobs, but no health insurance.
    We estimate that the number of uninsured patients in Tenet 
hospitals has now risen to more than 500,000 per year. This has 
an enormous cost. So far this year, Tenet has incurred about 
$20 million a month in cost to provide care to uninsured 
patients. It costs us an additional $15 million per month to 
provide charity care to people whom we believe cannot afford to 
pay us anything.
    As hospitals continue to absorb costs of that magnitude to 
provide free care to uninsured and indigent patients, their 
ability to invest in capital improvements, expanded services, 
and new technology becomes limited. My greatest objective is to 
improve the quality of care that is provided by our hospitals, 
but my greatest concern is that the uninsured crisis may 
compromise our ability to reinvest appropriately in our 
hospitals.
    We know that Tenet alone cannot fix the uninsured problem. 
Only when the uninsured have insurance will we truly solve this 
challenge. But we have committed ourselves to do what we can to 
ease this burden until more fundamental solutions are 
developed.
    That led us, in January 2003, approximately a month after I 
made the comment that the chairman referenced in his opening 
statement, to adopt what we call Tenet's Compact With Uninsured 
Patients. The Compact has radically changed many of the ways 
that Tenet hospitals interact with uninsured patients, 
including a dramatic overhaul of some collection practices. 
Under our Compact, we do not sue uninsured patients to collect 
unpaid bills, if the patient is unemployed or lacks significant 
income. And we also do not impose liens on homes if they are a 
patient's only significant asset. These two changes in our 
collection practices have reduced by 90 percent our patient 
litigation and lien activity since 2002.
    A key aspect of the Compact is our uninsured discount 
program which we are currently rolling out. Uninsured patients 
in Tenet hospitals who do not qualify charity care or 
government health coverage will be offered a substantial price 
discount similar to those negotiated by HMOs for their members.
    Tenet's Compact provides uninsured patients with meaningful 
price discounts and less onerous collection practices, but I 
must emphasize that it is simply no substitute for health 
insurance.
    As Congress continues its efforts to address this problem, 
I urge you to keep in mind that the most formidable challenge 
faced by uninsured patients, as well as their hospitals and 
other health care providers, is the lack of affordable health 
insurance. With our Compact, all of us at Tenet believe we are 
doing our part to ease the burden of this crisis on the 
patients who need that the most.
    We welcome this opportunity to work collaboratively with 
Congress and others to find broader answers to this pressing 
challenge.
    I applaud the subcommittee's leadership in evaluating the 
uninsured crisis and how our country can do a better job of 
providing health care for all Americans, and I would be happy 
to answer any questions that you might have.
    [The prepared statement of Trevor Fetter follows:]

  Prepared Statement of Trevor Fetter, President and Chief Executive 
                 Officer, Tenet Healthcare Corporation

    Thank you, Mr. Chairman. I appreciate this opportunity to address 
the Subcommittee.
    My name is Trevor Fetter. Last September, I was named Chief 
Executive Officer of Tenet Healthcare Corporation. Prior to that, I had 
served as President of Tenet since November 2002. I have spent nearly 
nine years as an executive in the health care field.
    Tenet is America's second largest investor-owned hospital company. 
Last year, we treated more than 9.5 million patients at our 99 
hospitals in 14 states across the nation. We employ more than 100,000 
people in our hospitals. Tenet's largest regions are in California, 
Texas and Florida. We also operate hospitals in Alabama, Georgia, 
Louisiana, Massachusetts, Mississippi, Missouri, Nebraska, North and 
South Carolina, Pennsylvania and Tennessee.
    This has been a challenging time for our company. Last year we 
reported a net loss of $1.4 billion. Tenet's challenges have galvanized 
our board of directors, our new management and our employees to make 
our company a model partner with federal and state payors and 
regulatory agencies. In the past 18 months, we have made enormous 
progress in the areas of compliance, quality and transparency, but all 
of us know that we have to regain the full trust of the government, our 
patients and our physicians if Tenet is to succeed in its mission.
    The specific subject you have asked me to address is the growing 
challenge of providing health care to uninsured and under-insured 
Americans, and it has two parts. The first requires all of us to 
recognize that individuals without insurance are not represented by 
large payors and therefore do not benefit from negotiated pricing. The 
second part is the limited ability that these patients have to pay for 
health care, regardless of the price. Tenet has taken action we believe 
is appropriate on both fronts, but our company--and our hospitals--
cannot solve this problem alone.
    Every one of us at Tenet is very familiar with the growing 
uninsured crisis in our country. We deal with it every single day, and 
the burden is rapidly increasing. Tenet, like most hospital operators, 
has always provided charity care to truly indigent patients with no 
ability to pay. But in recent years, we have been forced to absorb the 
sharply rising cost of treating uninsured patients who are not indigent 
but for a variety of reasons can't or won't pay for the care we 
provide. I think it's important to note that the uninsured crisis is 
definitely not confined just to the unemployed and the indigent. In 
some of our markets, as many as a third of our uninsured patients have 
jobs, but no health care insurance.
    We estimate that the number of uninsured patients receiving care in 
Tenet hospitals has now risen to more than 500,000 per year. This has 
an enormous cost. So far this year, it has cost us about $100 million a 
month to provide care to patients where neither an insurance company 
nor the patient has paid us. About three-quarters of that total was 
from uninsured patients. In addition, Tenet provides $15 million per 
month in charity care to people who we believe can't afford to pay us 
anything.
    What's most alarming is how the uninsured totals have grown just 
recently. While our charity care increased 15 percent from 2002 to 
2003, our write-offs from unpaid patient bills--the vast majority of 
them uninsured--rose by 49 percent.
    As hospitals continue to incur this significant and rapidly growing 
cost, their ability to invest in capital improvements, expanded 
services and new technology becomes limited. My greatest objective is 
to improve the quality of care provided by our hospitals. But my 
greatest concern is that the uninsured crisis may compromise our 
ability to do that.
    When I was named President of Tenet in November 2002, this company 
faced many difficult issues. Our new management team set out to address 
each one. Among the things we faced were some very vocal complaints 
that our hospital charges and collection practices were unfair to 
uninsured patients. I knew that Tenet alone could not fix the uninsured 
challenge. Only when the uninsured have insurance will we truly solve 
this problem. But I was determined to see what Tenet could do to ease 
the burden until more fundamental solutions are developed.
    In January 2003, we adopted our own approach to the uninsured 
crisis. We called it Tenet's Compact With Uninsured Patients.
    The Compact has radically changed many of the ways Tenet hospitals 
interact with uninsured patients, including a dramatic overhaul of some 
collection measures. The paramount goal of the Compact is to treat all 
Tenet patients fairly and with respect, regardless of their ability to 
pay. We start by giving our uninsured patients extensive financial 
counseling to help them access all state and federal programs, such as 
Medicaid, that may help pay for their health care. As part of this 
process, we also determine if the patient is indigent and therefore 
eligible for Tenet's charity care program.
    Under our Compact, we do not sue uninsured patients to collect 
unpaid bills if the patient is unemployed or lacks significant income. 
And we also do not impose liens on homes if they are a patient's only 
significant asset. These two changes in our collection practices have 
reduced by 90 percent our patient litigation and lien activity since 
2002.
    One of the unique aspects of the Compact is our uninsured discount 
program. Every uninsured patient who does not qualify for charity care 
or government health coverage will be offered a substantial price 
discount similar to those negotiated by HMOs for their members.
    Although our uninsured patients have benefited from all other 
features of the Compact since January 2003, Tenet has not implemented 
the uninsured price discount until very recently. That's because we 
wanted to be sure our program complied with all federal and state laws. 
Earlier this year we concluded that Tenet's discount program is in 
compliance with all federal laws, but there are two states where we 
have had to take interim measures. By the end of July, the discount 
will be available in virtually all of our hospitals, except those in 
Texas and California. We are still awaiting resolution of regulatory 
issues in those two states. In the interim, we are significantly 
expanding our charity care policy there to include many more uninsured 
patients until our discount is available.
    As Congress continues its efforts to address this problem, I urge 
you to keep in mind that the most formidable challenge faced by 
uninsured patients--as well as their hospitals and other health care 
providers--is the lack of available and affordable health insurance.
    Tenet's Compact provides uninsured patients with meaningful price 
discounts and less onerous collection practices. But it is no 
substitute for health insurance. Even with the price discount offered 
by our Compact, uninsured patients still must pay their own bills. Not 
many Americans with health insurance would find it easy to pay their 
own medical bills, even if they were discounted to HMO-style rates.
    With our Compact, all of us at Tenet believe we're doing our part 
to help ease the burden of this crisis on the patients who need help 
the most. We welcome the opportunity to work collaboratively with 
Congress and others to find broader answers to this pressing challenge.
    I applaud the Subcommittee's leadership in evaluating the uninsured 
crisis and how our country can do a better job to address the health 
care of all Americans. I'd be happy to answer any questions the 
Subcommittee may have.

    Mr. Greenwood. Thank you very much, Mr. Fetter. The Chair 
recognizes himself for 10 minutes for inquiry.
    You all heard me quote Mr. Fetter's comments, and let me 
just refer back to them again. He said, ``In other words, the 
entire hospital industry renders its highest bills to the 
customers who are least able or likely to pay. The problems 
that this creates are obvious. The bills are tremendous and 
incomprehensible to most people. The patient leaves the 
hospital presumably after some traumatic event, and the 
hospital ill adds to the trauma,'' and I think all of you have 
essentially recognized that this has been a problem. All of you 
have essentially testified that you have made changes in your 
billing practices in order to deal with this problem.
    The thing that I am trying to ascertain is when did this 
occur to you, and why? In other words, this is a long-standing 
issue. Mr. Fetter said in his statement it is a long-standing 
issue. When did these issues first raise concerns in your mind, 
and what did you do about it? I would just like the panel go 
down from my left to right.
    Mr. Tersigni. Mr. Chairman, we always had policies within 
our health ministries. What we didn't have was a uniform policy 
across all of Ascension Health. And so we began on the journey 
beginning in early 2003, actually before the subcommittee's 
investigation, and what we learned was that our policies 
weren't always explicit and each hospital did things 
differently. We really couldn't speak, as an Ascension Health 
policy, that there really wasn't a process to measure how well 
our charity care programs were doing, and then our billing and 
collection wasn't receiving the level of attention and 
oversight that we believe we needed to do from a systemwide 
perspective. And, therefore, we went about, as we are beginning 
to integrate our system, management systems, in creating a 
systemwide policy that I indicated that our board approved.
    Mr. Greenwood. I am going to ask everyone to be brief 
because I have a series of questions and limited time, so just 
basically when did you start working specifically on the 
question of trying to make sure that the uninsured were not 
billed charges. I know that all hospitals, all of your systems 
have long-standing charity care procedures and so forth, but on 
the specific question that this committee is focused on, making 
sure that the uninsured aren't billed charges, when did you 
recognize this is a problem, and when did you take action to 
correct it?
    Mr. Lofton. Again, we have had policies in place to help 
them, so the assistance has been there. It has been done on an 
individual patient-by-patient basis. The investigation brought 
to light a serious problem that was there. We definitely could 
have been more purposeful in addressing it as a system.
    CHI itself is still a relatively new system with a 
collection of hospitals, and each hospital had their own 
policies and practices. So, last year was when we began to look 
at it from a systemwide basis and looked to put systemwide 
policies in place.
    Mr. Greenwood. Very well. Mr. Bovender.
    Mr. Bovender. In late 2002, I asked my staff to start 
formulating a program where we could provide policy discounts 
to charity care discounts, as I enumerated in my testimony. I 
was told by both inside and outside legal counsel at the time 
that we had to get clearance for this through CMS, and so we, 
in March 2003, sent a letter detailing our plan to CMS. They 
responded in June 2003, saying that they thought the plan was 
good, fit within the regulations, but we would have to get 
individual permission from each of our five fiscal 
intermediaries in order to implement the plan.
    Mr. Greenwood. What was the impetus for you to seek that 
legal advice? Was it this investigation? Was it the lawsuits 
that Tenet was experiencing? What was it?
    Mr. Bovender. It was mainly seeing the growing problem and 
the attention both this committee as well as the problems that 
Tenet has alluded to earlier were seen, and I just said to our 
people very frankly, we need to fix this problem, it is not 
conscionable. This kind of disparity between what is actually 
being charged to the uninsured and what is appropriate given 
our managed care discounting and other rates, and it needed to 
be changed. But it took a process through CMS to get approval. 
We got approval in October. We have implemented the policy. And 
as I have said, it has not been perfect. And we have learned a 
lot. In fact, about 3 weeks ago, through the open forum that 
the Office of Inspector General did in HHS, they opened the 
doors a lot wider for discounting policies, and we are going to 
go back and actually, as I mentioned in my testimony, implement 
some new plans, which won't replace the charity discount, but I 
think will change the pricing to the uninsured based upon 
actually some of the things that Dr. Anderson was testifying 
about earlier.
    Mr. Greenwood. Dr. Pardes.
    Mr. Pardes. We have had policies trying to address the 
problems of the uninsured for some time, Mr. Chairman, and 
those have included developments like reducing the number of 
collection agencies, taking more of the collections under our 
control, and trying to interfere with inappropriate practices.
    Your investigation I think has spurred that further, and I 
think you should be credited for it.
    Mr. Greenwood. Thank you. Mr. Fetter.
    Mr. Fetter. Well, those comments that you cited I made in 
December of 2002. In January 2003, we announced this Compact 
With the Uninsured, having those two features I mentioned, the 
different collection practices as well as the discounting.
    We did immediately take action to seek an opinion from HHS 
with respect to the discounting, and it was almost a year later 
that the Secretary clarified HHS policy. We then took immediate 
action to roll out the discounting plan which we are doing now.
    I would also, as Mr. Bovender just did, like to applaud HHS 
for holding those open forums. We found them to be exceedingly 
helpful in clarifying a variety of regulatory issues.
    Mr. Greenwood. Thank you. And let me be clear. I am not 
interested in knowing whether this investigation was the 
inspiration for your change so we can take credit for it so 
much as I want to examine the question of whether the Congress 
feels a need to go on and do something legislatively, which I 
think you would probably, to a person, prefer that we did not. 
And so we are interested in seeing the impact of all of these 
events on the hospitals across-the-board.
    Let me ask this question now. What is the most--using 
standards like Medicaid, Medicare, the average third-party 
payment in your charges, what is the most highest price that an 
uninsured person now could pay at your facilities? Dr. 
Tersigni.
    Mr. Tersigni. Our average patient cost per day for caring 
for an uninsured is about $1376, of which we collect an average 
of $155.
    Mr. Greenwood. I am not sure that that exactly answered my 
question. The question is, when an uninsured person comes into 
your hospital, what is the most they could pay? Is it possible 
now, given the procedures that you have, for that person to be 
billed charges?
    Mr. Tersigni. All of our patients presently are billed 
charges. In the case of the uninsured, as they enter one of our 
facilities, the financial counselors will begin working with 
them, and the first questions they ask are, do you have 
insurance, and then we begin the process of looking at the 
means to pay or the inability to pay.
    Mr. Greenwood. But, again, someone says ``I have no 
insurance.'' Is it possible, in your system, for that person to 
walk away from the hospital with an obligation equal to your 
charges?
    Mr. Tersigni. Not if we have all of the financial 
information necessary to determine that they are in financial 
need.
    Mr. Greenwood. Mr. Lofton.
    Mr. Lofton. One of the considerations that we have to look 
at is differences across the country. I have heard a lot of 
generalizations about charges and we have seen cost and average 
charges put up, so the answer to your question will vary based 
on where the location of the hospital is. We have some markets 
where there is very little discounting from charges, so the 
variation that was talked about earlier is very small between 
what a managed care patient will pay and what a full-charge 
patient will pay.
    Mr. Greenwood. Is it still possible for an uninsured person 
to pay significantly more than, let us say, third-party payers 
pay at your hospital?
    Mr. Lofton. That scenario is possible, but again if the 
information is provided--one of the things that the advice and 
guidance that the Secretary issued allows us to do, if we have 
the proper information with that given patient, we are able to 
determine whether there is a medical indigency reason whether 
we can discount that bill. So a lot of it has to do with the 
patient providing adequate and proper information for us to 
make the proper determination as to what they should pay. There 
is no clearcut answer to your question.
    Mr. Greenwood. Mr. Bovender.
    Mr. Bovender. In our circumstances, assuming that we can 
qualify them under that 400 percent or below criteria, then the 
payment will range from anywhere near a managed care rate down 
to a 200 percent or below the Federal poverty guidelines, it 
would be free. Above that level, above 400 percent now, they 
are going to be charged charges. Under the plan that we are 
evaluating now, hopefully we can move everyone uninsured into a 
price point that is essentially around probably the 95th 
percentile of all of our managed care contracts as a standard.
    Mr. Greenwood. Now, that is the clearest answer I have had 
so far. That is quite straightforward. Dr. Pardes.
    Mr. Pardes. I would say, Mr. Chairman, that about--the bulk 
of our patients either are either in Medicaid or Medicare 
programs, or are under plans. That least about 2 percent who 
are self-pay. We do have some people who are international 
patients and wealthy patients who will pay charges. We 
individually assess every other individual, and for those 
individuals who have financial distress, we work out individual 
arrangements so they will pay substantially below the charges.
    Mr. Greenwood. Mr. Fetter.
    Mr. Fetter. Once one of our hospitals has implemented our 
Compact With the Uninsured Discounts, uninsured patients would 
not be rendered a bill of charges. They would be rendered a 
bill that would approximate the 75th percentile of what we are 
paid in that market by managed care.
    Prior to the implementation of the Compact, an uninsured 
patient could receive a bill at full charges, but I would like 
to point out----
    Mr. Greenwood. When do you expect all of your hospitals to 
have that contract in place?
    Mr. Fetter. By the end of July, with the exception of the 
States of California and Texas, where there are certain State 
laws that have presented us with difficulties in implementing 
that. But I would like to point out with respect to those 
patients who would receive a bill at full charges, that was 
represented by the Orange bar, I believe, on the graph that you 
showed in the beginning. The collection rate from those 
patients is actually less than 10 percent.
    Mr. Greenwood. In the aggregate, I understand that. What we 
have been worried about in this committee is that 
disaggregated, that some individuals of limited means get 
hammered with charges, and that is the only thing that we think 
is unfair about it. Speaking for myself, that is the unfairness 
of the system.
    The gentlelady from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman. I would like to ask 
you gentlemen about something you keep referring to, which is 
about a year ago when you said you got clarification from CMS 
as to the policies, and that combined with these pending 
hearings were what caused you to really re-examine your 
policies that related to the uninsured, and to change them.
    What policy was it from CMS that you thought had to be 
clarified? Mr. Fetter, we will just start with you, I think.
    Mr. Fetter. Thank you. And I would point out I believe that 
HHS guidance was actually issued in April of this year, not a 
year ago. I referenced a year. That was more than a year ago.
    Ms. DeGette. I am sorry. What policy was it that you 
thought needed to be clarified?
    Mr. Fetter. The policy that required that charges be 
uniform for all patients, and that discounts could be 
negotiated with individual payers, but there must be a charge 
master, and the charge master must be the same, regardless of 
the----
    Ms. DeGette. For all patients. Now, was that a written 
policy, or was that more of an understanding?
    Mr. Fetter. You know, I am not an expert in----
    Ms. DeGette. Does anybody know? Was that--Mr. Bovender?
    Mr. Bovender. We were told by both our inside counsel and 
outside counsel, Medicare experts, attorneys who are experts on 
the Medicare law, that you could not arbitrarily, without 
reference to some indigence test, discount your charges to 
individual patients. And so that is what led us in March to 
send a letter of request detailing our discount program that I 
talked about before and, as I said, we got a letter back in 
June that said that CMS thought the program was fine, but it 
needed approval by each of our five fiscal intermediaries.
    Ms. DeGette. And what Mr. Fetter just described about 
having to have the same charges for everyone, was that everyone 
else's understanding as well? Mr. Lofton?
    Mr. Lofton. Yes. Ours was we could not charge individual 
patients, there had to be consideration for discount.
    Ms. DeGette. And was that also a basis of your previous 
understanding, that CMS was requiring that you aggressively 
pursue these collections as well?
    Mr. Lofton. Yes. In the past, OIG has been very forthright 
in making it clear about waiver of co-payments or reductions of 
patient bills for individual patients.
    Ms. DeGette. Now, do all of you think that has now been 
cleared up by HHS?
    Mr. Lofton. Yes.
    Mr. Bovender. Yes.
    Ms. DeGette. Okay. And so that is why you are now 
instituting these policies, in addition with these pending 
hearings, correct?
    Mr. Fetter. Yes.
    Ms. DeGette. I want to ask about the collection process 
because you have all talked about how you are really making 
these efforts to make accommodations for the uninsured 
particularly, the less affluent uninsured, and so on, but I 
just said this actually in a different hearing in this 
committee on Tuesday of this week--the devil is really in the 
details.
    So, I want to ask you when--and I guess I will start with 
you, Dr. Tersigni--what is your organization's policy when you 
send these cases to a collection agency?
    Mr. Tersigni. Well, we have asked the collection agencies 
to comply with----
    Ms. DeGette. Do you have a policy after a patient has been 
discharged from the hospital, how long is it before you will 
send it to a collection agency?
    Mr. Tersigni. It depends on the circumstance.
    Ms. DeGette. So you don't have a firm policy on that?
    Mr. Tersigni. We don't have a firm policy of when it goes 
to collection.
    Ms. DeGette. Mr. Lofton, do you have a firm policy on that?
    Mr. Lofton. I don't know if I can say policy. Our practice 
is that a bill will go to a collection agency 90 to 120 days 
following discharge. And during the course of the next 150 
days, if that bill has not been acted on or been active during 
that time, we take it back from the collection agency. So, 90 
to 120 days we send it, and then another 150 days we take it 
back.
    Ms. DeGette. And is there some discretion involved within 
that 90 to 120 days, or does every case go to a collection 
agency at that point?
    Mr. Lofton. It is discretion within that based on if they 
have already worked with a given patient or family and they 
think that they have a resolution, it does not have to go.
    Ms. DeGette. Mr. Bovender?
    Mr. Bovender. Our general policy is 180 days, but it does 
also have the exceptions that Kevin mentioned, which is that if 
we are working actively with a patient, either qualifying them 
for Medicaid or on charity care policy, obviously that doesn't 
happen.
    Ms. DeGette. Dr. Pardes?
    Mr. Pardes. We try to handle most internally, and then we 
don't send it out to collection agencies until at least 6 
months have passed.
    Ms. DeGette. Six months have passed? Is that for every 
bill, or certain kinds of bills?
    Mr. Pardes. If there is an unpaid bill, then we would first 
have bills sent out over a 6-month period before it went to a 
collection agency.
    Ms. DeGette. Mr. Fetter?
    Mr. Fetter. Our policies are similar to what Mr. Bovender 
and Dr. Pardes described, with the exception that we use an 
internal staff, we do not generally send bills out to 
collection agencies.
    Ms. DeGette. Do you put it on people's credit reports after 
a period of time, if you are using an internal----
    Mr. Fetter. Yes.
    Ms. DeGette. And how long is that?
    Mr. Fetter. That would be also after about 180 days.
    Ms. DeGette. Okay. I don't know if you heard the 
testimony--I think you were all here--the testimony of the 
previous panel. One of the panelists said that actually once it 
goes to a collection agency and is listed on someone's credit 
report, it may make it more difficult for them to get a job or 
find some other method of paying their bills. Did you hear that 
testimony? Mr. Bovender? What do you make of that?
    Mr. Bovender. I think that is true, but I have been told by 
people who do credit scoring and are in this type of business, 
that hospital debt is not viewed at the same level as mortgages 
or car payments. You may know that if you were to rank how well 
people pay different portions of their debt, from first to 
last, mortgages being first, hospitals are ninth on that list. 
The only ones worse than us as far as payment are the student 
loan programs.
    Ms. DeGette. Let me ask you this question. Do any of you 
utilize--this has been all over in the press, what they call 
body attachments. They don't have those in Colorado. I 
practiced law for a number of years, and they don't have that 
civil arrest or body attachments, but in some States they do, 
and of course those are some of the horror stories, people who 
can't or don't pay their hospital bill and end up in jail.
    Dr. Tersigni, do you know if your organization uses body 
attachments?
    Mr. Tersigni. I can't answer whether we have in the past 
used body attachments. I know that presently that is not part 
of our policy.
    Ms. DeGette. And when you send something out to collection, 
do you tell them not to go for body attachment?
    Mr. Tersigni. Yes. As a matter of fact, each of our 
collection agencies have to sign an agreement with us that 
comply with our policy.
    Ms. DeGette. Would you mind supplementing your testimony 
today with a copy of that agreement?
    Mr. Tersigni. Sure.
    Ms. DeGette. That would be great. While I am asking 
questions, what about attaching people's homes? Dr. Tersigni?
    Mr. Tersigni. Again, we want to make sure that we are not 
taking advantage of people's situation, so our financial 
counselors will work with them, and we do, in some cases, have 
liens, but it is very clear that we don't want to have any 
foreclosures or do anything that is deleterious to their homes 
or----
    Ms. DeGette. Well, I am here to tell you, a lien on 
someone's home is deleterious. Is your policy with respect to 
liens on people's homes also in your agreement with the credit 
agencies?
    Mr. Tersigni. Yes, it is.
    Ms. DeGette. Mr. Lofton, I think you testified that your 
policies say no bench warrants, no court action without 
approval, and no liens, is that right?
    Mr. Lofton. That is correct. Every one of our contracts 
have been amended to state such, that we would not do that, on 
a primary residence.
    Ms. DeGette. How long has that been your policy?
    Mr. Lofton. That has been in effect since April 1st.
    Ms. DeGette. April 1st, 2004?
    Mr. Lofton. 2004.
    Ms. DeGette. Why did you institute those policies, Mr. 
Lofton?
    Mr. Lofton. Well, again, we took this opportunity to look 
at our practices. CHI cares deeply about the poor uninsured and 
underinsured. And we have been working with those individuals 
on a case-by-case basis, but we felt that we would take a look 
at that from a system perspective, and the boards of every one 
of our local hospital systems adopted that contract change.
    Ms. DeGette. Mr. Bovender, does your organization allow 
body attachment?
    Mr. Bovender. No, ma'am.
    Ms. DeGette. Is that in your written policies?
    Mr. Bovender. Yes, I believe so.
    Ms. DeGette. And what about liens on homes?
    Mr. Bovender. Liens on homes are only permitted with homes 
of over $300,000 in value.
    Ms. DeGette. That seems reasonable. What about you, Dr. 
Pardes?
    Mr. Pardes. Body attachment is prohibited in New York 
State, Congresswoman.
    Ms. DeGette. What about liens on homes?
    Mr. Pardes. We have liens on homes in exceptional 
situations, do not have foreclosures on homes.
    Ms. DeGette. Is that in your written policies?
    Mr. Pardes. Yes.
    Ms. DeGette. Would you mind supplementing your record?
    Mr. Pardes. Happy to do so.
    Ms. DeGette. What about you, Mr. Fetter?
    Mr. Fetter. I do not believe we have body attachments as 
part of our policy, and also, as I mentioned earlier, under our 
Compact With Uninsured Patients, will not place liens on homes.
    Ms. DeGette. I just want to ask one last question for all 
of you, under your new policies, do you intend to release any 
liens that you have already placed on primary residences? Just 
go real fast because my time is over.
    Mr. Greenwood. Be very brief because the gentlelady's time 
has expired.
    Mr. Fetter. As Congressman Walden pointed out earlier, you 
always attempt to work things out with patients who owe you 
money, so I am sure that we are releasing liens on homes where 
we have liens today.
    Mr. Pardes. I would say we are reviewing all of our 
policies and issues, and we may well find that we will release 
additional ones of those.
    Mr. Bovender. If we find any we have with value under 
$300,000, we will.
    Mr. Lofton. We are reviewing for all patients, and all of 
our patients can come back and we can review their record after 
the fact, and make appropriate changes.
    Mr. Tersigni. Again, as well, we review all patients and, 
after the fact, can make the changes.
    Ms. DeGette. Thank you.
    Mr. Greenwood. The Chair thanks the gentlelady, and 
recognizes the gentleman from Oregon, Mr. Walden, for 10 
minutes.
    Mr. Walden. Thank you, Mr. Chairman.
    I am curious, as you all work on getting payment situations 
set up for those who owe you money, do any of those folks end 
up getting a loan from a financial institution to pay you? Do 
you see that happening? Do they go to the bank or their credit 
union and get a loan, take out a loan so they can pay you? 
Anybody?
    Mr. Tersigni. I don't know that.
    Mr. Walden. You don't know.
    Mr. Lofton. I am not aware of any specific cases.
    Mr. Bovender. Do not know.
    Mr. Walden. So you are not seeing any of that sort of 
activity.
    Mr. Pardes. Don't know.
    Mr. Walden. Don't know. All right. I am just curious 
because it would seem to me if they went to a financial 
institution to get a loan to pay you back, that financial 
institution would probably require that loan to be secured by 
some asset, right? I mean, I was on a bank board for 5 years. 
You don't make uncreditworthy loans on purpose, and so I wonder 
how all that works.
    Let me go to the charge master issue. Now that you all have 
taken a second look at your charity care, your billing and 
collection processes, and we have heard a lot today about 
charge master rates being significantly higher than those rates 
actually paid for by third-party payers, insurance companies, 
Medicaid, Medicare. What have you done, if anything, to change 
and lower your charge master rates? Have you adjusted your 
charge master rate downward and, if so, by how much?
    Mr. Tersigni. I don't know that the answer is we have 
adjusted the charge master downward as of this point in time, 
but we have asked all of our ministries to look at those 
charges from various factors--market factors, service cost, the 
competition within the little local area, as well as the impact 
to the uninsured.
    Mr. Walden. Mr. Lofton?
    Mr. Lofton. We have looked at a number of ways of helping 
our constituents and patients, and CHI has adopted the HUD 
guideline for who would qualify for charity care. We feel that 
they are both more inclusive, as well as they take into account 
the geography differences.
    Mr. Walden. But do the HUD guidelines--does that have 
anything to do with how you set your charge master rates?
    Mr. Lofton. No. We have not adjusted the charge master, but 
what we have done from the charity care side is to see that we 
can qualify more patients and then provide them discounts from 
the charge master.
    Mr. Walden. Mr. Bovender?
    Mr. Bovender. There are really two issues associated with 
this charge master problem. The first is the uninsured, and we 
have talked about that, and programs and plans to fix that by 
going to some discounted method that looks like managed care.
    The more complicated problem is that many of our 
contracts--and at HCA we have over 5,000 contracts with managed 
care providers across the country. Many of those contracts are 
not on a per diem basis or case rate basis, but are really 
based on a discount off of charges.
    It will take us probably two to two and a half years to 
renegotiate all of those contracts because many of them are 
multiple year contracts. It is our plan to get away from the 
charge master having any impact, or very little impact, if you 
will, even on the--not just on the uninsured, but on the issue 
of how we negotiate managed care.
    Mr. Walden. Good to know. Doctor?
    Mr. Pardes. Approximately 2 years ago, we engaged an 
outside consultant to examine our charges in relationship to 
other charges in the area, and adjusted them accordingly.
    Mr. Walden. Okay. But if the other hospitals in the area 
had charge master rates that were high--I mean, we have heard 
testimony in the prior panel that in some cases you have got a 
$10,000 charge, $11,000 here, but if you are private pay, you 
are $30,000. If that is the situation among all the hospitals, 
is that really change anything, if yours is $30,000 and theirs 
is $29,000, and you know what I am saying?
    Mr. Pardes. Yes. We found that we were somewhat lower 
actually than charges in many of the other areas. We found also 
that our cost-to-charge ratio in our urban setting is lower 
than urban settings in about 28 other States.
    Mr. Walden. Maybe I will ask this question differently. How 
much different is your charge master rate for a given procedure 
compared to what you charge your managed care plans, your fee-
for-service plans, Medicare and Medicaid? What is that 
relationship?
    Mr. Lofton. Again, Representative Walden, for us, it is 
going to range. We have some markets where we are a sole 
community provider in rural north Nebraska, where there is only 
a 7 percent difference between the two. And examples were given 
about California rates. Well, we are not in California. So when 
we look at the markets that we are in, the rates and variation 
between charge master and the managed care contracts are going 
to vary, so there is no one answer for the entire system.
    Mr. Walden. Well, one of the prior witnesses--whose name 
escapes me for the moment--suggested that the charge master 
rate should be Medicare+25 percent, which seems sort of 
arbitrary to me, but I guess that is what I am trying to get 
at. What is your charge master rate compared to Medicare? Is 
Medicare+25 percent far more than your charge master rate or 
private pays, or is 25 percent a pretty good deal?
    Mr. Bovender. Well, in our case, I can tell you that 25 
percent is significantly below our managed care--our overall 
average managed care rate. So it would put it significantly 
below what we are negotiating with managed care.
    Mr. Walden. So, Medicare+25 percent is below your managed 
care rate.
    Mr. Bovender. Right. I think the theory that he is putting 
forward is good, the price point, at least in our case, based 
upon what Medicare is paying us related to our total all end 
charges is well below what the rate would need to be to make 
that happen.
    Mr. Walden. You see what I am trying to get at here, 
though, is--I mean, being in the radio business, we sell 
advertisements--I can set a rate at whatever per commercial, 
but that doesn't mean I get it. And, yet, in your situation it 
is a little different because my clients don't have to walk in 
my door half dead and have to have a radio ad. It would be 
easier to sell, but collections could still be a problem. But 
in your case, that literally is what happens, and they can't 
negotiate that price, and that is why we are having this 
hearing, is to say is this system working? Is it broken? And it 
sure seems like there are some problems. And you are addressing 
some of them, I think we have all given you credit for that, 
but what is that differential between charge master and actual 
cost of delivering the service? What is the right price point, 
Medicare+40 percent? Is that even a realistic way to do it?
    Mr. Bovender. Well, it would be a realistic way, but I 
think a better way was the second suggestion, which is to peg 
the price for the uninsured and do it on possibly a DRG rate, 
or a case rate, a diagnostic rate, but peg it to a percentage 
of your average managed care contract either in a specific 
market or nationwide. And as I said, we are looking at a price 
point somewhere around the 95th percentile of all of our 
managed care contracts. You have got to be careful in setting 
that because, obviously, any managed care provider above that 
is going to want at least as good as what the uninsured is 
getting.
    Mr. Walden. They are going to tell you that minus 3 
percent.
    Mr. Bovender. Well, it sounds easy to say, well, just fix 
your charge master. It has to be fixed for the uninsured, which 
it needs to be done, but it has to be fixed also taking into 
account that we have got 5,000 managed care contracts to 
renegotiate over the next year to 2 years.
    Mr. Walden. I understand that. Anybody else want to comment 
on that? Mr. Lofton?
    Mr. Lofton. That approach makes a lot more sense because it 
will allow the rate to be market-specific, and it will be on a 
market rate tied to something that is realistic, as opposed to 
picking numbers out of the air because when you have managed 
care contracts, as Jack says, then they don't want someone else 
coming in paying much lower than what they will be paying. So, 
it would allow for whatever the market rate is in a given 
community, it would be tied to what is the customary rate being 
paid.
    Mr. Walden. What about in--you don't always have managed 
care contracts, though, in all communities, do you, in the 
really rural communities? Isn't there a lack of managed care in 
some cases?
    Mr. Lofton. Yes, for the most part. The word is generally 
used from a more generic standpoint.
    Mr. Walden. Than traditional--okay. I guess the reason I am 
trying to probe and get at the bottom of this is, there is 
enough pressure built up that if you all don't figure it out, I 
am afraid we will, in a way that may not work, and that isn't 
good for the delivery of health care in my community or 
anywhere else. But it is also hard for us to go back and say, 
``Sorry, you don't have insurance and you are going to pay 
three times the amount and they are going to take your house.'' 
I mean, you are correcting some of those. I appreciate your 
comments, and I have used up my time. Thank you, Mr. Chairman.
    Mr. Greenwood. Are you sure you want to yield back all 3 
seconds of your time?
    The gentleman from Los Angeles, Mr. Waxman, is recognized 
for 10 minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman, from Bucks 
County. Gentlemen, the American Hospital Association has 
established a set of principles and guidelines regarding a more 
humane way to deal with this problem, and the way they will do 
billing and collection practices. And they have asked hospitals 
to adopt these. But it is one thing to ask for a pledge and 
another to be sure the pledge is carried out.
    Will the American Hospital Association discipline members 
who don't follow the guidelines? How can we be sure they are 
enforced if we don't adopt legislation, but rely on the 
industry to police itself? Anybody want to respond to that?
    Mr. Lofton. Well, CHI's system supports the pledge that the 
American Hospital Association promulgated. One hundred percent 
of our hospitals approved the pledge, and that was done at a 
local level, gaining approval from their local board of 
directors.
    The follow-up to that is such that we have to implement 
audit processes to ensure that the pledge is being carried out 
not just from an audit perspective, but we also are looking for 
our system to include patient billing into our patient 
satisfaction review. That had not been a component previously. 
So, there are ways that you can monitor this on an ongoing 
basis, and we plan to do that.
    Mr. Waxman. Why don't we just go quickly down the line. Are 
all of you going to abide by the American Hospital Association 
guidelines?
    Mr. Tersigni. Yes. As I indicated in my testimony, we have 
asked all of our CEOs, CFOs, and BP submission to sign an 
affidavit that will abide by our policy. We will then bring an 
audit process in to make sure that they are in compliance.
    Mr. Bovender. Yes, we will comply with it.
    Mr. Waxman. Dr. Pardes?
    Mr. Pardes. Yes, Mr. Waxman, we will comply, and we will 
make sure it is implemented in our institutions.
    Mr. Waxman. Mr. Fetter?
    Mr. Fetter. Yes. I signed the pledge on behalf of our 
hospitals, due to the investor-owned nature of our company, I 
can ensure that it will be complied with, as well as our 
internal policies.
    Mr. Waxman. Thank you. In our first panel, we heard from 
Mr. Rukavina, and he outlined the difficulties his organization 
had in attempting to get information about the billing 
practices for HCA and Tenet. He said it took him more than 6 
months to get a copy of your policy. I would like to know why 
that took so long, and whether you have a policy in effect 
today, and how you are ensuring that it is being carried out. 
Mr. Fetter?
    Mr. Fetter. Two clicks on our Web site leads you to our 
policy, so it is relatively easy and simple. It is also posted 
in our hospitals and the Compact With the Uninsured is 
distributed in leaflet form as well as poster form at points of 
service within our hospitals.
    Mr. Waxman. Mr. Bovender?
    Mr. Bovender. We are making wide dissemination of our 
discount policy. In fact, I have met with my staff within the 
last week to make sure that it is getting much wider 
dissemination than it has in the past. I think the problem, as 
I was told, with the 6-month lag in his being able to get our 
policy was that when it was first asked for, it still had not 
been approved and implemented.
    Mr. Waxman. Do you know why, Mr. Fetter, it took so long? 
Six months he was asking for meetings, no one responded. In 
fact, this is what he said. He called Tenet and HCA Healthcare 
Systems, and he said both you had ``announced with fanfare 
programs to help the uninsured with discounts and sliding 
scale.'' And he asked the company to give him a copy of this 
policy which they had announced. Made another request a month 
later. Finally, 6 months later, he went in to find out what was 
going on and asked for a community meeting, but the leaders--I 
think it was in Florida--do you have any idea about that?
    Mr. Fetter. I really am not aware of that. Are you sure he 
is referring to Tenet, because it is quite available.
    Mr. Waxman. Is there another Tenet?
    Mr. Fetter. Well, I don't know the specifics of his----
    Mr. Waxman. Mr. Fetter, you indicated in California that it 
is different because of regulatory problems. I hadn't heard 
from other California hospitals that this was a problem. What 
specifically is the issue in California?
    Mr. Fetter. The problem--and I am repeating here legal 
advice that we received--but it relates to insurance 
regulations. I have been informed that the California Health 
Care Association, which represents hospitals, has brought this 
to court to seek clarification, and we do expect that it will 
be resolved sometime relatively soon. As an interim measure, we 
have expanded our charity care policy within California.
    Mr. Waxman. Would you submit that letter so that we can 
have it for the record?
    Mr. Fetter. Yes.
    Mr. Waxman. I wonder if any of you would comment on the 
issues you see for your institutions if HSAs and high 
deductible plans become a major way people are provided 
insurance coverage in this country. What will it mean for the 
financial viability of your institutions? Any of you want to 
comment on that?
    [No response.]
    Well, let me ask it this way. Is it fair to ask you to 
provide discounted rates for persons during their period of no 
coverage before the high deductible plans kick in? Any of you 
have any views on that?
    Mr. Bovender. My view on HSAs is that if they bring more 
people in with insurance, even if it is catastrophic insurance, 
that is helpful. My big fear, though, is that the high 
deductibles and co-pays are going to increase the level of our 
bad debts, just said very simply and shortly.
    Mr. Waxman. You are worried about it increasing the amount 
of bad debt?
    Mr. Bovender. The higher levels of co-pays and deductibles 
is going to increase the level of our bad debts.
    Mr. Waxman. And why is that the case?
    Mr. Bovender. Because the first $2,000 has to be assumed by 
the patient, and assuming they haven't accumulated that amount 
in their savings account, then we are exposed to that whereas 
they may have been in a--some of them, at least--in a health 
insurance plan before that had a $250 deductible or $500 
deductible.
    Mr. Waxman. Do you think if you discount the bills during 
this period, you are helping the individual, or protecting the 
insurer by lengthening the time before their coverage kicks in? 
If you give a discounted rate to somebody who has a high 
deductible, are you helping the individual by giving him a 
discounted rate, or are you simply allowing the insurance 
company not to negotiate a price with you to ensure that you 
are going to actually be paid?
    Mr. Bovender. I think the answer is that we absorb more and 
more of the cost of the care. The insurance company, nor the 
employer, nor the patient is absorbing it in those 
circumstances.
    Mr. Waxman. You would absorb most of the cost of that.
    Mr. Bovender. Yes.
    Mr. Waxman. Well, this hearing clearly has identified 
several issues. One, people without insurance are charged the 
very highest rate for services. Two, the charge structure of 
hospitals no longer bears any sensible relationship to cost, if 
it ever did. And, three, people faced with high bills beyond 
what they can afford have been the victims of indefensible 
collection policies in too many instances.
    I think all of you agree health insurance coverage is the 
best and probably only effective way to deal with this problem. 
Policies to assist people of limited income to forgive bills, 
to help arrange payment policies that are affordable can help, 
but I want to concentrate on another piece of the problem--
billing the uninsured on the basis of a charge structure that 
makes little sense and that clearly means the uninsured are 
billed at the highest rate. Isn't it time to move away from 
bills based on charges that make little sense? How can we move 
to a billing that is more closely related to the cost of 
service? And whatever rate you set, if they are uninsured and 
they don't have the money, you are not going to be able to 
collect it. Any of you want to respond to those points?
    Mr. Tersigni. We would support that premise from the 
standpoint that we need to move, and we have been moving in 
this industry from a cost-based to competition-based pricing, 
and I think that brings some reality to the present situation.
    Mr. Lofton. From the standpoint of the uninsured, it makes 
perfect sense. We generally, right now, only collect about 7 
percent of our revenue comes from that population. So, the 
change in terms of the dollars would not be really substantial. 
And then when you look at this or HSAs, those are still slices 
of the whole pie, and we still have to come back to the 40 
million people that are not insured.
    Mr. Waxman. Anybody else want to comment?
    [No response.]
    So, in the ultimate sense, then, if you are going to get 
your money, it is far better to have somebody with insurance.
    Mr. Pardes. Yes.
    Mr. Waxman. And all the other things don't really account 
for much, it just tinkers with how much bad debt you are 
actually going to absorb.
    Mr. Pardes. Not only is it better to have the insurance, 
but it also provides the individuals with dignity when they 
walk into the hospital.
    Mr. Waxman. And for those who have these high deductibles, 
to you it makes no difference, it is just most likely going to 
be another bad debt.
    Mr. Bovender. Could be.
    Mr. Waxman. Unless they are higher income people.
    Mr. Bovender. Right.
    Mr. Waxman. Do you have trouble collecting from these 
higher income people?
    Mr. Bovender. Sometimes.
    Mr. Pardes. I think it is important to recognize that there 
are some high income people and some international patients who 
do pay full charges, and as a result of that, there is a 
certain amount of cost optimization. For hospitals like those 
of us in New York in which 90 percent of the hospitals are 
below 1 percent margin, that is very important.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman. The 
gentleman from New Jersey, Mr. Ferguson, is recognized for his 
inquiry.
    Mr. Ferguson. Thank you, Mr. Chairman. I have a few 
questions for Dr. Tersigni. Doctor, first of all, you said this 
is your fourth day on the job?
    Mr. Tersigni. Yes, it is, Congressman.
    Mr. Ferguson. Congratulations to you. Clearly, you learn 
something quickly in your fourth day on the job, which is it is 
good to bring the Nun.
    I went to Catholic school. It is always a good idea to 
bring the Nun.
    Mr. Tersigni. I am still on probation, Congressman.
    Mr. Ferguson. Good decision. Dr. Tersigni, you talked about 
your new policies and some of the procedures you go through 
with some of the uninsured. Is one of the things you do when 
you are dealing--when your hospitals are dealing with the 
uninsured is, do you ever help them or walk through with them 
finding public assistance in other ways perhaps, if they don't 
have their own insurance?
    Mr. Tersigni. Yes, Congressman. As a matter of fact, the 
whole process of identifying and meeting with the patient to 
determine whether they are uninsured, whether they are 
financially needy, or whether they are just working uninsured, 
and then we begin the process of trying to identify for them 
whatever public funds, private funds are available, and we 
continuously do that through our financial counselors and our 
registrars.
    Mr. Ferguson. So part of the process in determining or 
trying to figure out some sort of payment or reimbursement is 
helping them to look through and find what public assistance 
might be available.
    Mr. Tersigni. That is correct.
    Mr. Ferguson. Now, your new policy--you kind of outlined 
your new policy, and I know it is in your written testimony. I 
am assuming this is going to cost you money. This is going to 
affect your bottom line--your revenues, and possibly your 
bottom line. Do you have any estimates on that yet? Have you 
determined what this is going to cost?
    Mr. Tersigni. We don't have any estimates at this point. We 
know that the present situation, we lost $222 million in 2003. 
We expect that to go up, but our mission----
    Mr. Ferguson. Was that a good year?
    Mr. Tersigni. As a matter of fact----
    Mr. Ferguson. This is a tough industry.
    Mr. Tersigni. [continuing] it has been rising. But, again, 
our mission is to care for the poor and the vulnerable in this 
country, to actually seek them out. And so we actually incent 
our CEOs of the Health Ministries to continue to grow the 
charity care that we provide in our communities annually, and I 
think there is some information in the testimony or in the 
information that shows that charity care has grown.
    Mr. Ferguson. Let me get that straight. You incent your 
executives to try and grow your charity care each year.
    Mr. Tersigni. Correct.
    Mr. Ferguson. You try and find ways of providing more free 
health care.
    Mr. Tersigni. More free health care. We try to find ways to 
take care of those who need to be taken care of, that are 
falling through the cracks. We have invested millions of 
dollars in 40 clinics, 175 programs across the country, 
specifically to deal with preventative care, primary care, and 
targeted for the poor and vulnerable.
    Mr. Ferguson. And I don't imagine that is necessarily good 
for the bottom line.
    Mr. Tersigni. That isn't good for the bottom line, but----
    Mr. Ferguson. It is part of your mission.
    Mr. Tersigni. [continuing] it is part of our mission.
    Mr. Greenwood. Would the gentleman yield just for a second. 
I just want to be clear. There is a portion of charitable care 
for which you get reimbursed. So, I want to be clear that we 
are not saying--are you saying that you incent your executives 
to actually lose money, or to be able to get as much money into 
a pot that gets reimbursed by the Federal Government?
    Mr. Tersigni. Actually, it is for charity care. We exclude 
the bad debt out of that $500 million that we have provided in 
2003 for charity care and uncompensated care. So, we continue 
to seek out the poor and to make sure that we can begin--or 
hopefully help address a problem that is mammoth in this 
country.
    Mr. Greenwood. Thank the gentleman for yielding.
    Mr. Ferguson. Of course. How do you communicate your 
charity care and your financial assistance policies to your 
patients, obviously, particularly to your uninsured patients 
that you serve?
    Mr. Tersigni. Well, several ways. No. 1, we have signs and 
materials in multiple languages in our presenting station 
areas, whether it is emergency room, whether it is the clinics, 
whether it is our waiting rooms of surgery centers. We train 
our administrative personnel to make sure that as the patient 
presents, that we have dialog with that patient and direct them 
to the paraphernalia that we have relative to identifying what 
the policy is.
    Mr. Ferguson. There is a theme that has been suggested by 
some today, and elsewhere, that hospitals can make money on 
their uninsured patients. Now, obviously, there are uninsured 
patients who have the ability to pay, and I could see how for 
that portion of the uninsured population it is possible for a 
hospital to make money, so to speak, on the uninsured patients. 
But I have got to believe that, in the aggregate, it is 
difficult for a hospital to make money on uninsured patients. 
Is that accurate?
    Mr. Tersigni. That is correct. As I indicated earlier, our 
average patient cost for caring for the uninsured is about 
$1376, of which we collect about $155.
    Mr. Ferguson. Along these lines, I wanted to address 
another question to the entire panel. Tenet operates about 100 
hospitals, HCA about 190 hospitals, Catholic Health 68 
hospitals, New York Presbyterian a handful of large health 
campuses, and Ascension 75 hospitals. Across almost 40 States 
you five systems have hundreds of men and women working daily 
with patients to understand and address their hospital charges. 
Consistent application of these policies and procedures is 
clearly crucial to making sure that they work. If your policies 
are not properly communicated to people, the policy is not 
particularly relevant.
    Can each of you, in a few minutes that we have left, can 
each of you tell me the specific steps that your system is 
taking to make sure that, in effect, possibly hundreds of 
front-line employees know about and are applying consistently 
and equitably your billing and collection polices and 
procedures? Why don't we start with Dr. Tersigni.
    Mr. Tersigni. I am happy to say that, No. 1, 103,000 of our 
associates understand our mission is to care for the poor and 
vulnerable, and we are in the process of reinforcing that by 
communicating with them out new policy, and making sure that we 
hold them as responsible as we hold ourselves to adhering to 
that policy and making it work.
    Mr. Lofton. All of our associates know that CHI takes care 
of patients regardless of ability to pay. We have a very strong 
process to roll out our core values across our system, which 
are reverence, integrity, compassion and excellence. And we 
have training for financial counselors along this line, so that 
they know that all of our patients are treated with proper 
respect and dignity and, as I mentioned earlier, all of our 
collection agencies, by the end of this month, will have been 
trained on the core values of CHI as well.
    Mr. Bovender. Obviously, the practical problems of rolling 
out any policy of any kind in 190 different hospitals is 
difficult. One of the programs that we implemented, began 
implementing 3 years ago, was to consolidate all of our 
business office operations into ten regional revenue service 
centers, patient account service centers. This makes rolling 
out policies like this, and fixing problems, easier to do. It 
is easier to do it in ten different sites because the people at 
the hospital in the billing cycles and front-end, when they 
receive patients into the emergency room and in the hospital, 
are actually tied into these revenue service centers. So it 
makes training easier for us, and it makes implementation of 
these policies--and it also creates a better feedback loop 
where we find where problems have been created and how we need 
to fix those problems.
    Mr. Pardes. We have been communicating our policies to all 
staff involved in admissions intake, anything related to these 
issues, Congressman, and disseminated to all the campuses. We 
have also disseminated to community agencies. We have put 
information in our emergency rooms and admission offices, so we 
are trying to disseminate them as widely as possible to ensure 
full compliance.
    Mr. Fetter. Congressman, you raise an important challenge, 
and we have undertaken this by virtue of a very extensive 
communications and training program involving printed 
materials, written materials, materials that are communicated 
by the Intranet as well as conference calls.
    Mr. Ferguson. Mr. Chairman, I have a question I would like 
to submit for the record and ask for a written response, if I 
could submit that for the record, please.
    Mr. Greenwood. Without objection, that will be the order.
    Mr. Ferguson. And I just want to close by thanking our 
panelists for being here today. I understand the hospital 
business is about the toughest--has got to be one of the 
toughest, if not the toughest, business to be in in America 
today. We hear it from our hospitals in our district. I am sure 
ours are no different from many hospitals around the country, 
particularly with the care and treatment that you provide 
Americans all over the country. We appreciate that. We 
appreciate the actions that you have taken to change some of 
your policies and procedures, and certainly encourage you, as 
you continue to implement those and find new ways of treating 
and caring for those who you care for, and we certainly 
appreciate you taking the time to be with us at a very long 
hearing today. Thank you for being here, and thank you, of 
course, to the Nuns for being here, too.
    Mr. Greenwood. The gentleman from Florida, Mr. Stearns, is 
recognized for 10 minutes.
    Mr. Stearns. Thank you, Mr. Chairman.
    I was wondering if staff could put this graph up, and you 
folks could probably see it on the screens. What we have here, 
the staff has taken four of the hospitals at the dais here, the 
panels. One of them we didn't use. We took the four, and we 
tried to nominalize it by Medicare net revenues. It appears the 
cost of Medicare net revenues. We have blue, we have black, we 
have green, we have yellow, and red. And the importance of this 
is that Medicaid and Medicare are not too far from what appears 
to be the actual cost by the hospitals in question.
    The third-party payer is a little higher. Now, obviously, 
that would be understandable because hospitals have to 
recapture a profit so they can capitalize to expand or to 
change and renovate and get new equipment and to keep up. But 
then the last, which is the red, is the uninsured amount 
billed. And we have on the first graph, 2000, then 2001 and 
2002. So we are looking at a trend. Maybe we could argue about 
these graphs, you might not agree what staff did, but I think 
we see a trend in the red, which is the uninsured amount 
billed.
    So the question I have for you folks is, if we go to 2003 
and 2004, will this trend continue like this? In other words, 
will the red continue to go up, in your opinion? I would be 
glad to start with Mr. Lofton, the Catholic Health Initiatives. 
Would it be reasonable for me and the American public to say 
that this red line, which is the uninsured amount billed, is 
going to continue to go up? Just yes or no.
    Mr. Lofton. If I understand the graph, it is yes. But if I 
also look at the graph, it says Revenue, Cost, Revenue, 
Revenue, and then you get to Bill. So, I don't think we are 
comparing the same thing up there. If we talk about what is 
billed, if we look at the cost column, I don't think that that 
Medicare cost----
    Mr. Stearns. Okay, I will grant you that. I would agree 
that the cost, we could argue about that. I agree. But I am 
concentrating on the red line because, really, this is all 
about how this uninsured amount being billed is growing--not 
geometrically, at least--it is going up for the last 3 years, 
and then we have 2003 and 2004, and your opinion is probably in 
2003 it is going to be higher, and in 2004 it is going to be 
even higher.
    Mr. Lofton. I would say it will be higher, but the actual 
experience for our system is that that group of patients, we 
only collect 13 cents on a dollar for.
    Mr. Stearns. Dr. Pardes, would you agree?
    Mr. Pardes. I think that that would be true. I think that 
the costs of health care keep going up. Of course, the people 
who pay the full charges, Congressman, are, as I said, the 
well-to-do patients or international patients. We work 
individually so that the bulk of people who are not in those 
categories would pay far less.
    Mr. Stearns. Is there anybody on the panel that does not 
think that this trend is going up?
    Mr. Bovender. I may need some clarification of your 
question, but if you are talking about the charges actually to 
the uninsured, given what CMS came out with about 3 weeks ago 
and said that we are allowed to do now, as I testified earlier, 
it is possible for us to go back and try to construct a charge 
system for the uninsured possibly based on case rate or a DRG 
basis, but to peg it to possibly the 95th percentile average of 
all of our managed care contracting. If we are able to do that, 
then obviously that red will not go up as fast. In fact, it 
would actually probably come down.
    Mr. Stearns. But your charge master rate, you can still use 
that.
    Mr. Bovender. But the charge--as I testified earlier, the 
issue with the charge master is also separate. There is a 
separate component from the uninsured part, which is the 
managed care contracts we have that are pegged as a percentage 
of charges, and we have committed ourselves, as a company, to 
move away from percentage of charge contracting, and actually 
move to case rate or other basis for managed care contracts. 
But that will take us, as I testified, two, two and a half 
years because we have got over 5,000 contracts.
    Mr. Stearns. Now, isn't it true, when you have uninsured 
costs that are going up so much like that, at the end of the 
year, don't you take those uninsured costs and write them off 
against revenue?
    Mr. Bovender. Well, the uninsured----
    Mr. Stearns. In other words, you try to collect the debt, 
and if you can't collect the debt, it is considered a bad debt, 
right?
    Mr. Bovender. Correct, it is an expense.
    Mr. Stearns. It is an expense. So, if this graph continues 
to go up higher and higher, technically, you are going to be 
able to write that off as expense on your revenue, is that 
correct?
    Mr. Bovender. Yes. I mean, it is a bad debt.
    Mr. Stearns. So the incentive here is not necessarily to 
control this because--and it appears from this that you are 
charging so much more relative to your getting reimbursed from 
Medicaid and Medicare, or even your third-party. So, you have 
this master rate that you are using, and I guess the question I 
have, what considerations go into the charges that make up that 
red? And why does it keep going so much higher than the yellow? 
I mean, the yellow seems to be stabilized here. That is the 
third-party net revenue. And yet the red continues to go up in 
almost quantum jumps here.
    So my question is for each of you, what considerations go 
into this for the costs that make up these uninsured? I mean, 
how do you go about setting a charge rate for these? Let me 
start here on the right.
    Mr. Fetter. Congressman, at Tenet Healthcare, as I 
mentioned, we have implemented this Compact With the Uninsured. 
So, with reference to your graph, the first point I would make 
is that our charges have been frozen since November 2002, so 
the orange bar would not continue to go up.
    Second, as we implement----
    Mr. Stearns. So, under your--you are freezing it. You are 
saying 2003 and 2004--it is a red bar, but I understand--you 
are saying that bar would stabilize, it would not continue to 
go up.
    Mr. Fetter. Well, actually, more importantly, under our 
discount plan that is part of the Compact With the Uninsured, 
the red bar--orange it looks to me--would approximate the level 
of the yellow bar. But I think it is very important--Mr. Lofton 
made a very important point--no pun intended--the bars are 
comparing apples to oranges because you have billed and a 
billed amount on the----
    Mr. Stearns. I anticipated that. I am trying to make my 
argument in terms of trend.
    Mr. Fetter. Right. I will answer with respect to our own 
company, the trend will be that the red bar all the way on the 
far right will drop substantially to approximate the yellow 
bar.
    Mr. Stearns. And, Dr. Pardes, you would agree, is yours 
going to drop?
    Mr. Pardes. I am not sure that ours will drop in the same 
way that----
    Mr. Stearns. Because what we are going to do now is we are 
going to compute 2003 and 2004, so I want you to realize we are 
going to take the same information and try to see, for each of 
your hospitals, because your hospitals are up here, and we are 
trying to determine that. Let me go to my far left here. Would 
you care to comment, too?
    Mr. Tersigni. I believe with our new policy, we are going 
to have all uninsured at the same discount from charges on our 
best-paying payer, so I believe that we will begin seeing a 
difference in that red bar.
    Mr. Stearns. What is the tax consequences of setting very 
high billing levels for the uninsured amounts billed, then 
writing them down? I mean, I touched on this, but in your own 
words, what are the tax consequences? I mean, just tell us for 
the--your bottom line and your profit, how this affects it. I 
told you what I thought it was. I would like, in your own 
words, basically with this huge amount of uninsured amount 
billed, and you are not getting it back reimbursed, how does 
this affect the bottom line?
    Mr. Tersigni. Well, I can tell you, if our data is in that 
red line, our bottom line for that particular year is 1.7 
percent of margin.
    Mr. Stearns. Now, if you didn't have that red bar, 
basically, you would pay more taxes, wouldn't you?
    Mr. Tersigni. We are not-for-profit.
    Mr. Stearns. But if you were for-profit?
    Mr. Tersigni. That information I wouldn't know. We haven't 
calculated that.
    Mr. Stearns. But, basically--Mr. Bovender, let me ask you 
that question. If this was not there, wouldn't you pay higher 
taxes? Just yes or no.
    Mr. Bovender. No, I don't believe so because, if you didn't 
put the charges on, they wouldn't appear on the bottom line, to 
begin with. If you put the charges on, then take them off as a 
bad debt, it has no impact. The change in the bottom line, 
there is no impact.
    Mr. Stearns. So you are not writing off the uninsured bad 
debt on your revenue?
    Mr. Bovender. Yes, we are, but if that revenue--if I 
understand your question, you are asking if those charges were 
smaller instead of large like you see them on the red side, is 
it not beneficial for us to inflate the charges and then just 
write off the bad debts, and that is not the case because, if 
you never put the charges on, you wouldn't be paying taxes----
    Mr. Stearns. But these uninsured are charges that you put 
on.
    Mr. Bovender. But it does not affect whether you do not 
have the charges before the net revenue line or after the net 
revenue line does not affect the actual profits at the end of 
the day.
    Mr. Fetter. Our company is the other taxpayer on the panel, 
and Jack's answer is correct. There is no tax impact of this 
level----
    Mr. Stearns. So you are saying that because you have a 
large uninsured and you can't collect it, it doesn't affect 
your profit at all?
    Mr. Fetter. Well, it affects book income, but your tax 
impact is no different, regardless of where you set the charges 
for the uninsured.
    Mr. Stearns. But if you had a $100 million revenue and you 
had $10 million of uninsured and you couldn't get it back, you 
could take that $10 million and put it to the revenue and pay 
less taxes. I mean, every small business knows that, and that 
is what you have here with these red graphs.
    Mr. Fetter. You are incurring the expense anyway, 
regardless of the patients. That is determined by----
    Mr. Stearns. But if the cost is a lot less than the red 
line, then you have got a bigger spread that you can use to 
write down your revenue. Instead of it cost you $10 and you 
charge $100, then you can write the $100 off instead of the 
$10.
    Mr. Fetter. Respectfully, I don't believe it works that 
way.
    Mr. Stearns. Let me ask you this. For nonprofits, how much 
does your hospital save each year on taxes by virtue of your 
501(c)(3) status?
    Mr. Lofton. I am not in a position to give you an answer 
for the whole system. As you know, the tax base is based on a 
State rate, but we don't compute that. We are in 19 States, and 
the amount of the tax would vary. I can tell you that in one of 
our markets in Carne, Nebraska, where we have a very 
sophisticated way of computing our community benefits, they 
have calculated that the amount that they would have 
approximated that we would have paid in taxes there is about $3 
million versus the community benefit which is about $28 
million. So we submit that the kind of things that we do--free 
clinics and other mission-based health care--where we provide 
free care far outweighs the amount that the tax would be, but I 
can't give you the total for the whole system.
    Mr. Stearns. If I could conclude, Mr. Chairman, just a 
quick comment, and I would say that I am very respectful--you 
folks are trying to make a living and make a profit, and how 
difficult it is, particularly, you have to take anybody that 
comes into your emergency room. But I am saying if you want to 
prevent Congress from coming in with the Hefley bill or any 
price controls, that red line can't continue to get bigger and 
bigger and bigger relative to the real cost, and that is what 
you folks have got to come up with an answer for us. We are 
trying to help you and to point out what we see as amateurs 
here, and your CEOs, you have got to come back to me and say, 
``Congressman, this is going out of sight, I am going to stop 
it, and this is what I am going to do, and I am going to 
reprice my master rule, and I am going to make sure this 
doesn't go any higher, and in so doing, I don't need you as a 
Congressman to come in and legislate with price controls,'' and 
that is where you folks better get, I think, on the ball here 
and start to make those arguments and articulate them, instead 
of just arguing whether the staff has got that right 
normalization with the cost or any of these others. I mean, our 
attempt to understand this--the staff I think has done an 
excellent job just trying to show trends, and that is what I 
was trying to show. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes himself for 10 minutes, and I want to follow right 
on the gentleman's comments.
    When we look at the red line, we look at what your master 
charges are, and we try to figure out why do they seem so 
absurdly high compared to your costs, and why are they rising 
at such a rate? Now, we know--and Dr. Anderson commented on it 
in the beginning--that there is a formula that CMS uses to take 
care of outliers from the DRGs. So, when a patient comes to a 
hospital, you are reimbursed on the basis of a DRG, but if 
there are complications, if there are unanticipated costs, you 
can, as I understand it, put those cases into an outlier pool 
and then be reimbursed by Medicare on a formula that is 
basically a cost-to-charge ratio, which puts the cost as the 
numerator and the charge as the denominator.
    Now, it seems to me that that, in and of itself, would 
create a tremendous incentive for hospitals to set the charges 
as high as possible so that when it comes time to submit their 
data to CMS on a cost-to-charge ratio for reimbursement for 
outliers, that the reimbursement is maximized. Am I correct 
about that? Dr. Tersigni?
    Mr. Tersigni. Mr. Chairman, I am not sure I quite 
understood the last part of the question.
    Mr. Greenwood. Okay. When you have outliers from your DRG--
in other words, as I understand it, there are CMS regulations 
that say that when you have specific cases in the hospitals, 
the cost of which significantly exceed certain parameters in 
comparison to the DRG, that you then get reimbursed using a 
different methodology than the DRG. You get reimbursed on the 
basis of--that gets called an ``outlier.'' It gets put into a 
dataset of outliers, and then you submit a bill to CMS for 
those cases, and the basis of reimbursement is a function of 
the cost-to-charge ratio. Is anybody with me, have I got this 
right? The Nuns are nodding their heads ``yes.''
    Anybody with me on this?
    Mr. Fetter. Yes.
    Mr. Greenwood. Would somebody comment, please? Do I have 
that right?
    Mr. Fetter. It is close enough, I think.
    Mr. Greenwood. All right. Help me out.
    Mr. Fetter. Largely because of an outlier issue with Tenet 
Healthcare in late 2002, CMS undertook a change in the rules. 
Now, Tenet voluntarily adopted the rules that CMS ultimately 
promulgated----
    Mr. Greenwood. Let me interrupt you. We will give you 
plenty of time here. But am I correct that it has long been, or 
ever since this regulation has been in place, an incentive for 
hospitals to set charges high so that when they bill CMS, 
Medicare, for outliers from the DRGs, that they maximize their 
revenues?
    Mr. Fetter. I was leading to a direct answer to the 
question, which is that prior to August of 2003 when CMS 
changed these rules, the system--I am ignoring a tremendous 
amount of complexity--but the system was set up in a way where 
rapid increases in gross charges did increase outlier payment. 
CMS made two important changes in the regulation that have 
essentially eliminated that incentive, as you describe it, or a 
reward that would accrue to the hospital from that type of 
behavior.
    Mr. Greenwood. Because a part of my concern is that what we 
had--let us at least talk about prior to that regulatory 
change--you had this significant incentive to raise the charge 
for purposes of Medicare reimbursement, and you had to be able 
to say with a straight face, ``Yes, that is what we charge 
people,'' and the only people that got charged that were people 
who were uninsured. So the poor schmuck who is uninsured gets 
ground up in the gears created by the CMS system that creates 
an incentive for you to have high charges. Do I have that right 
or wrong?
    Mr. Fetter. I believe that problem was fixed, though.
    Mr. Greenwood. I understand, but wasn't that the way it 
was--isn't that what happened?
    Mr. Fetter. I might not choose the same adjectives, but you 
essentially have it.
    Mr. Greenwood. It wasn't an adjective, it was a noun, 
``schmuck.''
    Look it up. But the fact of the matter is that people got 
ground up in the system, I think, because of that. Now, the 
question then remains, do incentives remain for you to have 
charges that are quite high, from which you have to create a 
discount so you don't overcharge the poor uninsured person. For 
instance, if you have an automobile accident patient come into 
your emergency room, and you are going to have a settlement, 
and you are going to get a subrogation out of that, and then 
you can bill the auto insurance company charges. Is that an 
existing incentive to have high charges?
    Mr. Fetter. I don't believe the incentives continue to 
exist, but as Mr. Bovender pointed out earlier, because so many 
managed care contracts are structured based on these charges, 
it is very difficult to reduce the charges or address the 
charges in that other type of way. There is no incentive to 
have, on an absolute basis, high charges.
    Mr. Pardes. The one concern we would have, Mr. Chairman, is 
that we not necessarily decrease charges for international 
patients or well-to-do patients who can handle the charges.
    Mr. Greenwood. Yield to the gentlelady from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman. We are trying to 
avoid holding you here while we have our next series of votes. 
I just want to ask a couple questions of Dr. Pardes, and if you 
will take a look at Tab 21--there is a notebook over there, do 
you see that, Tab 21? Is that your policy on how you are going 
to deal with the uninsured?
    Mr. Pardes. There is a whole lot of page here. I can tell 
you how we are going to deal with the uninsured.
    Ms. DeGette. Well, take a look at this Tab 21, is this your 
policy? I can represent to you----
    Mr. Pardes. These are policies that--yes.
    Ms. DeGette. These are the policies you have currently in 
effect? Are they currently in effect?
    Mr. Pardes. Not necessarily. I think they have been 
updated.
    Ms. DeGette. They have been updated. The date on this at 
the bottom is 1995 to 2002. Have they been updated since then?
    Mr. Pardes. Yes.
    Ms. DeGette. All right. When were they updated?
    Mr. Pardes. In early 2004.
    Ms. DeGette. In early 2004. Did you provide this committee 
with the updates of the policy? You lawyer is nodding ``yes.''
    Mr. Pardes. I believe we did.
    Ms. DeGette. I don't believe we have those updates. Would 
you please, sir, supplement--we don't have those updates unless 
they are under Tab 21, so would you please supplement your 
response with that?
    Mr. Pardes. Sure.
    Ms. DeGette. I am going to ask you a couple of questions 
very quickly. In this policy which is in Tab 21, it says that--
at the bottom, right-hand, NYPH0001520, it is sort of about 
two-thirds of the way back in the document, do you see that?
    Mr. Pardes. Yes.
    Ms. DeGette. Now, it says there, ``Attempt to obtain 
payment in full and settle the account. The second priority of 
a representative''--first, they are supposed to get insurance. 
Then if there is not insurance, ''The second priority of a 
representative dealing with self-pay accounts is to settle the 
account balance of the patient. First settlement offering is 
100 percent of the estimated account balance at discharge.'' Is 
that still your policy, Dr. Pardes?
    Mr. Pardes. Our policies have been reworked----
    Ms. DeGette. So none of these policies in here are still 
your policies?
    Mr. Pardes. The policies, as we said before, were updated 
as of the beginning of 2004.
    Ms. DeGette. But are they all new? Is this still your 
policy and, if not, what is your policy?
    Mr. Pardes. Our policy is, first of all, to try to get as 
many patients----
    Ms. DeGette. No, no. Do they still offer them 100 percent 
of the estimated account balance at discharge?
    Mr. Pardes. I am sorry, say again?
    Ms. DeGette. You know what, Mr. Chairman, I am going to ask 
unanimous consent to ask this witness some written questions 
and to have him respond within 20 days of this hearing because 
I have a number of questions about New York Presbyterian and 
Columbia Presbyterian's policies that relate to patients, and 
we have not been given the current policy.
    Mr. Pardes. We would be happy to respond to that.
    Ms. DeGette. Thank you. Let me just ask a couple--is that 
all right?
    Mr. Greenwood. Yes, the gentleman has agreed to respond to 
questions that you submit in writing. They will become a part 
of the record.
    Ms. DeGette. All right. I will just do that, Mr. Chairman, 
given the time.
    Mr. Greenwood. We will add that to the record. The Chair 
would note that we have 5 minutes and 13 seconds to go over to 
the Capitol and undertake a series of votes, which will take 
well more than a half an hour, and what we have tried to do, we 
have debated whether to make you sit here for half an hour and 
come back and grill you for another hour or so, and we have 
decided that you have been saved by the bell. So, we thank you 
for your testimony. WE thank you for your time this afternoon. 
We thank you for all of the voluntary reforms that you have 
done. We are going to continue our work, we are going to 
continue to work with you. We may even ask you to come back at 
another date, but for this evening you are dismissed. Thank 
you.
    The committee will recess for 30 minutes.
    [Brief recess.]
    Mr. Greenwood. The Chair thanks the witnesses for their 
patience. I know it has been a long day for you, as it has for 
us. As you both know, the committee takes its testimony under 
oath. Do either of you have objection to giving your testimony 
under oath?
    Mr. Kuhn. No.
    Mr. Morris. No.
    Mr. Greenwood. You are entitled to be represented by 
counsel, pursuant to the rules of the House. Do either of you 
wish to?
    Mr. Kuhn. No.
    Mr. Morris. No.
    Mr. Greenwood. Would you please stand and raise your right 
hands?
    [Witnesses sworn.]
    Mr. Greenwood. You are under oath. Mr. Kuhn, you are 
recognized to make your opening statement. Welcome.

     TESTIMONY OF HERB KUHN, DIRECTOR, CENTER FOR MEDICARE 
  MANAGEMENT, CENTERS FOR MEDICARE & MEDICAID SERVICES, U.S. 
  DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND LEWIS MORRIS, 
   CHIEF COUNSEL, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF 
                   HEALTH AND HUMAN SERVICES

    Mr. Kuhn. Thank you, Chairman Greenwood and members of the 
committee. I appreciate you inviting me to speak today about 
the Centers for Medicare and Medicaid Services regulations and 
how they affect hospitals and the ability to bill patients who 
are underinsured or uninsured.
    Medicare and Medicaid provide health insurance for more 
than 80 million Americans. I would like to state right from the 
start that the provider reimbursement rules for those programs 
in no way restrict the ability of hospitals and other providers 
to offer free or discounted care to patients who are either 
underinsured or uninsured. The Medicare program provides 
flexibility to those providers who choose to offer discounted 
care to patients.
    CMS has been closely involved with hospital billing for the 
underinsured and uninsured. A year ago, we received a request 
from some hospitals for guidance on whether it was permissible 
to discount charges to low-income uninsured or underinsured 
patients. After providing guidance to these hospitals, CMS 
began discussions with your staff in the Fall of 2003. In 
December of 2003, Secretary Thompson received a letter from the 
American Hospital Association that alleged that Medicare 
program rules, as well as restrictions imposed by the HHS 
Office of Inspector General hindered the ability of hospitals 
to provide discounts to low-income patients or to patients who 
were medically indigent. Secretary Thompson responded to the 
AHA letter in February and subsequently responded to a letter 
and request for information from this subcommittee.
    Earlier this month, we held an open-door forum to provide a 
detailed overview of our policy in this area, and to allow 
providers to raise any additional questions or concerns. Of 
course, providers and their representatives should feel free to 
contact us at any time should they need guidance in this area.
    Mr. Chairman, when CMS provides guidance on this issue, we 
have found that there are three main areas of concern. The 
first area is discounts and how they may be used. Medicare 
billing requirements do not prevent discounts as long as full 
charges, not discounted charges, are reported on the Medicare 
cost report. To provide discounts, providers must maintain 
accounts and records in a manner that would be necessary for 
any business. The program's rules have attempted to prevent the 
Medicare program from subsidizing a service that should be paid 
for by another provider, or preventing another provider from 
subsidizing a service the Medicare program should be 
reimbursing.
    The second area of concern is indigency. Medicare indigency 
requirements do not prevent discounting to uninsured patients 
provided a few requirements are met. Providers may make 
indigency determinations using their customary method, but to 
protect all patients in the Medicare program, the methods used 
in determining indigency for non-Medicare patients should be 
similar to those for Medicare patients. Any indigency 
determination should be supported by documentation and be 
determined on a patient-by-patient basis because financial need 
is specific to each and every patient.
    Hospitals set their own indigency policy and have the 
discretion and flexibility to define eligibility, including 
income level. This makes sense because hospitals are in the 
best position to know what their community needs are.
    The third area of concern is Medicare's rules regarding bad 
debt. These rules do not require providers to aggressively 
collect unpaid bills. The rules do require efforts to collect 
from non-Medicare patients to be similar to those efforts for 
Medicare patients. This is designed to protect the integrity of 
the program if hospitals are seeking Medicare bad debt 
reimbursement.
    We often hear from hospitals that Medicare somehow requires 
aggressive collection efforts that include attaching a 
patient's home, use of a bill collector, or other similar 
tactics. This is simply not true. The program does require, 
however, that if the hospital wants to bill the Medicare 
program for bad debt related to unpaid deductibles and co-
insurance by Medicare beneficiaries, it must use the same level 
of collection activity to secure collection of those debts by 
Medicare patients as it does to secure collection of debts by 
non-Medicare patients. Simply stated, the collection of 
Medicare and non-Medicare debts need to be treated similarly.
    Mr. Chairman, thank you for this invitation to testify this 
evening. I want to acknowledge the subcommittee for its efforts 
in bringing to the forefront the problem of providing quality 
health care for patients of limited means. I applaud you for 
making this important issue the focus of your hearing today, 
and I will be happy to answer any questions that you may have.
    [The prepared statement of Herb Kuhn follows:]

    Prepared Statement of Herb Kuhn, Director, Center for Medicare 
 Management, Centers for Medicare and Medicaid Services, Department of 
                       Health and Human Services

    Chairman Greenwood, Rep. Deutsch, thank you for inviting me to 
speak with you about the role the Centers for Medicare & Medicaid 
Services plays in how hospitals and other Medicare providers bill 
patients who are uninsured or under-insured. I want to acknowledge the 
Subcommittee for their efforts in bringing to the forefront the problem 
of providing quality health care for patients of limited means and I 
applaud you for making this important issue the focus of your hearing 
today.
    Combined, the Medicare and Medicaid programs provide health 
insurance for over 80 million Americans. The provider reimbursement 
rules for those programs ``should in no way restrict the ability of 
hospitals and other providers to offer free or discounted care to 
patients who do not have coverage under these two programs. I am here 
today to talk about how the Medicare program provides the flexibility 
for providers to do so if they choose.
    Hospital billing for the uninsured and underinsured is a very 
timely issue and an issue in which CMS and, in particular, the Center 
for Medicare Management, which I direct, have been deeply involved for 
over a year. It was a year ago that we received a request from some 
hospitals in the country for guidance on whether it was permissible to 
discount charges to low income uninsured or under-insured patients. 
Some months later, after responding to numerous inquiries on the issue, 
CMS began discussions with your staff in the fall of 2003. In December 
of 2003, Secretary Thompson received a letter from the American 
Hospital Association that alleged that Medicare program rules, as well 
as restrictions imposed by the HHS Office of Inspector General, 
hindered the ability of hospitals to provide discounts to low-income 
patients or to patients who were medically indigent. Secretary Thompson 
responded to the AHA letter in February, and subsequently responded to 
a letter and request for information from this Subcommittee. CMS also 
briefed your staffs in preparation for this hearing.
    There are three central topics that most commonly arise when 
providing guidance on this issue. I'd like to address those topics for 
you today. Then, to conclude, I'd like to say a few words about what 
the Medicare and Medicaid programs are currently doing to assist 
hospitals that treat the uninsured. Finally, I'd like to conclude by 
mentioning the many initiatives that the Administration has taken to 
reduce the number of uninsured.

Three Topics of Focus on Billing the Uninsured
 Discounts: Medicare billing requirements do not prevent discounts as 
        long as:
     Full charges, not discounted charges, are reported on the cost 
            report.
     Accounts and records are maintained in a manner that would be 
            necessary for any business.
Indigency
 Medicare indigency requirements do not prevent discounting to 
        uninsured patients.
     Providers may make indigency (including medical indigency) 
            determinations using their customary methods.
     In order to protect all patients and the Medicare program, the 
            methods used in determining indigency for non-Medicare 
            patients should be similar to those used for Medicare 
            patients.
     Indigency should be supported by documentation (good business 
            practices would dictate that).
     Indigence should be determined on a patient-by-patient basis 
            because financial need is specific to each patient.
     Medicare does not reimburse the bad debts of non-Medicare 
            patients.
     Once indigence is determined, collection is no longer undertaken 
            with regard to the patient for the forgiven amount.

Bad Debt
    Medicare does not require providers to be aggressive in their 
collection of accounts. Medicare rules state that:

 Efforts to collect from non-Medicare patients must be similar to the 
        efforts to collect from Medicare patients. Medicare wants 
        parity in the treatment of Medicare and non-Medicare patients 
        to protect the program and all patients, not just our 
        beneficiaries.
 Efforts to collect on accounts should be more than a token effort. 
        Rather, they should be positive efforts that would be used in 
        any business.
    Since the enactment of the Medicare program in 1965, the program's 
rules have attempted to prevent ``cross-subsidization''--in other 
words, preventing the Medicare program from subsidizing a service that 
should be paid for by another payor, or preventing another payor from 
subsidizing a service the Medicare program should be reimbursing. One 
way that Medicare's regulations do that is to require hospitals to list 
their stated charges for a service on their cost reports for a service 
and maintain a uniform charge for a service. To repeat, nothing in CMS 
regulations prevents a hospital from providing a discount off of that 
stated charge. But when filing its cost report, the hospital must list 
its full charges.
    Without question, a hospital can provide free care or discount 
charges to uninsured or underinsured patients. As we noted in our 
response to the American Hospital Association, ``[n]othing in the 
Centers for Medicare & Medicaid Services' (CMS') regulations, Provider 
Reimbursement Manual, or Program Instructions prohibit a hospital from 
offering discounts to any patients, Medicare or non-Medicare, including 
low-income, uninsured or medically indigent individuals.''
    In reference to the ability of a hospital to develop an indigency 
policy, it may be overstating matters to say that the Medicare program 
imposes a ``restriction'' on this. Hospitals--not the federal 
government--set their own indigency policies and have the discretion 
and flexibility to define eligibility indicators including income 
level. This makes sense because a hospital, as a community institution, 
is in the best position to know what policy best suits the community 
that it serves.
    As I have stated earlier, if a hospital wishes to provide a 
discount off of its customary charges as part of an indigency policy, 
it can do so, but it must report the full charge for that service on 
its Medicare cost report.
    Turning to the issue of bad debt, we often hear from hospitals that 
Medicare somehow ``requires'' aggressive collection efforts that 
include attaching a patient's home, use of a bill collector, and other 
similar tactics. The reality is otherwise. The Medicare program does 
not require any particular level of collection activity. It does not 
require that collection activities be ``aggressive.'' It does not 
require that hospitals seize patient's homes or bank accounts. What the 
program does require, however, is that if the hospital wants to bill 
the Medicare program for bad debt related to unpaid deductibles and 
coinsurance by Medicare beneficiaries, it must use the same level of 
collection activity to secure collection of those debts by Medicare 
patients as it does to secure collection of debts by non-Medicare 
patients. For example, if a hospital wants to use a bill collection 
agency for its bad debts, it cannot turn only non-Medicare patient 
bills over to that collection agency; rather, the hospital must treat 
all bad debts the same. The principle, again to prevent cross-
subsidization, is that collection of Medicare and non-Medicare debts 
need to be treated similarly.
    In addition, a hospital may make an individualized indigency 
determination for a particular Medicare patient and excuse that patient 
from any efforts to collect unpaid deductibles and coinsurance. Doing 
so would not prevent the hospital from collecting Medicare bad debt 
payments from other payors on those unpaid amounts, provided the 
hospital treats all indigent patients the same. This is also true if 
the patient is a dually-eligible Medicare and Medicaid beneficiary. In 
such a case, the hospital would submit a bill for the unpaid deductible 
and coinsurance amounts to the state Medicaid plan. If the state 
Medicaid plan was not liable and denied payment on the account, the 
hospital could bill the Medicare program for it as a bad debt.
    It is also important to note that in very limited circumstances, 
Medicare reimbursement could be affected by the ``lesser of cost-or-
charges,'' or ``LCC'' principle. This principle was of significant 
importance in the early years of the program, but is admittedly less so 
now that most providers are reimbursed on the basis of a prospective 
payment methodology rather than on the basis of costs. However, where 
the LCC principle is applicable, a Medicare provider is paid the lesser 
of its actual costs or its actual charges. Implementing a reduced 
charge program for uninsured patients could potentially trigger the LCC 
principle because if a hospital lowered charges for enough patients, a 
hospital's fiscal intermediary could take the position that a 
hospital's charges were not its posted, or stated, charges, but rather, 
the charges applicable to most of its patients who were receiving 
discounted services. If the FI did take that position, it could then 
invoke the LCC principle and pay the hospital that lower charge-based 
amount.
    Few providers are subject to the principle at all. The only example 
I am aware of is a pediatric or cancer hospital in its first year of 
operation, before it becomes subject to the TEFRA methodology, because 
there are no base year costs upon which to calculate a TEFRA target 
rate limitation. Other providers, including critical access providers, 
are not subject to the LCC provision.

The Office of Inspector General Guidelines
    I cannot speak for the Office of Inspector General (OIG), but I 
will note that shortly after we released our letter to the AHA, the OIG 
put on its website a document addressing the application of its fraud 
and abuse authorities to discounts for uninsured patients and cost-
sharing waivers for financially needy Medicare beneficiaries.
    Lewis Morris, the Chief Counsel to the Inspector General, is here 
with me today to address the OIG's perspective on these issues.

Funding Programs for Uninsured Individuals
    CMS has done its share to reimburse hospitals for the treatment of 
uninsured individuals. Since 1986, select hospitals have received 
reimbursement under the Medicare disproportionate share (DSH) program. 
Hospitals qualify for Medicare DSH payments if they treat a 
``disproportionate share'' of low-income patients--defined in the 
statute as the share of a hospital's total inpatient days attributable 
to Medicare patients who are also eligible for SSI compared to all 
Medicare patients plus days attributable to Medicaid patients compared 
to all patients. As I mentioned above, Medicare also reimburses 
hospitals for the bad debt that arises from treating low-income 
Medicare beneficiaries who are unable to pay their cost sharing and 
deductible amounts. Finally, the Medicaid program requires states to 
designate certain hospitals as disproportionate share under their state 
Medicaid plans, and make additional payments to those DSH hospitals. 
The Medicaid DSH program is also advantageous for states because DSH 
payments to a hospital under a state plan are not counted in 
determining whether or not the state has breached the Medicaid upper 
payment limit, thus enabling states to increase payments to other 
providers participating under their state plan.

Other Administration Initiatives for the Uninsured
    In addition to providing the guidance to hospitals on the 
uninsured, this Administration has undertaken other initiatives to 
address the plight of individuals who otherwise lack access to health 
insurance or who may be under-insured. For example, the Administration 
has dramatically increased funding to federally qualified community 
health centers, the ``front line'' treatment option for low-income 
uninsured individuals. The Administration provides an advanceable 
health coverage tax credit to certain individuals who are receiving a 
pension from the Pension Benefits Guaranty Corporation or who have 
become unemployed due to the adverse effects of international trade and 
are eligible for Trade Adjustment Assistance. This tax credit pays 65% 
of the premium for qualifying health insurance, including either 
employer-sponsored ``COBRA'' coverage or a state-designated private 
health insurance plan. The Administration's Medicaid waivers, state 
plan amendments, and HIFA waivers have provided health insurance for 
2.6 million people who would have otherwise lacked coverage, and 
enhanced existing benefits for nearly 7 million individuals.
    Many of you in Congress voted for and deserve credit for the 
provisions in the Medicare Modernization Act that will revolutionize 
health savings accounts and help make insurance more affordable for 
millions of Americans. In addition to creating a Medicare prescription 
drug benefit and providing interim savings and subsidies through 
Medicare-approved discount cards, this historic legislation allows 
people to establish health savings accounts (HSAs) in conjunction with 
affordable, high-deductible major medical coverage. These new products 
will make health insurance more affordable to businesses large and 
small, as well as to individuals whose employers do not sponsor 
coverage. The President has proposed to provide further assistance to 
such individuals by allowing them to claim an above-the-line deduction 
of the major medical insurance premiums.
    For working individuals and families who would not benefit from tax 
deductibility because their incomes are too low, the President has 
proposed $70 billion in refundable, advanceable tax credits. He also 
proposed allowing expanded use of association health plans that allow 
small businesses to more easily pool resources to purchase health 
insurance. Combined with the steps that we have already taken, 
enactment of these and other measures will further reduce the number of 
individuals without health insurance in the United States.
    Mr. Chairman and Congressman Deutsch, thank you for your invitation 
to testify this morning. I am happy to answer any questions that you 
may have.

    Mr. Greenwood. Thank you, Mr. Kuhn.
    Mr. Morris.

                    TESTIMONY OF LEWIS MORRIS

    Mr. Morris. Thank you. Good evening, Mr. Chairman. I am 
here today to discuss the Office of Inspector General's views 
on the discounts that hospitals offer to uninsured patients and 
to others who are unable to pay their hospital bills. Simply 
put, the fraud and abuse laws enforced by the OIG allow 
hospitals to offer discounts to patients who cannot afford to 
pay for their care. Indeed, our legal authorities have 
virtually no application to the discounts offered to uninsured 
patients.
    When the patient's health care is covered under a Federal 
health care program, such as Medicare and Medicaid, our legal 
authorities have greater relevance. But even then the laws 
clearly establish that hospitals are able to help patients who 
are experiencing financial hardship. Today, I will begin by 
describing why the fraud and abuse laws have virtually no 
relevance to hospitals offering discounts to uninsured 
patients, and then I will describe how a hospital may reduce or 
waive cost-sharing amounts for Medicare or Medicaid 
beneficiaries experiencing financial hardship.
    I would note that while today's presentation focuses on 
discounts that hospitals offer to uninsured and financially 
needy patients, the underlying principles apply equally to the 
rest of the health care industry.
    It has been suggested that the fraud and abuse laws, 
particularly the anti-kickback statute, prevent hospitals from 
offering financial assistance to patients who do not have 
health care coverage. At best, this view reflects a 
misunderstanding of the law. For the millions of uninsured 
citizens who are not referral sources, the anti-kickback 
statute simply does not apply. In other words, giving something 
of value, such as a discount on hospital charges, to an 
uninsured patient does not implicate the anti-kickback statute 
except in the most unusual situation where the uninsured 
patient is in a position to generate Federal health care 
business, such as a physician. In short, no OIG authority or 
policy should deter hospitals or others from offering financial 
relief to uninsured patients.
    I will now address a hospital's ability to offer discounts 
to financially needy Medicare and Medicaid beneficiaries. 
Simply put, the law allows hospitals significant flexibility to 
help financially needy Medicare and Medicaid beneficiaries. For 
these patients, a discount generally takes the form of some or 
all of a co-payment or deductible waiver--that is, the portion 
of the bill that the beneficiary owes.
    In 1996, Congress passed a law that prohibits a provider 
from offering a Medicare or Medicaid patient anything of value, 
including waivers of cost-sharing amounts, that is likely to 
influence the selection of a provider of Medicare or Medicaid 
services. This law was necessary to curb abusive arrangements 
under which providers would pay patients to obtain services, 
often services which were unnecessary, overpriced, or 
substandard. However, Congress recognized that some 
beneficiaries might not be able to afford their cost-sharing 
amounts. The statute does expressly allow providers to waive 
these amounts on the basis of financial need. The exception has 
three requirements. The waiver may not be routine, the waiver 
may not be offered as part of an advertisement or solicitation, 
and the waivers may only be made after determining in good 
faith that the individual is in financial need or that 
reasonable collection efforts have failed. This exception is 
available to hospitals and others that want to provide relief 
to Medicare and Medicaid patients who cannot afford their cost-
sharing amounts.
    The OIG also has a long-standing and well-publicized 
position supporting such financial hardship waivers. For 
example, the ability to forgive Medicare cost-sharing amounts 
is discussed in a 1992 OIG special fraud alert on this topic. 
That fraud alert, as well as a wealth of guidance and other 
information about these issues, is available on the OIG's Web 
site. In short, the fraud and abuse laws clearly allow 
hospitals to provide financial relief to Medicare and Medicaid 
patients who cannot afford their cost-sharing amounts.
    In conclusion, the OIG fully supports efforts to assure 
that a patient's financial need is not a barrier to health 
care. Our laws allow hospitals to offer bona fide discounts to 
uninsured patients as well as Federal health care beneficiaries 
who cannot afford their health care bills. Frankly, we do not 
know why lawyers advising hospitals would tell them that the 
fraud and abuse laws are an impediment to discounts to the 
uninsured. Such discounts do not violate the fraud and abuse 
laws. We have never taken any enforcement action in this area. 
And, finally, we have issued guidance as early as 1992 
suggesting otherwise.
    Mr. Chairman, thank you for the opportunity to present the 
OIG's views on these issues.
    [The prepared statement of Lewis Morris follows:]

  Prepared Statement of Lewis Morris, Chief Counsel to the Inspector 
            General, Department of Health and Human Services

    Good morning Mr. Chairman and Members of the Subcommittee. I am 
here today to discuss the Office of Inspector General's (OIG's) views 
on the discounts that hospitals offer to uninsured patients and to 
others who are unable to pay their hospital bills. We understand that 
there is widespread concern about hospitals' billing and collection 
practices as those practices affect patients who cannot afford to pay 
their hospital bills. I--want to assure the Committee that OIG fully 
supports efforts that hospitals have made to help financially needy 
patients. We appreciate the opportunity to address this issue and to 
discuss OIG's legal authorities in this area.
    Simply put, the fraud and abuse laws enforced by OIG allow 
hospitals and other health care providers and suppliers to offer 
discounts to patients who cannot afford to pay for their care. Indeed, 
our legal authorities have extremely limited application to discounts 
offered to uninsured patients. When the patient's health care is 
covered under a Federal health care program, such as Medicare or 
Medicaid, our legal authorities have greater application. But even 
then, the laws and regulations clearly enable hospitals and others to 
help patients who are experiencing financial hardship. OIG has long-
standing and clear guidance on this point.
    While today's presentation focuses on discounts that hospitals 
offer to uninsured and financially needy patients, the underlying 
principles apply equally to the rest of the Medicare- and Medicaid-
serving health care industry. Before I discuss OIG's views, it is 
important to note that a thorough discussion of hospital discounts for 
patients with financial hardship also involves questions for the 
Centers for Medicare & Medicaid Services (CMS). CMS has programmatic 
responsibility for the Medicare program and has established the cost 
reporting and bad debt rules relevant to hospital discounting 
practices. A CMS witness is also testifying today and will address the 
CMS issues.
    From OIG's perspective, discounts offered to uninsured patients are 
analyzed under two fraud and abuse laws: the Federal anti-kickback 
statute and the permissive exclusion authority prohibiting providers 
and suppliers from charging Medicare or Medicaid substantially more 
than they usually charge other customers. Discounts offered to 
financially needy Medicare or Medicaid beneficiaries also must be 
analyzed under the civil monetary penalty (CMP) statute that prohibits 
offering inducements to Medicare and Medicaid beneficiaries.
    Today, I will begin by describing the limited application of OIG's 
legal authorities to discounts offered to uninsured patients. Next, I 
will describe how a hospital may reduce or waive cost-sharing amounts 
for Medicare or Medicaid beneficiaries experiencing financial hardship. 
Finally, I will explain how hospitals and other health care providers 
and suppliers can obtain further guidance from OIG on these issues.

                    DISCOUNTS FOR UNINSURED PATIENTS

    OIG authorities allow hospitals to offer discounts to uninsured 
patients. It has been suggested that two fraud and abuse laws--the 
Federal anti-kickback statute and the exclusion authority prohibiting 
excessive charges to Medicare and Medicaid--prevent hospitals from 
offering discounted prices to patients who do not have health care 
coverage. This view reflects a misunderstanding of the law.

The Federal Anti-Kickback Statute
    The Federal anti-kickback statute is a criminal statute that 
prohibits the purposeful offer, payment, solicitation, or receipt of 
anything of value in exchange for, or to induce, business payable by 
any Federal health care program, including Medicare and Medicaid. 
Congress was concerned that improper financial incentives often lead to 
abuses, such as overutilization, increased program costs, corruption of 
medical-decision making, and unfair competition. Accordingly, Congress 
banned kickbacks in the Federal health care programs.
    Giving something of value (such as a discount on hospital charges) 
to an uninsured patient does not implicate the Federal anti-kickback 
statute, unless the patient is in a position to generate Federal health 
care program business. For example, a hospital asked OIG about the 
propriety of offering discounts to doctors who self-pay. Such discounts 
would implicate the statute if one purpose were to induce the doctors 
to refer Medicare or Medicaid business to the hospital. But those 
situations are not, in our view, typical of hospital policies for 
discounting to the uninsured. Rather, most need-based discounting 
policies are aimed at making health care more affordable for the 
millions of uninsured citizens who are not referral sources for the 
hospital. For discounts offered to these uninsured patients, the anti-
kickback statute simply does not apply.

The Excessive Charges Exclusion Authority
    By statute, OIG is authorized, but not required, to exclude from 
participation in the Federal health care programs any provider or 
supplier that charges Medicare or Medicaid substantially more than it 
usually charges other customers. This law is intended to protect the 
Medicare and Medicaid programs--and the taxpayers--from providers and 
suppliers that routinely charge the Medicare or Medicaid programs 
substantially more than they usually charge other customers.
    Some providers have expressed concern that discounting to uninsured 
patients might skew their ``usual charges'' to other customers and 
possibly subject them to exclusion under this provision. Let me assure 
you that this is not the case. OIG has never excluded or even 
contemplated excluding any provider or supplier for offering discounts 
to uninsured patients or other patients who cannot afford their care.
    OIG believes that the statute can be reasonably interpreted as 
allowing providers to exclude discounts to these patients when 
calculating their usual charges to other customers. To this end, when 
we proposed regulations in connection with this exclusion authority, we 
included a provision that would clarify that free or substantially 
reduced prices offered to uninsured patients do not need to be factored 
into a hospital's usual charges for purposes of the exclusion 
authority. Those proposed regulations are still under development.
    To further assure the industry with respect to discounts to the 
uninsured, we issued guidance in February that, pending issuance of 
final regulations or a decision not to proceed with final regulations, 
we will continue our enforcement policy that, when calculating their 
``usual charges,'' providers and suppliers need not consider free or 
substantially reduced charges to uninsured patients.
    In sum, no OIG authority or policy should deter hospitals and 
others from offering financial relief to uninsured patients.

  WAIVERS OF COST-SHARING AMOUNTS FOR FINANCIALLY NEEDY MEDICARE AND 
                         MEDICAID BENEFICIARIES

    A discount offered to a Medicare or Medicaid beneficiary generally 
takes the form of a waiver of all or a portion of the Medicare or 
Medicaid program copayment or deductible, that is, the portion of the 
bill that the beneficiary owes. Routine waivers of Medicare or Medicaid 
cost-sharing amounts are problematic under the fraud and abuse laws 
because they may be used impermissibly to induce Federal health care 
program business. For example, many fraud schemes use the promise of 
``free'' or ``no out-of-pocket cost'' medical items or services to 
attract Medicare or Medicaid beneficiaries.
    However, the law also clearly permits health care providers to 
waive Medicare and Medicaid cost-sharing amounts for financially needy 
beneficiaries. OIG has a long-standing and well-publicized position 
supporting such financial hardship waivers. For example, the ability to 
forgive Medicare cost-sharing amounts in consideration of a patient's 
financial hardship is discussed in a 1992 OIG special fraud alert on 
the waiver of copayments and deductibles. The alert is available on our 
web site, along with other guidance on this subject, at http://
oig.hhs.gov/fraud/fraud
alerts.html.

The Civil Money Penalty Prohibiting Beneficiary Inducements
    While the Federal anti-kickback statute may be implicated in some 
cases, the primary legal authority in the area of waivers of Medicare 
and Medicaid cost-sharing amounts is the CMP prohibiting inducements to 
beneficiaries. Enacted as part of HIPAA in 1996, the CMP prohibits 
offering a beneficiary anything of value, including waivers of cost-
sharing amounts, that is likely to influence the beneficiary's 
selection of a provider, practitioner, or supplier of Medicare or 
Medicaid payable items or services. Beneficiary inducements are of 
particular concern because vulnerable beneficiaries may be enticed to 
obtain services that are medically unnecessary, overpriced, or of 
substandard quality.
    While generally banning routine cost-sharing waivers, such 
``insurance only'' billing and the like, the Congress recognized that 
some beneficiaries might not be able to afford their cost-sharing 
amounts. The statute thus includes an express exception for waivers on 
the basis of financial need. The exception has three requirements:

 the waivers may not be routine;
 the waivers may not be offered as part of any advertisement or 
        solicitation; and
 the waivers may only be made after determining in good faith that the 
        individual is in financial need or that reasonable collection 
        efforts have failed.
    This exception is available to hospitals and others that want to 
provide relief to Medicare and Medicaid beneficiaries who cannot afford 
their cost-sharing amounts.
    We recognize that what constitutes a good faith determination of 
financial need may vary depending on individual patient circumstances. 
We believe that hospitals should have flexibility to consider relevant 
variables. For example, hospitals may consider:

 the local cost of living;
 a patient's income, assets, and expenses;
 a patient's family size; and
 the scope and extent of a patient's medical bills.
    A hospital's financial need guidelines should be reasonable, based 
on objective criteria, appropriate for the hospital's locality, and 
applied uniformly to all patients. Hospitals should take reasonable 
measures to document the financial need determination. We are mindful 
that there may be situations when patients are reluctant or unable to 
provide documentation of their financial status. In such cases, 
hospitals may be able to use other reasonable, documented methods for 
determining financial need, including, for example, patient interviews 
or questionnaires.
    As discussed in our 1992 special fraud alert and elsewhere, it is 
OIG's position that the principles articulated in this CMP exception 
apply equally to financial need-based cost-sharing waivers under the 
Federal anti-kickback statute. There also is a safe harbor under the 
Federal anti-kickback statute that protects certain cost-sharing 
waivers for inpatient hospital services (waivers protected under this 
safe harbor are also protected under the CMP). The safe harbor contains 
a number of conditions designed to prevent abusive waiver practices, 
but does not require a determination of financial need.
    In sum, the fraud and abuse laws clearly allow hospitals to provide 
relief to Medicare and Medicaid beneficiaries who cannot afford their 
cost-sharing amounts.

                         OBTAINING OIG GUIDANCE

    As evidenced by the number and range of fraud alerts, bulletins, 
and other guidance we have issued, OIG has a strong commitment to 
providing guidance to the health care provider community. As previously 
noted, in February we issued specific guidance on OIG's fraud and abuse 
authorities and their application to hospital discounting practices. 
This guidance, titled ``Hospital Discounts Offered to Patients Who 
Cannot Afford to Pay Their Hospital Bills'' (``Discounts Guidance''), 
is available on our website at www.oig.hhs.gov and is attached to this 
testimony.
    In addition to these resources, OIG's advisory opinion process is 
available to hospitals or others that want to know how OIG views a 
particular discount arrangement. OIG advisory opinions are written 
legal opinions that are binding on OIG, the Department of Health and 
Human Services, and the party that requests the opinion. To obtain an 
opinion, the requesting party must submit a written description of its 
existing or proposed business arrangement. Further information about 
the process, including frequently asked questions, can be found on 
OIG's web site at: http://oig.hhs.gov/fraud/advisoryopinions.html
    In addition, our web site contains the Discount Guidance, the 
proposed regulations on the excessive charges exclusion authority, and 
a special advisory bulletin discussing the CMP statute, as well as 
special fraud alerts and bulletins, safe harbor regulations, compliance 
program guidances, and advisory opinions that relate to the issues I 
have discussed today.

                               CONCLUSION

    In conclusion, I want to assure the Committee that OIG fully 
supports efforts to ensure that a patient's financial need is not a 
barrier to health care. Furthermore, OIG legal authorities permit 
hospitals and others to offer bona fide discounts to uninsured patients 
and to Medicare or Medicaid beneficiaries who cannot afford their 
health care bills.
    Mr. Chairman and Members of the Committee, thank you for inviting 
OIG to testify today. I would be happy to answer any questions you may 
have.

                              ATTACHMENTS

 HOSPITAL DISCOUNTS OFFERED TO PATIENTS WHO CANNOT AFFORD TO PAY THEIR 
                             HOSPITAL BILLS

    This document addresses the views of the Office of Inspector 
General (``OIG'') on the following topics: (1) discounts provided by 
hospitals for uninsured patients who cannot afford to pay their 
hospital bills and (2) reductions or waivers of Medicare cost-sharing 
amounts by hospitals for patients experiencing financial hardship. For 
the following reasons, the OIG believes that hospitals have the ability 
to provide relief to uninsured and underinsured patients who cannot 
afford their hospital bills and to Medicare beneficiaries who cannot 
afford their Medicare cost-sharing amounts. The OIG fully supports 
hospitals' efforts in this area.

Discounts for Uninsured Patients Who Cannot Afford to Pay Their 
        Hospital Bills
    No OIG authority prohibits or restricts hospitals from offering 
discounts to uninsured patients who are unable to pay their hospital 
bills. It has been suggested that two laws enforced by the OIG may 
prevent hospitals from offering discounted prices to uninsured 
patients. We disagree and address each law in turn.

 The Federal Anti-Kickback Statute.1 The Federal anti-
        kickback statute prohibits a hospital from giving or receiving 
        anything of value in exchange for referrals of business payable 
        by a Federal health care program, such as Medicare or Medicaid. 
        The Federal anti-kickback statute does not prohibit discounts 
        to uninsured patients who are unable to pay their hospital 
        bills. However, the discounts may not be linked in any manner 
        to the generation of business payable by a Federal health care 
        program. Discounts offered to underinsured patients potentially 
        raise a more significant concern under the anti-kickback 
        statute, and hospitals should exercise care to ensure that such 
        discounts are not tied directly or indirectly to the furnishing 
        of items or services payable by a Federal health care program. 
        As discussed below, the statute and regulations offer means to 
        reduce or waive coinsurance and deductible amounts to provide 
        assistance to underinsured patients with reasonably verified 
        financial need.
---------------------------------------------------------------------------
    \1\ 42 U.S.C.  1320a-7b(b).
---------------------------------------------------------------------------
 Section 1128(b)(6)(A) of the Social Security Act.2 This 
        law permits--but does not require--the OIG to exclude from 
        participation in the Federal health care programs any provider 
        or supplier that submits bills or requests for payment to 
        Medicare or Medicaid for amounts that are substantially more 
        than the provider's or supplier's usual charges. The statute 
        contains an exception for any situation in which the Secretary 
        finds ``good cause'' for the substantial difference. The 
        statute is intended to protect the Medicare and Medicaid 
        programs--and taxpayers--from providers and suppliers that 
        routinely charge the programs substantially more than their 
        other customers.
---------------------------------------------------------------------------
    \2\ 42 U.S.C.  1320a-7(b)(6)(A).
---------------------------------------------------------------------------
      The OIG has never excluded or attempted to exclude any provider 
        or supplier for offering discounts to uninsured or underinsured 
        patients. However, to provide additional assurance to the 
        industry, the OIG recently proposed regulations that would 
        define key terms in the statute.3 Among other 
        things, the proposed regulations would make clear that free or 
        substantially reduced charges to uninsured persons would not 
        affect the calculation of a provider's or supplier's ``usual'' 
        charges, as the term ``usual charges'' is used in the exclusion 
        provision. The OIG is currently reviewing the public comments 
        to the proposed regulations. Until such time as a final 
        regulation is promulgated or the OIG indicates its intention 
        not to promulgate a final rule, it will continue to be the 
        OIG's enforcement policy that. when calculating their ``usual 
        charges'' for purposes of section 1128&)(6)(A), individuals and 
        entities do not need to consider free or substantiallv reduced 
        charges to (i) uninsured patients or (ii) underinsured patients 
        who are self-paying patients for the items or services 
        furnished.
---------------------------------------------------------------------------
    \3\ 68 Fed. Reg. 53939 (Sept. 15, 2003).
---------------------------------------------------------------------------
      As noted in the preamble to the proposed regulations, the 
        exclusion provision does not require a hospital to charge 
        everyone the same price; nor does it require a hospital to 
        offer Medicare or Medicaid its ``best price.'' However, 
        hospitals cannot routinely charge Medicare or Medicaid 
        substantially more than they usually charge others.
    In addition to the two laws discussed above, it has been suggested 
that hospitals are reluctant to give discounts to uninsured patients 
because the OIG requires hospitals to engage in vigorous collection 
efforts against uninsured patients. This misperception may be based on 
some limited OIG audits of specific hospitals' compliance with 
Medicare's bad debt rules. The bad debt rules and regulations, 
including the scope of required collection efforts, are established by 
the Centers for Medicare & Medicaid Services (``CMS''). No OIG rule or 
regulation requires a hospital to engage in any particular collection 
practices.

Reductions or Waivers of Cost-Sharing Amounts for Medicare 
        Beneficiaries Experiencing Financial Hardship
    The fraud and abuse laws clearly permit the waiver of all or a 
portion of a Medicare cost-sharing amount for a financially needy 
beneficiary.4 Importantly, under the fraud and abuse laws, 
the ``financial need'' criterion is not limited to ``indigence,'' but 
can include any reasonable measures of financial hardship.
---------------------------------------------------------------------------
    \4\ Hospitals still need to ensure that they comply with all 
relevant Medicare program rules.
---------------------------------------------------------------------------
    Like many private insurance plans, the Medicare program includes a 
cost-sharing requirement. Cost-sharing is an important control on 
overutilization of items and services. If beneficiaries are required to 
pay for a portion of their care, they will be better health care 
consumers, selecting items or services because they are medically 
needed.
    The routine waiver of Medicare coinsurance and deductibles can 
violate the Federal anti-kickback statute (discussed above) if one 
purpose of the waiver is to generate business payable by a Federal 
health care program.5 In addition, a separate statutory 
provision prohibits offering inducements--including cost-sharing 
waivers--to a Medicare or Medicaid beneficiary that the offeror knows 
or should know are likely to influence the beneficiary's selection of a 
particular provider, practitioner, or supplier.6 (This 
prohibition against inducements offered to Medicare and Medicaid 
beneficiaries does not apply to uninsured patients.)
---------------------------------------------------------------------------
    \5\ In certain circumstances, the routine waiver of coinsurance and 
deductible amounts can implicate the False Claims Act, 31 U.S.C.  
3729. See Special Fraud Alert: Routine Waiver of Copayments or 
Deductibles Under Medicare Part B, 59 Fed. Reg. 65372, 65374 (Dec. 19, 
1994), available on the OIG webpage at: http://oig.hhs.gov/fraud/docs/
alertsandbulletins/121994.html.
    \6\ 42 U.S.C.  1320a-7a(a)(5). The statute includes several other 
exceptions. One exception permits the waiver of cost-sharing amounts 
for certain preventive care services without any requirement to 
determine financial need. 42 U.S.C.  1320a-7a(i)(6)(D); 42 C.F.R.  
1003.101; see also 65 Fed. Reg. 24400, 24409 (April 26, 2000).
---------------------------------------------------------------------------
    However, there are two important exceptions to the general 
prohibition against waiving Medicare coinsurance and deductibles 
applicable to hospitals, one for financial hardship situations and one 
for inpatient hospital services.
    First, providers, practitioners, and suppliers may forgive a 
Medicare coinsurance or deductible amount in consideration of a 
particular patient's financial hardship. Specifically, under the fraud 
and abuse laws, Medicare cost-sharing amounts may be waived so long as:

 the waiver is not offered as part of any advertisement or 
        solicitation;
 the party offering the waiver does not routinely waive coinsurance or 
        deductible amounts; and
 the party waives the coinsurance and deductible amounts after 
        determining in good faith that the individual is in financial 
        need reasonable collection efforts have failed.7
---------------------------------------------------------------------------
    \7\ 42 U.S.C.  1320a-7a(i)(6)(A); Special Fraud Alert, supra note 
5.
---------------------------------------------------------------------------
    The OIG recognizes that what constitutes a good faith determination 
of ``financial need'' may vary depending on the individual patient's 
circumstances and that hospitals should have flexibility to take into 
account relevant variables. These factors may include, for example:

 the local cost of living;
 a patient's income, assets, and expenses;
 a patient's family size; and
 the scope and extent of a patient's medical bills.
    Hospitals should use a reasonable set of financial need guidelines 
that are based on objective criteria and appropriate for the applicable 
locality. The guidelines should be applied uniformly in all cases. 
While hospitals have flexibility in making the determination of 
financial need, we do not believe it is appropriate to apply inflated 
income guidelines that result in waivers for beneficiaries who are not 
in genuine financial need. Hospitals should consider that the financial 
status of a patient may change over time and should recheck a patient's 
eligibility at reasonable intervals sufficient to ensure that the 
patient remains in financial need. For example, a patient who obtains 
outpatient hospital services several times a week would not need to be 
rechecked every visit. Hospitals should take reasonable measures to 
document their determinations of Medicare beneficiaries' financial 
need. We are aware that in some situations patients may be reluctant or 
unable to provide documentation of their financial status. In those 
cases, hospitals may be able to use other reasonable methods for 
determining financial need, including, for example, documented patient 
interviews or questionnaires.
    Second, another exception to the general prohibition against 
Medicare cost-sharing waivers is contained in an OIG ``safe harbor'' 
regulation related to inpatient hospital services.8 
Compliance with a safe harbor regulation is voluntary, and failure to 
comply does not necessarily mean an arrangement is illegal. However, a 
hospital that complies fully with a safe harbor is assured that it will 
not be prosecuted under the Federal anti-kickback statute.9
---------------------------------------------------------------------------
    \8\ 42 C.F.R.  1001.952(k).
    \9\ Furthermore, 42 U.S.C.  1320a-7a(i)(6)( B) provides that any 
waiver that fits in a safe harbor to the anti-kickback statute is 
similarly protected under the beneficiary inducements statute 
(discussed above).
---------------------------------------------------------------------------
    The safe harbor for waivers of coinsurance and deductibles provides 
that a hospital may waive coinsurance and deductible amounts for 
inpatient hospital services for which Medicare pays under the 
prospective payment system if the hospital meets three conditions:

 the hospital cannot claim the waived amount as bad debt or otherwise 
        shift the burden to the Medicare or Medicaid programs, other 
        payers, or individuals;
 the waiver must be made without regard to the reason for admission, 
        length of stay, or diagnostic related group; and
 the waiver may not be part of a price reduction agreement between the 
        hospital and a third-party payer (other than a Medicare SELECT 
        plan).
    While the OIG is not concerned about bona fide cost-sharing waivers 
for beneficiaries with genuine financial need, we have a long-standing 
concern about providers and suppliers that use ``insurance only 
billing'' and similar schemes to entice Federal health care program 
beneficiaries to obtain items or services that may be medically 
unnecessary, overpriced, or of poor quality.

OIG Advisory Opinion Process
    The OIG has an advisory opinion process that is available to 
hospitals or others that want assurance that they will not run afoul of 
the fraud and abuse laws.10 OIG advisory opinions are 
written opinions that are legally binding on the OIG, the Department of 
Health and Human Services, and the party that requests the opinion. To 
obtain an opinion, the requesting party must submit a detailed, written 
description of its existing or proposed business arrangement. The 
length of time that it takes for the OIG to issue an opinion varies 
based upon a number of factors, including the complexity of the 
arrangement, the completeness of the submission, and how promptly the 
requestor responds to requests for additional information. Further 
information about the process, including frequently asked questions, 
can be found on the OIG webpage at http://oig.hhs.gov/fraud/
advisoryopinions.html.
---------------------------------------------------------------------------
    \10\ Section 1128D(b) of the Social Security Act; 42 C.F.R. part 
1008.
---------------------------------------------------------------------------
Conclusion
    Hospitals have the ability to provide discounts to uninsured and 
underinsured patients who cannot afford their hospital bills and to 
Medicare beneficiaries who cannot afford their Medicare cost-sharing 
obligations. Nothing in the OIG rules or regulations prohibits such 
discounts, and the OIG fully supports the hospital industry's efforts 
to lower health care costs for those unable to afford care. While every 
case must be evaluated on its own merits, it is important to note that 
the OIG has never brought a case based on a hospital's bona fide 
discounting of its bill for an uninsured or underinsured patient of 
limited means.
    Guidance about the anti-kickback statute and other fraud and abuse 
authorities is available on the OIG's webpage at http://oig.hhs.gov/. 
This guidance includes the Special Fraud Alert on Routine Waivers of 
Copayments and Deductibles under Medicare Part B; safe harbor 
regulations (and the ``preamble'' discussions that include explanatory 
information), the compliance program guidance for hospitals, and OIG 
advisory opinions.

    Mr. Greenwood. Thank you very much. The Chair recognizes 
himself for questioning.
    I am going to go through a list of questions here, but 
before I do, I think you were both here throughout the 
afternoon, and you heard the line of questioning I started as 
we were running out of time with the hospitals, and that is 
that it seems to me the part of the phenomena that has driven 
up the charges at hospitals has been the fact that hospitals 
are reimbursed for outlying cases, outlying from the DRG range, 
on a charges-to-cost ratio, and therefore it seems, since the 
costs are fairly constant, growing at a slight rate, that it 
was in the hospital's interest to have the charge set as high 
as possible to maximize the revenue. Am I correct that that 
was--at least prior to 2003, that that rather relatively 
perverse incentive existed?
    Mr. Kuhn. That is correct, Mr. Chairman. There was a 
phenomena in the Medicare law that allowed some hospitals--and 
they actually figured out this loophole--that by greatly 
accelerating their charges, they could take advantage of the 
outlier payment. And what was really happening is that charges 
could be current, but the data on which they based cost were 
about 2 or 3 years old. By increasing that spread, it triggered 
the outlier payment more quickly. And, again, some hospitals 
figured that out, some hospital systems--you heard Mr. Fetter 
speak about that--capitalized and moved on that very 
aggressively. When CMS discovered that, we moved new 
regulations, which were finalized last year, that include two 
things. One, to tighten the time period between costs and 
charges in terms of the most recent cost report so hospitals 
can't work on that spread. We also have a look-back provision, 
so we can go back and really audit these folks and take dollars 
back should they be abusing that system. So, you are correct in 
your statement. There was an opportunity for hospitals to 
accelerate charges because of some incentives in the Medicare 
program, but that is now gone.
    Mr. Greenwood. Was it the case that the higher the charge, 
the higher the reimbursement, assuming constant costs, or was 
it simply that the higher the charge, the more cases fit into 
the outlier program and were reimbursed on a basis that is 
unrelated to the charge itself?
    Mr. Kuhn. It was more the latter. It just created a 
quicker, easier opportunity to trigger the outlier payment and 
to improve cash-flow.
    Mr. Greenwood. But it still created incentive to raise the 
charges, and it seems to me that that, I suspect, was the 
driver for these charges going up, at least a significant 
driver for the charges to go up, and to some extent the 
uninsured patient just got caught in the crossfire because 
hospitals had to, if they were going to, in fact, claim that 
that was their charge, they had to charge it.
    Mr. Kuhn. That was certainly one of the triggers that was 
out there. There are other things, obviously, for charge 
movement forward. That incentive did exist, but it does not 
exist anymore.
    Mr. Greenwood. It is your contention that since 2003 that 
incentive has been eliminated.
    Mr. Kuhn. That is correct.
    Mr. Greenwood. Do hospitals still have incentives to keep 
their charges high in cases of automobile accidents, for 
instance, where there may be a settlement and they get to 
subrogate and get a piece of the settlement and they use 
charges, or is that outside of your area of expertise?
    Mr. Kuhn. That is outside of my area. I am just looking at 
the Medicare program. I would leave that to others to opine on 
that.
    Mr. Greenwood. Is it HHS' responsibility to make sure that 
the uninsured self-pay patients are not adversely and unfairly 
treated by hospital billing and collection practices?
    Mr. Kuhn. What our policy is, and it is really reflected by 
the clarification Secretary Thompson issued in the Qs and As we 
provided for hospitals in February of this year, is that we 
really did encourage hospitals to use whatever authority they 
had to take care of the uninsured and work in that area.
    Where our exact oversight applies, however, is if a 
hospital wants to collect Medicare bad debt. That is really 
where the indigency policy becomes critical, and that is where 
we come into play. If a hospital wants to forego the bad debt 
in that Medicare payment, we really don't have oversight 
authority.
    Mr. Greenwood. But suppose that an uninsured patient goes 
to a hospital and gets billed for charges that are 
extraordinarily high, and that patient just sucks it up and 
puts it on a credit card and says, ``Well, I will spend the 
rest of my life paying for this,'' there is no bad debt here. 
CMS has no responsibility under any statute or regulation to 
protect that patient from that effect?
    Mr. Kuhn. You are correct, we have no authority in that 
area.
    Mr. Greenwood. In a February 2004 briefing to this 
committee, representatives of HHS claimed to have not known 
until the middle to late part of 2003 of hospitals' concerns 
with the impact of Medicare rules on their treatment of the 
uninsured. Today, we heard statements from Trevor Fetter of 
Tenet who said in 2002 that this was something that had 
concerned him for years.
    Could you explain why something apparently known by some or 
many in the industry for years was not even on the radar of HHS 
until 2003?
    Mr. Kuhn. That misunderstanding or that discrepancy also 
troubles us as well because as we prepared for this hearing, I 
queried a lot of staff in terms of what was going on in 2001, 
2002, even 2003, and, quite frankly, we heard from few, if any, 
hospitals asking questions. Likewise, we talked to our regional 
offices and our fiscal intermediaries, and they too were 
receiving little comment. So, it was our impression that 
hospitals had a pretty good understanding of our rules which 
have been out there for a long time in the Provider 
Reimbursement Manual, and it wasn't until recently that some 
concerns became known. And what we tried to do this year in 
Secretary Thompson's response to Dick Davidson of the American 
Hospital Association was to try a different format. Instead of 
giving them a copy of, for example, the Provider Reimbursement 
Manual, we decided to do it in a series of questions and 
answers, and since then I think that has really clarified 
things. I have heard from the American Hospital Association--I 
really salute them for this effort--that they have over 2,700 
hospitals in the country now that have signed a pledge that 
says they understand the rules, they are going to move forward 
with policy----
    Mr. Greenwood. What percentage is that of the hospitals in 
the United States?
    Mr. Kuhn. I believe there are about 5,000 acute care 
hospitals in the country, so it is well over half. So, I think 
that is a good number in a very short period of time, and I 
commend them for that effort.
    Mr. Greenwood. Well, if they get to 5,000, we won't have to 
legislate.
    Mr. Kuhn. We can all hope.
    Mr. Greenwood. As part of Medicare cost reporting, HHS was 
aware of steadily declining cost-to-charge ratios revealing in 
inverse steadily growing disparities between the cost to a 
hospital and charges given to patients. In California, for 
example, these markups rose, on average, from 174 percent in 
1990 to 310 percent in 2003. These figures depict real bills to 
real people with all too real consequences. Did this slip 
through the cracks at HHS?
    Mr. Kuhn. Well, I think we have become aware of that, and 
obviously we were aware of it when we fixed the outlier policy 
last year, as I mentioned earlier. But, again, when we set 
Medicare payment policy, as you showed on your graphs earlier, 
Medicare payment policy is very close to cost. We use charges 
in a lot of different ways. We use it for apportionment. We use 
it to set DRG rates. We use it to trigger outlier payments. So, 
it is used importantly by us, but in terms of what we 
ultimately pay, that is set by the rates when Congress gives us 
the updates. So, it is part of the process, but it doesn't 
really trigger that much in terms of the overall payment 
scheme.
    Mr. Greenwood. And aside from the outlier issue that we 
talked about in the beginning, are you aware of any other 
Medicare formulae or processes that would still create an 
incentive for hospitals to have high charges?
    Mr. Kuhn. We are not aware of any kind of incentives or 
disincentives or perverse incentives that would be in the 
Medicare program that would drive that.
    Mr. Greenwood. You wrote in your response to this 
committee, ``If a hospital wants Medicare bad debt 
reimbursement, it must at the very least send non-indigent 
Medicare patients a bill for the debt, and must make some 
reasonable effort to collect from Medicare patients as it does 
for non-Medicare patients.'' Why is HHS unwilling to be more 
precise about what is a reasonable collection effort?
    Mr. Kuhn. We really want to leave that up to the hospitals 
and what works for them. Each hospital wants to design its own 
bad debt policy differently. We want to give them maximum 
flexibility. What we are really looking for in our manual is 
genuine and reasonable efforts and good business judgment on 
their part.
    Mr. Greenwood. Do you think that that creates any incentive 
for them to err on the side of more aggressive collections, 
since there isn't perfect clarity?
    Mr. Kuhn. Well, sunshine is a good thing, and I think this 
hearing and some of the news reports have been a good thing to 
kind of help stabilize and try to create community standards 
out there.
    Mr. Greenwood. And as you have said, you have never taken 
any action whatsoever against a hospital for not actively 
pursuing bad debt, isn't that what you said earlier?
    Mr. Kuhn. What we would do is if, indeed, a hospital did 
not have consistent policy--say, they were trying to collect 
Medicare bad debt and they didn't have consistent policy on 
either side--in an audit, we would go back and maybe take back 
some of those Medicare payments that they claimed, but that 
would be the only activity that we could take.
    Mr. Greenwood. As part of the Medicare proscribed 
reasonable and consistent collection efforts, can a hospital 
consider bills of similar amounts differently, based on the 
circumstances of the debtor? For example, if you had a $50,000 
bill for a low-income person who doesn't qualify for charity, 
and a $50,000 bill for a well off professional, must 
collections proceed similarly against both individuals?
    Mr. Kuhn. As long as they are pursuing similar collections 
and it is a part of their indigency policy and they want to 
collect Medicare bad debt, they need to be consistent on both 
sides. However, I would just say that there are ways that they 
could do their policy differently. For example, we all know if 
you legislate, if you set any rule, if you draw a line at, say, 
300 percent of poverty or $50,000, but, say, the person with 
$50,000 is the young college student right out of school, and 
he has got a pretty good job, he is making $50,000, but he 
incurs a huge debt from a medical incident. A hospital could 
simply have a policy that says, ``We have an indigence 
policy,'' but anything that falls outside of that, we are going 
to look at these on a case-by-case basis. We are going to have 
a special committee of the hospital that will include the CEO 
and other folks, and as long as they do that consistently for 
Medicare and non-Medicare patients, we are fine.
    Mr. Greenwood. Do all determinations of indigency for the 
purpose of qualifying a patient for a charity program have to 
be through a means test?
    Mr. Kuhn. No, they don't have to be through a means test, 
although we would like to see--I think what works best for us 
is to see income levels, and if you mean by means test, assets 
test, et cetera, we don't require that. They could use just a 
straight income test.
    Mr. Greenwood. Hospitals have suggested that the anti-
kickback law could interfere with efforts to make widely 
available to patients notice of a hospital charity policy. 
Could posting a hospital's charity policy on a Web site or 
including information about the policy in billing mailings, for 
example, ever run contrary to any HHS rules?
    Mr. Morris. Probably the anti-kickback statute would not 
even be of concern. As I noted in my testimony, discounts to 
the uninsured have very little relevance because they are not 
Medicare and Medicaid patients, and that is not within the 
scope of the anti-kickback statute.
    I did reference a beneficiary inducement prohibition which, 
in order to meet the protections of it, one of the elements is 
not advertising the promotion of those routine waivers, by 
which we believe Congress meant a provider should not be out 
there saying, ``No out-of-pocket for you. We don't bill 
anything but insurance.'' But the public service announcements, 
things that would let the community know that the hospital has 
an indigency policy? You should ask about it. Putting flyers up 
so people can be informed? We don't think that is what Congress 
intended by the bar on advertising. The concern was that people 
should not be encouraged to seek medical care where they are 
told there is no out-of-pocket, and it is being put on the side 
of buses and things.
    Mr. Greenwood. Isn't it true that with very limited 
exception such as prompt pay discounts, for example, the only 
manner by which a discount might be offered to an uninsured 
patient is by means of a hospital's charity program?
    Mr. Morris. Well, a discount can be offered to anyone that 
the hospital, based on its indigency program--and, as has been 
indicated, we believe there should be great flexibility 
provided so they can structure those as they see fit--so a 
prompt pay discount, if it is a bona fide prompt pay discount 
reflecting the fair market value of not having to pursue 
administrative action against the money to seek, that would be 
appropriate--you could construct your indigency policy with a 
great deal of flexibility. It would not need to be restricted 
to a prompt pay.
    Mr. Greenwood. The problem some hospitals are having, I 
believe, is how broad can a charity policy be. The issue turns 
perhaps on the definition of ``financial need'' and what to do 
about the group who is above both Medicaid and the 200 to 400 
percent of the Federal poverty line bracketing many hospital 
policies.
    Mr. Morris. I think the way I would answer that is that a 
good faith determination of financial need resides with the 
hospital, and they can bring whatever community assessment they 
want to that.
    Where I think the fraud and abuse laws could be implicated 
is if there was a blanket waiver of all cost-paying obligation 
to an entire community--no one was expected to pay the co-pays 
and deductibles--which, frankly, would seem to be a rather 
dangerous business proposition, much less a----
    Mr. Greenwood. Suppose they said anyone without insurance?
    Mr. Morris. And they applied that across-the-board?
    Mr. Greenwood. Is that too broad?
    Mr. Morris. I think there would need to be an 
individualized determination; so a blanket statement to anyone 
who does not have insurance does not have to pay co-payments 
would be problematic. There would need to be an individualized 
determination, but the element----
    Mr. Greenwood. Based on things like income and assets.
    Mr. Morris. Income, assets, number of members in the 
family, size of the debt, all those would be variables that 
should be taken into account.
    Mr. Greenwood. Is there some limit? If a hospital said that 
our charity applies to anyone who is above 500 percent, or 700 
percent, or 800 percent of poverty, is there some point at 
which CMS would say, ``Wait a minute, that is too high?''
    Mr. Kuhn. I would say, ultimately, there would be a 
community standard that the auditors could come and look at. 
For example, under Medicare right now, the deductible is $876, 
so if you set the income standard so high that you waive that 
deductible on a consistent basis, I think that would be a bit 
of a problem. One, as Lew said earlier, as a business sense, I 
don't think the hospital would be doing that. But if you set it 
so high to kind of write everything off and collect a Medicare 
bad debt, I think the auditors would have to look at that one a 
little bit differently because, when Congress had the idea that 
there ought to be deductibles and co-payments, for those that 
have the ability to pay, I think there was an intent that 
people should pay those things.
    Mr. Morris. It is worth remembering, too, that when we talk 
about Medicare co-pays and deductibles, we are therefore 
talking about people who have insurance, they are covered by a 
program, as distinct from those who are uninsured, for which, 
from a fraud and abuse standpoint, we have no jurisdiction 
directly. So, if we are talking about waivers of co-pays and 
deductibles for those who have Medicare coverage, what we 
expect is some reasonable assessment of financial need with a 
great deal of flexibility.
    Mr. Greenwood. If CMS reimburses a hospital for a bad debt 
and 10 years later, or 5 years later, some period later, the 
debt ends up being collected by an agency and remitted to the 
hospital, does the hospital have a legal duty to report that to 
Medicare?
    [The following was received for the record:

    Yes. Medicare regulations at 42 CFR  413.80(f) state, 11In 
some cases an amount previously written off as bad debt and 
allocated to the program may be recovered in a subsequent 
accounting period: in such cases the income from there must be 
used to reduce the cost of beneficiary services for the period 
in which the collection is made.'' Unfortunately, there is no 
way to quantify these offset amounts. There is a line on 
Worksheet E, part A of the Medicare cost report for offset 
adjustments, but that is an aggregate amount and a myriad of 
things is combined in the total.

    Mr. Kuhn. In 10 years, I am not sure, but within a 
reasonable amount of time. There is a part of the cost report 
where there is a place to report income. I remember looking at 
this recently, and I can't tell you exactly where, but we could 
follow up in writing to make sure. But there is a way for that 
to be reported back and to indicate it that was once claimed as 
a bad debt but then reported back as income in the cost report.
    Mr. Greenwood. What is the current process by which a 
hospital can seek an advisory opinion on matters such as this.
    Mr. Morris. The advisory opinion process, as set forth on 
our Web site, allows any provider to write in with a proposed 
or actual arrangement if they would like to know whether it 
violates any of our anti-fraud and abuse provisions. Generally, 
the process takes a great deal of give-and-take. Sometimes the 
initial solicitation isn't clear, or in an effort to try to get 
an affirmative response, we may make suggestions to improve or 
reshape the proposal so it will not trigger concerns.
    We have a team of attorneys who work on those. We have a 
substantial backlog because of the size of our staff.
    Mr. Greenwood. Well, that gets me to the next question, 
which is what are the timeframes involved?
    Mr. Morris. It depends a lot on the complexity of the 
request. The timeframes can be anywhere from the 60-day 
statutory obligation, provided that it is a clean request and 
doesn't require any sort of feedback. Some of our requests have 
been pending for over a year. In many cases, it is because we 
ask additional information of the requestor and we have not 
gotten information back for those, we are still waiting for 
additional information.
    Mr. Kuhn. And if I may, Mr. Chairman, if I could just 
reference that as well. This is for the OIG's advisory opinion 
process. But for hospital indigency policies, in order to go 
forward, they need not request an advisory opinion from CMS. In 
fact, we don't give advisory opinions. Hospitals are empowered 
to go out and set their own policies and move forward. And as I 
referenced earlier, the AHA said that 2700 hospitals have 
already signed a pledge that they have already done it. There 
is no way we could do 2700 advisory opinions that fast. They 
are empowered to do it, as they always have been. And so 
earlier there was testimony where people say they were waiting 
6 months for these opinions, et cetera. That is not the case. 
They are empowered to go forward, set their policies, and move 
forward. We are not holding them up. Go do it.
    Mr. Morris. And if I could add one other point germane to 
advisory opinions in this area, we have not seen a great deal 
of requests for advisory opinions on the application of our 
statutes to the uninsured because they don't apply. I am aware 
of only one formal request, for an advisory opinion, and before 
we were able to finalize our response, the request was 
withdrawn in light of the information that the Secretary 
provided earlier this year.
    Mr. Greenwood. What is a UB92 form?
    [The following was submitted for the record:]

    The UB92 was developed over many years by the National 
Uniform Billing Committee to serve as a single simplified 
billing form that is used nationwide by institutional providers 
and payers for handling health care claims. The data elements 
included on the form are identified as being necessary for 
claims processing and meet the requirements for preparing 
Medicare, Medicaid, OCHAMPUS, BCBS, and commercial insurance 
claims. (A copy of the UB92 form and instructions is attached 
for the record.)

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    Mr. Kuhn. Uniform bill. UB92, and it is a bill that is used 
by hospitals in order to bill insurers, Medicare, everybody 
else, and it is an attempt to try to consolidate the 
information so there is standardization in terms of the 
information that moves forward, one, for standardization, but 
hopefully to help hospitals save cost by not having to add a 
lot of different things for this payer or that payer, et 
cetera.
    Mr. Greenwood. Should these be available to any patient, 
Medicaid or otherwise--anyone who wants one, at least?
    Mr. Kuhn. That is a good question. In terms of transparency 
on the bill, I wouldn't see that there would be any barriers on 
that, but I would like to check with staff, and if we could get 
back to you on that one, that would be helpful for me, if I 
could.
    [The following was submitted for the record:]

    No. As previously stated, the UB92 is a claim form used to 
bill insurers for services provided to a patient they cover. 
Providers use many different codes on this claim form to 
identify services and reimbursement for different insurers. 
These codes are meaningless to the patient. Furthermore, these 
forms would not apply to uninsured patients.

    Mr. Greenwood. Okay. Seeing no other colleagues with 
questions--in fact, seeing no other colleagues--we thank you 
for your help this afternoon. We apologize for the length of 
time you have had to spend here, but it is helpful.
    Without objection, the binder of documents will be added to 
the record. The record will be kept open for 30 days, and the 
subcommittee is adjourned.
    [Whereupon, at 7:40 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

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