From the Reuters wire: news that for-profit hospitals are "struggling" to collect debts from patients. The story focuses on for-profit hospitals because Reuters is a financial wire and addresses the needs of investors, but I have no doubt that America's non-profit hospitals (which comprise about 85 percent of all private hospitals) are facing the same situation.

Hospitals have long complained about uninsured patients in the emergency rooms who don't pay their bills, and there is truth in their position: federal law, EMTALA, requires them to "stabilize" anyone who walks in the door. This, and other state and federal policies have caused a bizarre price effect. Hospitals' list prices for treatments are known as the "chargemaster", and chargemaster prices are completely divorced from reality. Remember that when you hear about uninsured patients receiving bills for tens of thousands of dollars. The purpose of these ridiculous bills (which 70 percent of recipients don't even begin to pay) is not to bring in cash, but to prove to state and federal governments that Medicare and Medicaid get massive discounts, as required by law. 

Furthermore, suppose Medicaid pays a hospital $3,000 for a broken leg, Medicare pays $4,000, private insurers (on average) pay $5,000, but the chargemaster rate (billed to the uninsured patient) is $10,000. (It's actually about a hundred times more complicated than that, because government forbids hospitals from charging for "episodes of care" but demans absurdly detailed itemized bills). Well, the hospital can carry the upaid bill around to various levels of government asking, "Who's going to pay this $10,000 bill?", when the real cost is a lot less.

Reuters is bringing up a new problem: the unpaid bills in question are not from uninsured patients, but insured patients with consumer-directed health plans. Even though these patients understand their deductibles, they resist paying the bills generated by the negotiated contracts between their health insurers and hospitals. And good for them, I say.

I have heard many stories of patients with consumer-directed health plans who cannot, despite much effort, get any indication of the price of an operation from either their insurer or their hospital before they are admitted.  How dare the hospitals then simply send an invoice and expect patients to pay it without question?

Every other enterprise I know has figured out how to manage individual customers' credit risk: quote a price and get paid up front. Let the banks manage the credit risk. After all, that's a bank's comparative advantage - not a dry cleaner's, furniture store's, car rental agency's ... or hospital's!

So, until the hospitals figure out that patients deserve to be told when they are admitted, "the cost to you will be $1,254.83. Will that be Visa, MasterCard, or American Express?", I say: "bring on the pain."