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Opinion >  Column

Shawn Vestal: Empire lawsuit just one more reminder of surreal hospital pricing

Workmen hang letters for a new sign atop Deaconess Medical Center Tuesday, Aug. 25, 2009. (Jesse Tinsley / The Spokesman-Review)
Workmen hang letters for a new sign atop Deaconess Medical Center Tuesday, Aug. 25, 2009. (Jesse Tinsley / The Spokesman-Review)

At the heart of the lawsuit against the former owners of two Spokane hospitals is a reminder of the freaky, shady way hospitals set prices.

They seem to just … make them up. Or maybe it’s more accurate to say they set them very, very high as a kind of opening bid in a negotiation. The way the pricing scheme works says a lot about the unholy and opaque alliance between health care providers and insurers, one that drives up costs with an elaborate game of hide-the-ball-from-the-patient.

Obamacare hasn’t put much of a dent in that problem, though it has expanded the amount of information available publically – you can now look up prices and be befuddled, instead of simply in the dark. The proposed replacements in Congress, so far as I can tell, don’t bother to try, instead offering more opportunities for consumers to be blindsided and misled.

In the lawsuit filed last month against Community Health Systems Inc. by Empire Health Foundation, hospital pricing schemes come up with regard to charity care: The suit alleges that CHS used inflated pricing to overstate the charity care it provided at Deaconess and Valley hospitals, and that the needy in our community did not get the care the company promised.

That argument is built in part around the use of a “chargemaster,” which is a central pricing document by which hospitals set rates for procedures. Chargemaster rates are not what is actually charged or paid – except for some unfortunate uninsured patients, that is. No, they’re a “high-ball” offer from which a different negotiated price will emerge.

The chargemaster scheme challenges one’s ability to understand or justify, and it serves to drive up prices and keep consumers in the dark. “Becker’s Hospital CFO” report – a publication for hospital financial administrators – refers to the system as “enigmatic.” William McGowan, a 30-year-veteran of hospital administration in California, said they were based on “cockamamie formulas” in an interview with the Wall Street Journal.

Steven Brill, who authored an exhaustive report on American health care pricing for Time magazine in 2013, concluded that the chargemaster system shows how the “the health care market is not a market at all. It’s a crapshoot. … (Patients) have no idea what their bills mean, and those who maintain the chargemasters couldn’t explain them if they wanted to.”

Often, the gulf between the chargemaster and the actual charge is enormous – a recent study published in the journal Health Affairs concluded that an average chargemaster increase of $1 resulted in an average increase in actual payment of 15 cents. You might think that means the chargemasters are meaningless. But a different Health Affairs study concluded that the pricing scheme drives up prices overall, and contributes to sticker shock for patients.

Which brings us back to the lawsuit against CHS. The Tennessee-based company, one of the country’s largest for-profit hospital chains, purchased Deaconess and Valley hospitals from the nonprofit Empire Health Systems in 2008, and part of its agreement was that it would provide as much charity care or more than the regional average, the suit says.

But between 2008 and 2015, according to state reports, CHS fell below the regional average for charity care by $55 million on paper. The suit argues the actual shortfall was much greater.

The reason? Chargemaster inflation.

Empire Health Foundation shows that chargemaster prices at Deaconess and Valley hospitals went up much more than the regional average in those years – an annual increase of 54 percent above regional average at Deaconess, and 141 percent above average at Valley Hospital. Those increases, even if they did not represent what the average patient paid, were used to overstate charity care, the suit says.

The suit essentially argues that CHS did what critics feared it would do back in 2008: Came in, hiked prices, shorted community care, and took the profits home to Tennessee.

CHS argues that it increased charity care spending over the previous ownership, in both dollars and the number of patients served. A company spokesman said in a previous interview with The Spokesman-Review that it was only required by the purchase agreement to exceed previous levels of care and make “reasonable efforts” to exceed the regional average. It has sold the hospitals to Tacoma-based Multicare Health Systems, returning ownership to a regional non-profit.

The way we price and pay for health care is a problem – a big, complicated problem largely built on systems that are antithetical to transparency and effectiveness. No one whose chief purpose is taking care of people fairly would devise the bureaucratic fiction of the chargemaster.

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