Confusing hospital bills driving growth in bad debt

David Silverstein's frustrations trying to understand the hospital charges for his daughter's sports injuries drove him to consider going to court.

He had the money to pay.

He simply refused because he couldn't get a Providence Health & Services hospital in Spokane, Wash., where his daughter was away at college, to explain the prices in her bills.

Silverstein was no ordinary consumer. The Denver-area management consultant had clients at more than a dozen hospital systems, including Mount Carmel Health System in Ohio and BayCare Health System in Florida. If anyone could navigate the system, it should have been him.

But each time his daughter's injuries required an emergency hospital visit — a concussion in a basketball game, a dislocated finger—the former Navy officer became more flummoxed at how flawed the billing system seemed.

"I eventually got on the phone with the hospital CFO," Silverstein recalled. "I said, 'What I really want is for you to sue me.' " If the hospital sued, at least the hospital's prices would be disclosed in court.

Officials at the Providence Health, which never sued him, acknowledged the bills were too complicated and said the hospital is working on the industrywide problem.

"The medical billing experience has to take on a more patient-centered philosophy," said Kathleen Dowling, director of revenue-cycle business operations at Providence St. Joseph Health, the parent system of Providence Health. "To help put the consumer at the center of this, we have patient focus groups and have done research that has informed our improvements."

Providence even became a pilot site for HHS' Bill You Can Understand design challenge last year. The program is evaluating ideas for designing easier-to-understand billing procedures.

Silverstein's case is unusual in that he had the resources and moxie to fight. He has even launched an organization, BrokenHealthcare.org, which helps patients obtain information on hospital prices and supports those who refuse to pay bills they don't understand.

He hopes to channel growing popular anger about indecipherable medical bills into a movement for change. People don't like paying bills they don't understand or didn't expect, whether they have the money or not.

"People who understand their obligations going in are more likely to pay," said Richard Gundling, vice president of the Healthcare Financial Management Association, a professional society for hospital finance officials. "If I felt like I got tricked, I'm not going to pay."

Confusion and anger over high hospital charges has drawn considerable attention from major mainstream media in recent years. The New York Times' "Paying Till It Hurts" series and Steven Brill's 2013 "Bitter Pill" cover story for Time magazine, which were mostly about high healthcare costs, heightened public scrutiny of the inexplicably high charges contained in most hospital bills.

Research by McKinsey & Co. in 2009 found nearly 17% of people who owed money for care said confusion over their bill was part of the reason. Fully 40% of respondents said their inability to easily arrange a payment plan was behind their not paying a bill.

"The prevailing assumption is that consumers are unable or unwilling to pay their health care bills," the report said. "Our consumer research suggests otherwise. The lack of financing options, inefficiencies in billing practices, and consumer confusion are all major drivers of nonpayment."

A 2014 TransUnion Healthcare survey found more than half of insured patients didn't understand their bills. Almost two-thirds were surprised by what they owed.

The fact many patients did not pay their bills didn't matter as much to providers until recently. Providers have long had to deal with bad debt from uninsured patients. But now, they're starting to see a rise in unpaid bills by patients who have insurance.

That's due in large part to the rise of high-deductible plans, which now cover over 30% of people with employer-based coverage. "Ten years ago the patient obligation was low single digits in terms of overall revenue," said Michael Rawdan, senior director of revenue cycle at Boise, Idaho-based St. Luke's Health System. "Today, it's closer to 20%. The financials ... really do depend on self-pay performance."

The average deductible was about $1,500 in 2015, more than double what it was in 2006, said Sara R. Collins, who led a study on healthcare spending last year at the Commonwealth Fund. "What we've seen is both an increase in the proliferation of deductibles as well as a growth in the size of deductibles," she said.

Providers now fear another surge in uncompensated care. Hospitals have become the largest creditors in some markets. But their ability to collect that debt has been hampered by antiquated collection systems that were built for billing insurers, not consumers.

Hospitals have begun searching for ways simplify billing for average consumers. Some of the new collection tools are coming from the e-commerce world, where business has spent the past decade perfecting ways for customers to easily spend money. The growth of companies such as Amazon and Uber and the boom in online banking shows consumers are increasingly comfortable making financial transactions electronically—as long as it's easy.

Healthcare, however, is only beginning to make it easier for patients to pay bills. Some companies are designing products that distill confusing charges from different providers to a bottom-line cost, while still allowing people to drill down into the specifics. Others are helping people set up payment plans without having to negotiate with anyone on the phone.

Insurers are also starting to put information online about the likely out-of-pocket costs before patients undergo a procedure or test. Hospitals say that's a critical part of the solution, because they don't know everything about the patient's insurance—such as whether they have met their deductible yet.

The HFMA says there's more to helping people understand bills than creating an online portal. Gundling says hospitals need to improve training for billing department employees so they can talk with patients about costs.

Unlike most other industries, healthcare providers deal with multiple payers. That means insurers will need to be part of the solution. “The fix will take advances in technology, coordination among the government, providers and the health insurance industry, and a tremendous investment,” Providence's Dowling said.

There's another reason providers have a growing interest in making it easier for patients to pay: patient satisfaction. Surveys routinely say confusion over costs is a big turnoff.

There are, of course, other reasons patients have trouble paying bills, from higher cost out-of-network charges to the fact that most Americans don't have enough savings for medical costs.

But confusing bills don't help. Silverstein, of BrokenHealthcare.org, is urging others not to pay bills until the hospital gives them a price list. If “people are getting these bills and they are not paying," Silverstein said, "the hospitals have a big problem."