The long, slow death of cost-shifting

Looked at one way, cost-shifting has always been an odd practice--after all, on the surface it doesn't make much sense to charge those with the least means the highest prices for services. But rightly or wrongly, the hospital business has muddled along this way, charging premium prices to the uninsured in an effort to make up for the discounts health plans receive.

Over the last several years, however, state legislatures and courts have started deciding that this practice isn't fair. Increasingly, legal decisions and new laws have set into place rules that force hospitals to give uninsured patients substantial discounts. Some hospitals are giving discounts off of their gross charges (often in the 25 to 30 percent range), while others are being required to offer needy patients the lowest fees. Many are being forced to do so retroactively when they lose in court:

*  Catholic Healthcare West agreed to give uninsureds a 35 percent refund on their bill after settling a 2006 class action suit.

*  Allina Hospitals & Clinics and Fairview Health Services settled a suit last year by agreeing to discount the outstanding balances of uninsured patients seen between February 1999 and August 2005 by 25 percent.

*  St. Louis-based BJC Healthcare, a 13-hospital system, has agreed to give a 25 percent discount to all hospital patients without insurance, as well as giving some past patients partial refunds or bill reductions. (More on this in today's issue.)

This, to me, looks like the beginning of the end for the entire cost-shifting approach to hospital pricing. While offering patients a quarter or a third off their fees still keeps the existing fee structure intact (in theory), it also chips away at it. And of course, once hospitals are required to charge uninsured patients only what they charge their highest-volume customers, the whole rationale for financing health services has to change.

Given the major changes this will spawn in hospital operations, I imagine that this will eventually have a significant impact on how health plans negotiate with hospitals. Smart health plans now will ahead to new deals that don't assume a bare cost plus minimum margin.

Honestly, I think it's for the best that hospital charges are normalized to shift the burden away from the poor and uninsured, as charging big bucks to those who can't pay them is a situation that can only cause pain for both sides. Still, I don't think the transition is going to be pretty. - Anne