04/08/2011 by David Lazarus

There are loony medical bills, and then there’s the bill Robert Hsu was hit with after undergoing heart surgery at Cedars-Sinai Medical Center in January.

Hsu, 84, of Thousand Oaks had an aortic valve replaced on his ticker.  He spent four nights in the hospital.

The bill: $266,567.46.

But is that how much his insurer, Medicare, was billed?  No.  As I recently reported, hospitals routinely inflate their charges – often by huge margins – so they can still make money after contractual discounts are imposed by insurers.

In Hsu’s case, the discount was a hefty $224,819.89.  In other words, Cedars-Sinai shaved about 84% off its bill to meet the terms of its contract with Medicare.

In response to my column, dozens of people like Hsu contacted me to share their experiences of jaw-dropping bills – and the steep discounts that invariably followed.  Cedars was mentioned frequently, but a number of other hospitals also figured in the tales of medical woe.

For example, John Reynolds, 88, of Koreatown injured himself in a fall and spent a week at California Hospital Medical Center.  “There was no special treatment of any kind,” he said.

He was billed $115,409.21 for the hospital stay, or almost $16,500 a day.  But the bill to Medicare was discounted by $101,103.73 – a more than 87% reduction.

Eric Sherman of Tarzana went to Cedars for cancer surgery.  The initial bill was for about $150,000.  It was discounted by about 77% before going to Sherman’s insurer, Blue Shield of California.

The discount system began decades ago when Medicare and other government-run insurance programs demanded reduced prices from healthcare providers.  Private insurers insisted on equal treatment, and soon it became standard practice for medical bills to be heavily inflated to accommodate the contractual discounts.

This is a system that makes a mockery of free-market economics and leaves the consumer in a bewildered state of ignorance when it comes to medical pricing.
“There’s no correlation with what things actually cost,” said Dr. Phil Schwarzman, medical director of the emergency department at Burbank’s Providence St. Joseph Medical Center.  “It’s impossible for patients to know the real cost of treatment.”

And because each insurer cuts its own contract with healthcare providers, the cost to one can be wildly different from the cost to another.  Again, consumers are left out in the cold when it comes to understanding what they’re paying for when they receive treatment.

So what’s the answer?  Obviously this is a complex problem with a lot of moving parts, and I don’t mean to single out insurers when hospitals are clearly complicit in this deliberate effort to obscure medical pricing.