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How did hospital bills get so complicated?

Medicare began paying hospitals predetermined flat fees for groups of services and procedures to control costs

As recently as 1969, delivering a baby in Morristown, N.J., could cost parents as little as $235.65 — a flat, all-inclusive rate for a three-day hospital stay and doctors' fees.

I know this because that was the price on the receipt from my birth at Morristown Memorial Hospital. My father recently found it in a pile of old papers.

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FOR THE RECORD:

Hospital bills: A Healthcare Watch column about hospital bills on the Business page of the March 23 Section A said Chris Duke was the director of the Altrium Institute's Center for Consumer Choice in Health Care. The organization is called the Altarum Institute. —
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The minimal charge for the delivery stood out, though it's hardly surprising that prices have risen considerably since then. Today, the total cost of giving birth can run to more than $37,000 for an uncomplicated delivery, and nearly double that for a cesarean section, according to a recent UC San Francisco study.

More remarkable, I thought, was the hospital paperwork from 1969. It looks more like a receipt you'd get from a hardware store than from a hospital.

The simple, one-page document lists my parents' names, the total cost of care and just three options for payment: cash, check or money order. There were no co-pays, co-insurance or deductibles to meet. My parents didn't receive an onslaught of bills once they left the hospital.

That's in stark contrast to the experience that Tori Rivapalacio had after the birth of her son, Diego, just over a year ago.

The 33-year-old employment attorney from San Diego says she has a folder of paperwork a few inches thick. She tried to make sense of the charges, she said, but couldn't, and ultimately gave up.

"You just throw up your hands," Rivapalacio said, referring to the list she got of mysterious medical codes and charges. "You can't even dispute them because they're so confusing."

The contrast between the paperwork from my birth 46 years ago and the volume of confusing bills we get today raises the question: What happened to the hospital bill?

Billing has evolved continually over the last century, but rising costs and changes in insurance reimbursement during the 1980s — still central themes in today's healthcare market — take center stage in this story.

National healthcare spending rose sharply during the 1980s, and inflated hospital charges were a major cause. Hospitals submitted bills for services based on their stated costs, and both private insurers and the government simply paid up.

"Charges kept going up and up. During that period, charges became almost entirely divorced from costs," a problem that persists today, said Tomas Getzen, executive director of Philadelphia-based International Health Economics Assn.

In an effort to control costs, Medicare changed the way it paid for healthcare starting in 1983. Instead of reimbursing hospitals for individual line items, it paid predetermined flat fees for groups of services and procedures, such as treating heart failure.

Private health insurance companies followed Medicare's lead and started paying similarly.

This requires hospitals to match every treatment and procedure to one of tens of thousands of codes used to bill insurers. The more procedures and codes that hospitals can justify on the bill, the higher their payment.

"It's become an incredible science to figure out how to bill for the most things possible," said Leah Binder, chief executive of the Leapfrog Group, a Washington, D.C., nonprofit that surveys hospital quality.

When you consider that roughly 97% of all inpatient bills are paid for by insurance today, it's not hard to see why hospitals have spent little time worrying about whether you, the patient, can easily understand them. Or why a hospital bill is often many pages long.

"The bills were really designed for wholesale customers — insurance companies, Medicare and Medicaid programs, which have sophisticated systems on the other end to look at and analyze the codes," said Richard L. Gundling, vice president with the Healthcare Financial Management Assn.

Although patients have historically been an afterthought, that is starting to change. Experts point to several trends that could limit the growth of the bills that hospitals send you in the future.

• Changing the way that providers are paid: New payment models are being tested as a way to improve quality and hold down healthcare costs.

These include reimbursing doctors and hospitals based partly on the safety, success and effectiveness of care delivered, rather than by volume. The government recently announced its goal to tie 50% of Medicare payments to quality by 2018.

• Bundled pricing: Some new forms of pricing may lead to simpler billing for patients. That's possible by lumping together all charges associated with knee replacement or heart surgery, for example, often including pre- and post-hospital care.

Patients who choose providers who have agreed to these simplified arrangements typically save money and avoid billing hassles.

• High-deductible plans. There has been a dramatic shift to high-deductible health plans, both for people who get insurance at work and those who buy coverage on their own.

"Because consumers are now paying more, there is greater pressure on healthcare providers" to spell out in plain English what consumers are paying for, said Chris Duke, director of the Altarum Institute's Center for Consumer Choice in Health Care.

Experts say hospitals realize that patients are more likely to pay bills they understand, and many are now working to simplify paperwork.

According to Binder of the Leapfrog Group, there is a "tsunami of change" underway in healthcare. "It's creating a new customer in healthcare that hospitals didn't actually know. It's called the patient."

healthcare@latimes.com

Twitter: @lisazamosky

Zamosky is the author of "Healthcare, Insurance, and You: The Savvy Consumer's Guide."

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