Humana Under Fire for High Markups

Humana Hospitals pays $8.35 for a pair of crutches and then bills patients $103.65 for them. Rubber arm pads for the crutches, which cost the hospital 90 cents, add another $23.75 to the patient’s bill, and the 71-cent rubber tips cost the patient $15.95.

“The now-famous $640 Pentagon toilet seat pales in the face of some of these hospital charges,” Rep. John Dingell (D-Mich.) charged at a congressional hearing Thursday after reeling off a list of supplies routinely marked up by multiples of 10 or more at Humana hospitals.

Such markups for supplies hidden in hospital bills came under fire as Dingell and investigators from the House Energy and Commerce Committee’s oversight subcommittee examined pricing policies at 77 Humana-owned hospitals nationwide, including five in California.

While they singled out Louisville-based Humana, one of the largest for-profit health-care providers, investigators said its policies are typical of hospitals across the nation. In a practice called cost shifting, hospitals are transferring most overhead costs to items less flashy than the cost of a room, resulting in $9 Tylenol tablets and $455 nursing bras.

Humana Chairman David A. Jones told the panel that supply costs should not be viewed in isolation because they are adjusted to reflect the total cost of patient care at a hospital.

Both sides agreed that hospital pricing is a complicated business, made tougher today by efforts to cap rising medical costs as well as financial pressures that are closing hospitals.

In recent years, big insurers have negotiated with hospitals to lower room costs in an effort to bring down overall medical costs. In response, hospitals have shifted overhead costs to supplies. As a result, the cost of ancillary supplies and services account for about 80% of hospital revenues, while room costs represent only about 20%, a reversal of the ratio 20 years ago.

Rep. Thomas J. Bliley Jr. (R-Va.) suggested that hospitals use low room rates as “loss leaders” to encourage patients to enter and then charge them excessive amounts for supplies once they are captive customers.

“If hospitals are free to mark up ancillary items to meet revenue goals, is any cost containment effort on the part of the government or of private payers likely to succeed?” Bliley asked.

The staff study of billing at Humana’s 77 U.S. hospitals found that markups on supplies averaged 127%. But far higher markups were found for some items to which patients pay the least attention, said Bruce F. Chafin, the staff’s chief investigator.

For instance, patients at Humana’s Suburban Hospital in Louisville pay $44.90 for a container of saline solution that costs Humana 81 cents. A heating pad that costs Humana $5.74 at its San Leandro, Calif., hospital is charged to patients at $118. An esophagus tube costs the same hospital $151.98, and patients are billed $1,205.50.

The study found that the Bay Area hospital had the highest average markups of any Humana hospital in the country. Humana hospitals in Huntington Beach, West Anaheim and Westminster were also among the six hospitals with the highest average markups.

In his testimony, Humana’s Jones said supplies carry not just their own purchase price but the cost of running the hospital, from paying staff to providing free care to indigents. He also said supplies make up for items charged below their cost, particularly rooms.

Jones said Humana hospitals are considered to be among the most competitively priced in the nation. He also acknowledged that the company posted a record profit for the fiscal year that ended in August.