After three years of negotiation with insurance companies, Oroville Hospital has dropped its charges by 30 percent beginning last December.
Ashok Khanchandani, chief financial officer and executive vice president of Oroville Hospital, said the impact of this price decrease is fairly manageable.
Oroville Hospital was able to lower charges by negotiating with insurance agencies to pay a higher percentage of its client’s hospital bills.
The hospital decreased its charges by 30 percent, but insurance agencies will be paying about as much as they did before with patients paying the rest. For instance, instead of an insurance agency paying 50 percent of a $100 bill, they will be paying 70 percent of a $70 bill, leaving the patient to pay $20 instead of $50. This change is mostly geared toward pharmacy prices and inpatient costs like room and board, said Khanchandani.
“When a hospital lowers its charges, contracts with payers must simultaneously be renegotiated and certain other adjustments made for government payers so overall hospital reimbursement levels can be maintained to continue to cover costs,” said Christina Chavira, communications & media coordinator at Enloe Medical Center.
Khanchandani said hospital prices tend to be higher than actual cost due to insurance contracts.
Some insurance companies pay for a percentage of cost, so when a hospital charges more for a service the hospital will receive more money. As a result, people who have to pay higher deductibles or who still do not have health insurance either forgo treatment or pay high out-of-pocket expenses.
The average cost of health insurance premiums for individuals after tax credits is $102, according to the Department of Health and Human Services. Forty percent of people at 250 percent of the Federal Poverty Level pay more than $1000 for their deductible, which many people cannot afford. According to a 2014 survey, around 50 percent of Americans have less than three months expenses saved in case of emergency, and more than 1-in-4 had no savings at all.
In May 2014, the California Hospital Association released a guide for hospitals to adopt "‘Modern Pricing,’ a voluntary effort by hospitals to adjust their prices (i.e. charges) to a level that is explainable, understandable and reflects the unique cost structure of the hospital’s mission and patient population.”
Oroville Hospital and Adventist Health were two of 35 hospital companies that participated in the creation of the modern pricing system.
Feather River Hospital, one of 19 Adventist Health hospitals, is looking to adjust its prices as well.
“We are in the process of negotiating our contracts with various insurance companies, and have been working on this issue for several months. This is a process that all California hospitals are pursuing, and is being done as contract due dates dictate,” said Maureen Wisener, assistant vice president, foundation & communications at Feather River Hospital. “This is a process that all California hospitals are pursuing, and is being done as contract due dates dictate.”
Chavira said that Enloe has not begun the process for the modern pricing model but she stated that Enloe strives to be affordable to all members of the community.
“Enloe Medical Center offers more than state and federal required levels of community assistance and payment options, and pays significant attention to the uninsured,” Chavira said in an email.
“I think you will see over the years, more and more hospitals moving in this direction,” said Khanchandani. “We hope more hospitals will follow suit because it’s the right thing to do.”
By Samantha O'Reilly