03/18/2010 05:12 am ET | Updated May 25, 2011

Health Care Reform Won't Do Much About Huge Hospital Bills

Faith Ozan is furious about her son's hospital bill. She claims that Santa Barbara Cottage Hospital charged nearly 3,000 percent more for drugs used to treat her 24-year-old son's tooth infection than the price listed for the drugs in an antibiotics guide. Even though insurance covered 70 percent of the cost of the treatment, the Ozans are on the hook for thousands of dollars.

"It's just scandalous," said Ozan, a music teacher for kids with autism who lives in Laguna Beach, Calif. "We are struggling to pay bills."

After Ozan sent letters to the hospital, the insurance company and her elected representatives, she learned that the hospital has the right to charge whatever it wants. It's a common practice -- hospitals inflate insured patients' bills to cover the cost of treating Medicare and Medicaid patients and the uninsured.

So now Ozan wants to know: What will health care reform proposals in Congress do about big bills from hospitals?

Directly, almost nothing. Both the House and Senate bills contain provisions to bring some transparency to the billing process by requiring hospitals to make public what they charge for their most common inpatient and outpatient services.

"If hospitals have to publish charges, they'll be ashamed to tell people how much more they're charging," said Tim Jost, a professor and expert on health reform at Washington and Lee University law school. Jost was skeptical that shame would be an extremely effective incentive for hospitals: "They might charge less."

Indirectly, the broader reforms of the proposals -- which would drastically shrink the ranks of the uninsured -- could lower bills by reducing the need for hospitals to shift costs from the uninsured to the insured. "The hope is that hospitals will be better compensated after the reforms," Jost added.

Janet O'Neill, a spokeswoman for Santa Barbara Cottage Hospital, said the hospital would not comment on any individual patient. But she told the Huffington Post that the hospital is under-reimbursed for Medicare and Medi-Cal patients.

"Here at Cottage, we receive 72 percent of cost for every dollar for Medicare. And for Medi-Cal we get 49 cents on the dollar, so what happens to the shortfall there? It needs to be shifted," O'Neill said. "Hospital care is the most expensive way to get your care."

Jost didn't have a ton of sympathy for the hospital.

"I wouldn't be surprised if Medicare doesn't pay them very well but that's no excuse for price gouging," he said. "I don't think this is a problem that's going to be solved very well by the legislation."

Ozan didn't feel the hospital's pain, either, especially not after reading a November article about the hospital's "exceptionally solid profitability," per Fitch Ratings. When she looked up the hospital's tax filings, she saw that the hospital had a surplus of $52.7 million in 2007. It can't be that Medicare patients are causing financial hardship for the hospital, she reasoned: "That idea flies in the face of their enormous profit."

But if price gouging is in fact taking place, health care reform will probably prevent it from bankrupting insured patients the way it does now. Both the House and Senate bills place limits on out-of-pocket costs. The House bill, for instance, limits the amount a family would be asked to spend for its own care to $10,000 a year.

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