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Passing the buck: Hospitals bilk car insurance companies with cost shifting
Auto insurance companies’ pockets appear to be the latest target for hospitals seeking to mitigate the low payments they receive from public health insurance services like Medicaid and Medicare. A recent study by the Insurance Research Council (IRC) -- a division of the American Institute for Chartered Property Casualty Underwriters (CPCU) -- shows that hospitals may be increasing the charges for treating auto accident injuries, then billing car insurance companies for the inflated charges.
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The IRC estimates that such cost shifting in 2007 resulted in $1.2 billion in excess hospital charges.
David Corum, vice president of the American Institute for CPCU, says cost shifting from health insurance to car insurance companies isn't a recent phenomenon.
"Based on what we have heard informally, it's not a new practice, but it has intensified in the last few years. The federal government, as they've tried to control costs, has left hospitals to seek higher reimbursement from other sources like auto insurance," he says.
The fallout from this practice has the potential to raise your car insurance rates. If the cost of treating car accident victims is inflated and passed on to auto insurance companies, those increases will be passed back to the consumer. In the IRC report, senior vice president Elizabeth Sprinkel notes that "with this study, we now have information on the magnitude of cost shifting and a better understanding of the need for supportive state laws and effective tools that will enable auto insurers to pay hospitals appropriately and help control auto injury claim costs."
Higher medical care costs explained
The IRC study looked at how hospital costs for auto accident injury care varied across states -- specifically, bodily injury liability claims in the 38 states that follow the tort insurance system. (The other 12 states use a no-fault system, which requires people to carry no-fault insurance, so if they are injured in a collision, they are covered under their own policies and don’t file a claim against the other driver.)
One factor that appears to explain varying auto injury care costs, Corum explains, is the number of people in the state who are covered by Medicaid or Medicare or are uninsured.
"The more people covered by Medicaid or uninsured, the higher the auto injury costs were. [Those states] are where hospitals were seeking payment for that auto injury treatment. They have much more incentive and motivation to seek other forms of payment," Corum says.
The study used Maryland as its basis to compare the cost increases across the 38 tort states. Due to a waiver from the federal government, the state regulates hospital reimbursement rates for all purchasers of hospital services, which almost completely eliminates cost shifting -- thereby making the state's costs a starting point for comparison.
The study reports, "In all instances, IRC found that average hospital charges for auto injury claims in Maryland were substantially lower than hospital charges in most other states. IRC also found that the costs of expensive diagnostic procedures performed in Maryland hospitals were much lower than in other states but were more similar to costs in other states when the procedures were performed outside a hospital."
Shifting costs is not a solution
Unfortunately, it's unlikely any other states will be able to follow Maryland's lead.
"If private payers and auto insurers are paying less, then on the other side, Medicare and Medicaid are probably paying more. It has to balance out," says Corum. "To give that authority to Maryland -- it wasn't as big an issue in the '70s, but to extend that to any other state today would have huge budgetary implications" for the government.
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