Illness and medical bills linked to nearly two-thirds of bankruptcies

Illness and medical bills linked to nearly two-thirds of all bankruptcies
Harvard study finds 50 percent increase from 2001
Most of those bankrupted by illness were middle class and had insurance

Medical problems contributed to nearly two-thirds (62.1 percent) of all bankruptcies in 2007, according to a study in the August issue of the American Journal of Medicine that will be published online Thursday. The data were collected prior to the current economic downturn and hence likely understate the current burden of financial suffering. Between 2001 and 2007, the proportion of all bankruptcies attributable to medical problems rose by 49.6 percent. The authors’ previous 2001 findings have been widely cited by policy leaders, including President Obama.

Surprisingly, most of those bankrupted by medical problems had health insurance. More than three-quarters (77.9 percent) were insured at the start of the bankrupting illness, including 60.3 percent who had private coverage. Most of the medically bankrupt were solidly middle class before financial disaster hit. Two-thirds were homeowners and three-fifths had gone to college. In many cases, high medical bills coincided with a loss of income as illness forced breadwinners to lose time from work. Often illness led to job loss, and with it the loss of health insurance.

Even apparently well-insured families often faced high out-of-pocket medical costs for co-payments, deductibles and uncovered services. Medically bankrupt families with private insurance reported medical bills that averaged $17,749 vs. $26,971 for the uninsured. High costs – averaging $22,568 – were incurred by those who initially had private coverage but lost it in the course of their illness.

Individuals with diabetes and those with neurological disorders such as multiple sclerosis had the highest costs, an average of $26,971 and $34,167 respectively. Hospital bills were the largest single expense for about half of all medically bankrupt families; prescription drugs were the largest expense for 18.6 percent.

The research, carried out jointly by researchers at Harvard Law School, Harvard Medical School and Ohio University, and supported by a grant from the Robert Wood Johnson Foundation, is the first nationwide study on medical causes of bankruptcy. The researchers surveyed a random sample of 2,314 bankruptcy filers during early 2007 and examined their bankruptcy court records. In addition, they conducted extensive telephone interviews with 1,032 of these bankruptcy filers.

Their 2001 study, which was published in 2005, surveyed debtors in only five states. In the current study, findings for those five states closely mirrored the national trends.

Subsequent to the 2001 study, Congress made it harder to file for bankruptcy, causing a sharp drop in filings.  However, personal bankruptcy filings have soared as the economy has soured and are now back to the 2001 level of about 1.5 million annually.

Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard, commented: “Our findings are frightening. Unless you’re Warren Buffett, your family is just one serious illness away from bankruptcy. For middle-class Americans, health insurance offers little protection. Most of us have policies with so many loopholes, co-payments and deductibles that illness can put you in the poorhouse. And even the best job-based health insurance often vanishes when prolonged illness causes job loss – precisely when families need it most. Private health insurance is a defective product, akin to an umbrella that melts in the rain.”

“For many families, bankruptcy is a deeply shameful experience,” noted Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard and a study co-author.  Professor Warren, a leading expert on personal bankruptcy, went on:  “People arrive at the bankruptcy courts exhausted – financially, physically and emotionally.  For most, bankruptcy is a last choice to deal with unmanageable circumstances.”

According to study co-author Dr. Steffie Woolhandler, an associate professor of medicine at Harvard and primary care physician in Cambridge, Mass.: “We need to rethink health reform. Covering the uninsured isn’t enough. Reform also needs to help families who already have insurance by upgrading their coverage and assuring that they never lose it. Only single-payer national health insurance can make universal, comprehensive coverage affordable by saving the hundreds of billions we now waste on insurance overhead and bureaucracy. Unfortunately, Washington politicians seem ready to cave in to insurance firms and keep them and their counterfeit coverage at the core of our system. Reforms that expand phony insurance – stripped-down plans riddled with co-payments, deductibles and exclusions – won’t stem the rising tide of medical bankruptcy.”

Dr. Deborah Thorne, associate professor of sociology at Ohio University and study co-author, stated: “American families are confronting a panoply of social forces that make it terribly difficult to maintain financial stability – job losses and wages that have not kept pace with the cost of living, exploitation from the various lending industries, and, probably most consequential and disgraceful, a health care system that is so dysfunctional that even the most mundane illness or injury can result in bankruptcy. Families who file medical bankruptcies are overwhelmingly hard-working, middle-class families who have played by the rules of our economic system, and they deserve nothing less than affordable health care.”

A copy of the study is available at http://www.pnhp.org/new_bankruptcy_study

As Medical Costs Soar, The Insured Face Huge Tab

Wall Street Journal, November 29, 2007

MAXED OUT
As Medical Costs Soar, The Insured Face Huge Tab

By JOHN CARREYROU
November 29, 2007; Page A1

MERCED, Calif. — One day in late July, Jim Dawson happily returned home. He had spent the previous five months in the hospital battling an infection that nearly killed him. The phone rang shortly after Mr. Dawson and his wife, Loretta, entered their house.

It was the hospital. California Pacific Medical Center was calling to remind the Dawsons that they owed it $1.2 million.

Jim Dawson survived a catastrophic illness only to face a $1.2 million medical bill.

Mr. Dawson, 61 years old, had health insurance through his employer, but had maxed out his plan’s $1.5 million lifetime cap halfway through his long hospital stay. In addition to the bill from CPMC, Mr. Dawson owed tens of thousands of dollars more to scores of doctors who were involved in his care. Mr. Dawson and his wife’s combined assets totaled a fraction of their medical debt.

“I had never thought in a million years that anything like that could ever happen,” says Mrs. Dawson.

As spending on health care has climbed to almost $2 trillion a year, or 16% of the U.S. economy, the number of Americans burdened with massive medical bills has soared as well. According to a 2005 survey by the Commonwealth Fund, an estimated 34% of adults aged 19 to 64 face problems with medical bills or have accrued medical debt. A majority of those people — 62% — had health insurance, the survey found.

Million-dollar medical bills like Mr. Dawson’s, while still unusual, are becoming more common as insurance policies once thought to provide catastrophic coverage prove inadequate when it comes to high-cost illnesses.

Part of the problem: Even as medical progress and new technologies raise health-care costs, health plans have been slow to raise their caps. Mr. Dawson’s $1.5 million cap was relatively generous by today’s standards. The Segal Company, an employee-benefits consulting firm, says the average health-plan cap among companies it advises is $1 million a person — the same as it was in the 1970s, when the purchasing power of $1 million was the equivalent of nearly $6 million today.

Another issue is the widespread practice of bill padding by hospitals and other health providers. While hospitals say bill padding is their only defense against the aggressive cost-reduction efforts of insurers and government programs, the end result is that individuals can, with little warning, be left stuck with wildly inflated medical bills.

For instance, CPMC charged Mr. Dawson $791 for stockings designed to improve blood circulation. The same pair can be purchased on the Internet for as little as $12.

Allan Pont, CPMC’s chief medical officer, acknowledges that the charges on Mr. Dawson’s bill are “Disneyland numbers” that health insurers and government programs like Medicare and Medicaid never pay. But he says they reflect the hospital’s operating costs, such as paying for doctors, nurses and medical equipment, as well as markups to compensate for the fact that CPMC collects only a fraction of what it bills every year.

Mr. Dawson’s health calamity, and the resulting $3 million in health-care bills it generated, was due to a staph infection, a bacterial skin infection that is usually easily cured if caught early. But Mr. Dawson’s condition was missed by various doctors and spread throughout his body.

For 15 years, Mr. Dawson worked for oil refiner Valero Energy Corp. and its predecessor companies, selling gasoline products to gas stations across California. Big and burly — and with a deadpan sense of humor — Mr. Dawson spent much of his work life on the road.

In late 2005, Mr. Dawson noticed strange dry spots on his right arm. Over the course of the next nine months, they grew into big calluses and Mr. Dawson took to hiding them under bandages. He felt OK, but the calluses were unsightly.

In September 2006, Mr. Dawson went to see his primary-care physician, Patrick Golden, in Fresno, Calif. Dr. Golden referred him to a dermatologist, who gave Mr. Dawson an injection. The calluses disappeared within days.

But Mr. Dawson’s health began to sharply deteriorate. In mid-November 2006, he was on a business trip in Victorville, Calif., when excruciating back pain woke him in the middle of the night. He checked out of his hotel in his pajamas and drove home to Merced, a small middle-class city 110 miles southeast of San Francisco.

After lying in bed for two days, Mr. Dawson didn’t feel any better and couldn’t move his right arm. Worried, Mrs. Dawson decided to take her husband to the emergency room at Emanuel Medical Center in Turlock, 30 minutes away. Mr. Dawson was hospitalized there, but his wife checked him out after three days because she says the hospital seemed unable to determine what was wrong and she felt he wasn’t being properly cared for.

John Gilbert, a spokesman for Emanuel Medical Center, says Mr. Dawson was examined by an internist, who consulted with four other specialists. He says the hospital diagnosed Mr. Dawson with cellulitis of the hand, disintegrating back discs, chronic kidney disease, acute renal failure and gout, a form of arthritis characterized by sudden attacks of pain and tenderness in joints. No one realized it at the time, but all were likely consequences of the staph.

“We feel that he was provided good care,” Mr. Gilbert says. Emanuel billed Valero’s health plan $31,159.75 for the three-day stay. Using its bargaining leverage as a large plan, Valero’s health plan negotiated the amount it paid down to $20,339.74.

Mr. Dawson returned to see Dr. Golden, who only diagnosed him with gout. Dr. Golden gave him painkillers for his back and an anti-inflammatory drug to reduce swelling in his arm. But Mr. Dawson continued to feel ill and lost his appetite. In just a few months, he went from 305 pounds to 223 pounds, his skin turned grayish and he continued to experience terrible back pain.

In February 2007, Mr. Dawson collapsed at a convention in Las Vegas. Mrs. Dawson and their 25-year-old son, Noel, drove 450 miles from Merced to pick him up. Mr. Dawson went back to see Dr. Golden, but he says Dr. Golden continued to maintain that his condition wasn’t serious and told him to return for a checkup in 90 days. Reached at his office in Fresno, Dr. Golden declined to comment.

With her husband looking sicker by the day, Mrs. Dawson grew frantic. Thinking Mr. Dawson was suffering from a spine infection, she called her dentist, who she knew had back problems. He recommended going to the spine center at Seton Medical Center in Daly City.

On March 6, Mr. Dawson was admitted to Seton delirious and screaming. It was there doctors realized he had a staph infection that had spread through his bloodstream and invaded his entire body. His organs were failing and he was going into septic shock. A nurse told Mrs. Dawson her husband was very sick and might die.

Doctors at Seton began treating Mr. Dawson with massive doses of antibiotics but surmised they wouldn’t be able to cure him unless they removed Mr. Dawson’s pacemaker, which was encased in bacteria. Mr. Dawson had been carrying the device in his chest since 1995.

The surgery didn’t go well. One of the pacemaker’s two leads, wires that connect the device to the heart, broke off as it was being extracted and remained stuck in Mr. Dawson’s right ventricle. On April 20, Mr. Dawson was transferred to CPMC in San Francisco, a leading cardiac hospital in the region.

The Dawsons wouldn’t find out until later, but the six-week stay at Seton was costly. The hospital billed Valero’s health plan $1,135,633.84. After negotiating a $283,908.46 discount, Valero’s plan paid $851,725.38. More than half of Mr. Dawson’s insurance had been used up. A spokeswoman for Seton declined to comment about Mr. Dawson’s case, citing the hospital’s patient-privacy policy.

At CPMC, Mr. Dawson was operated on again. The plan was to remove the broken pacemaker lead and replace part of Mr. Dawson’s infected aortic valve with the valve of a pig. Doctors also needed to repair another heart valve that had been damaged by the infection. Mrs. Dawson was told the odds were very low that her husband would survive the extremely complex operation.

But the surgery was a success, and Mr. Dawson pulled through.

Over the next few weeks, Mr. Dawson fought through various other complications and began to recover. Then on June 18, he went into cardiac arrest during a rehabilitation session. He was rushed into intensive care and revived. Doctors decided he would need another heart operation to implant a defibrillator.

On June 29, Mrs. Dawson says she was leaving the hospital when she was ushered into a small conference room by Ema Beronilla, an employee from CPMC’s financial office. She says Ms. Beronilla told her that her husband’s insurance had run out and showed her a sheet of paper indicating that they owed the hospital more than $1 million. Valero’s health plan had just paid CPMC $553,727.12 for Mr. Dawson’s care through May 19 and informed the hospital that he had maxed out his policy. Any additional bills were Mr. Dawson’s responsibility.

A spokesman for CPMC, Kevin McCormack, confirms the meeting but says Ms. Beronilla was merely trying to help Mrs. Dawson understand her financial options, not pressuring her to pay the bill.

Ms. Beronilla handed Mrs. Dawson forms for hospital financial assistance and for Medi-Cal, California’s Medicaid program. The hospital bill was equivalent to several times the Dawsons’ assets, which consisted of equity in their house and a retirement-savings plan. Mrs. Dawson implored Ms. Beronilla not to tell her husband about the bill because she worried it would affect his still-fragile health.

Three days later, while Mrs. Dawson was away, a man came by Mr. Dawson’s room and briefed him on the financial situation. Mr. McCormack, the hospital spokesman, says that Ms. Beronilla relayed Mrs. Dawson’s request to her supervisor and that she doesn’t know who informed Mr. Dawson. “We regret that this happened,” he says. Mr. Dawson, always good-humored, took the news in stride.

Later that day, a representative for Health Care Legal Services, an organization CPMC employs to coach uninsured patients on their financial options, called Mr. Dawson’s room to enroll him in Medi-Cal. Mrs. Dawson answered the phone and declined, thinking her husband’s income was too high to qualify him. She also wanted to review their options with an attorney.

HCLS sent the Dawsons a letter stating that it was returning their account to CPMC “so that they can initiate their collection efforts.” Under intense emotional stress, Mrs. Dawson says she interpreted the letter as a threat. An official for HCLS says it wasn’t trying to intimidate the Dawsons but merely to educate them about available assistance programs and help them apply for them.

On July 9, a defibrillator was successfully implanted in Mr. Dawson’s chest. While her husband resumed his rehabilitation, Mrs. Dawson drove to Palo Alto to see Michael Gilfix, a lawyer who specializes in estate planning. Mr. Gilfix told her Medi-Cal might be willing to cover the hospital bill retroactively. But to qualify, their assets, excluding their home, had to be less than $3,000. That meant they would either have to spend down their retirement-savings plan or donate the money in it to their son, giving up their retirement cushion.

In addition, Medi-Cal would require that the Dawsons contribute any monthly income beyond $900 to their medical bills. Mrs. Dawson decided to rule out Medi-Cal because, with a mortgage on their house, she says there was no way they could live on that small an income.

Valero continued to pay Mr. Dawson his full-time salary until state disability kicked in — beyond the period it was obligated to, according to the Dawsons. Mr. Dawson was also told his job would be waiting for him, even though Valero could hire someone to replace him after six months, he says. Valero declined to comment on the case, citing its employees’ privacy.

CPMC discharged Mr. Dawson on July 26, and Mrs. Dawson drove her husband home. As they entered their house, Mr. Dawson lost his balance and fell. Mrs. Dawson was trying to help him up when the phone rang.

It was Ms. Beronilla, the hospital’s financial counselor. Mrs. Dawson says Ms. Beronilla reproached her for declining to meet with HCLS and fill out the Medi-Cal enrollment forms, and told her the hospital would start billing immediately. With her husband still splayed out on the floor, Mrs. Dawson remembers replying: “Do what you have to do.”

Ms. Beronilla declined to comment. Mr. McCormack, the CPMC spokesman, confirms the phone call. He says Ms. Beronilla called the Dawsons at home only because she had unsuccessfully tried to get in touch with them before they left the hospital. The purpose of the call, Mr. McCormack adds, was merely to see whether the Dawsons had filled out the hospital’s financial-assistance forms.

Effectively uninsured with his Valero coverage exhausted, Mr. Dawson still needed close medical attention. Fortunately, he had served in Vietnam so he was eligible for care from the Department of Veterans Affairs. Mr. Dawson enrolled in the VA system and began attending physical-therapy sessions at a VA hospital in Fresno three times a week. But the VA wasn’t obliged to cover his previous medical bills.

Hoping to stall CPMC, Mrs. Dawson sent the hospital two checks for $30. Bills were also piling up from doctors, so Mrs. Dawson also sent them small sums to keep them at bay. The Dawsons weighed whether to declare personal bankruptcy.

Before they made any decision, Mrs. Dawson asked to see an itemized bill from CPMC. When she received it, she was shocked by how much the hospital had marked up inexpensive items like the stockings. CPMC charged Mr. Dawson between $2,225 and $6,675 a night for an oxygen mask to help him breathe while he slept. After he was discharged from the hospital, the Dawsons rented one from a medical-supply store for $250 a month. Mrs. Dawson resolved to try to negotiate the bill drastically down.

“I do not deny that our charges look insane,” says Dr. Pont, CPMC’s chief medical officer. But all hospitals operate the same way, he says. “It’s the reality of the industry.”

Once its operating costs are factored into an item’s charge price, Dr. Pont says the hospital marks up that price by threefold to account for the fact that it only collects on average a third of what it bills in any given year. Although the nonprofit hospital reported $123.7 million in operating income last year, Dr. Pont says the money goes to charity care, cutting-edge medical equipment and new facilities to comply with the state’s stringent earthquake-safety guidelines. CPMC says it dispensed $5 million in charity care last year and gave another $6 million to community clinics and health centers.

In her quest to know exactly what she was being billed for, Mrs. Dawson also asked the hospital for copies of all her husband’s medical records. A copy service used by the hospital called to say the copies would cost $1,030. Mrs. Dawson was outraged. Further angering her, a letter from CPMC’s foundation soliciting a donation came in the mail.

Earlier this week, Mrs. Dawson was contacted by a CPMC official with surprising news. The hospital said Mr. Dawson had qualified for financial assistance under its charity-care policy and wrote off his entire bill. Asked why the Dawsons hadn’t been told they could qualify for charity care before a reporter contacted the hospital, CPMC said Mrs. Dawson never gave it the opportunity to explain its policy to her.

Told at one point that he would never walk again, Mr. Dawson is looking forward to going back to work at Valero in January. An avid car-racing fan, he recently went to see his son officiate at a race.