Increased Charges for Third-Party Pay Patients

The emergency physician began his shift an hour ago and has already seen five patients, all with the viral syndrome that is going around. None of these patients have insurance, so the physician bills them at a minimal rate for his services. A sixth patient arrives with the same syndrome, but this patient has Saguaro Mutual insurance, and the physician is tempted to bill him a bit more for his services.

Does the fact that the physician may not get paid for the first five patients justify his charging more for the patient covered by insurance? Does the fact that the insured patient will not have to erectly bear the cost justify the increase? Is the physician really just "charging less" for those who cannot pay and a "reasonable" amount for those who can? Or are the patients who have insurance being penalized? Should they be subsidizing the medically indigent? Should patients on Workmen's Compensation (which usually pays 100%) or patients who go on to be hospitalized (and who usually pay) be charged more?


This case raises the general question: Is price discrimination ethically acceptable? In discussing it, it is useful to distinguish between services belonging to the hospital and those belonging to the doctor. It is also useful to distinguish between the ethical duty of the doctor, that of the hospital, and that of society as a whole.

If the doctor is on salary, his services belong to the hospital; if he bills patients or their insurance companies) directly for his services, his services are his own. If his services belong to the hospital, I think the doctor is not justified in cutting prices or giving away services at his own discretion in this nonemergency situation. Thus, it would be unethical for him to decide on his own to charge some patients less, whether by cutting prices directly or by creative coding of the nature of the diagnosis and treatment.

If the services are his own, he can give them away if he chooses to, for example, by sending a lower bill to the self-pay patients. However, he has no moral obligation to modify his charges in accord with ability to pay or any other criterion. The question becomes one of beneficence, and the discussion ought therefore to shift to how good a method of exercising beneficence such ad hoc billing adjustments are.

After all, the doctor knows little about the financial circumstances of the self-pay patients; some might be in much better financial circumstances than the average Saguaro Mutual insurance subscriber (who will pay higher premiums if this kind of price discrimination is commonplace).

Should the hospital establish a charge policy that discriminates among payers? It is worth noting that at this time, such policies are routine. For example, Blue Cross companies and health maintenance organizations often negotiate lower charge schedules than commercial insurance companies and self-pay patients, and hospitals generally provide a certain amount of free care to the poor.

Price discrimination occurs in many other industries, sometimes in response to differences in supply cost and sometimes in response to differences in the bargaining power of purchasers. Labeling all price dis­crimination unethical seems excessive; rather, it seems to me, the ethical acceptability should depend on the basis for the discrimination. Providing services at a lower price to people in financial need seems morally acceptable; discriminating arbitrarily, for example, on the basis of race, sex, hair color, or the like, is more dubious.

Moreover, since hospitals are institutions which serve the general public and usually obtain financial support from the public through taxes and charitable contri­butions, I think a case can be made that they have a greater obligation than individual doctors to avoid arbitrary price discrimination. For example, it would be ethically ac­ceptable for a doctor with his own practice to provide free care to his friends, whereas it would not be ethically acceptable for a hospital to provide free care to personal friends of the employees.

Price discrimination also raises issues of truth telling and promise keeping. It is common for third-party payers to make explicit contracts constraining the amount of subsidization of indigent care that can be included in their subscribers charges. Providers who enter into these contracts have an obligation to respect them.

Also, I think, a case can be made that pricing policies, including the extent of price discrimination, are relevant to a patient's choice of provider; such information should be available, at least in general terms, to patients and third-party payers so that they may choose another provider if they consider pricing policies unfair.

So far, the discussion has considered price discrimination as an ethical issue for providers of health care. Now let us consider price discrimination from the perspective of society as a whole. Suppose one accepts the proposition that there is a societal obligation to ensure equitable access to health care and that the cost of achieving this goal should be fairly distributed. Is price discrimination on an ad hoc basis by individual doctors and hospitals likely to produce a fair distribution of cost?

Experience suggests that the answer is no — that, in fact, the resulting cost distribution will be arbitrary and unfair. For example, the more free care a hospital provides, the higher the prices that must be charged to insured patients who use the hospital; insured patients can then save themselves and their fellow subscribers money by avoiding hospitals that treat poor people.

A more equitable system could be devised. However, in the existing system, price discrimination may be the only method for affecting the distribution of care and of its cost that is accessible to providers. Thus, individual doctors and hospital administrators may face difficult conflicts among the goals of treating the indigent, maintaining financial solvency, and setting nondiscriminatory charge schedules.

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