Why did Doctors Hospital bill two burn victims' insurance $38 million? An expert explains

After a large lawsuit stemming from an insurance dispute was filed in Augusta, a Johns Hopkins University professor explains why she thinks Doctors Hospital of Augusta likely tried to charge the insurance company for a pair of burn victims nearly $40 million.

From a profit maximizing perspective, hospitals have an incentive to bill a very high charge, according to experts. The charge billed by hospitals is not usually what patients pay, but it is just the starting point for a negotiation process.

"If they want to maximize their profit, they set a very high charge and then discounts are given and the price is lowered," said Ge Bai, a Johns Hopkins University professor of health policy and management.

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However, Bai said when dealing with insurance companies with no negotiating power, such as when worker's compensation are filed, the high charge can bring large profits.

"Because they have no negotiating power, they will have to pay what is asked or they will give them a very small discount," said Bai, an expert on healthcare pricing.

This was the case in a lawsuit filed by The American Interstate Insurance Company on July 8. The suit involves more than $38 million in claims and alleges Doctors Hospital of Augusta issued "exorbitant" medical bills to burn victims.

The Spartanburg explosion, aftermath

The suit stems from a Nov. 1, 2021 incident that occurred in Spartanburg, South Carolina. Two employees of Advanced Environmental Options Inc., an environmental services company, were removing fiber pellets from Innovative Fibers, a company that produces synthetic fibers. Pellets were ignited by a furnace and caused an explosion.

Both men, who are referred to as "John Does" in the lawsuit to protect their privacy, suffered severe burns. They were transported by ambulance to Spartanburg Medical Center and then to Doctors Hospital in Augusta for further emergency treatment.

Doctors Hospital is home to the Joseph M. Still Burn Center, the largest burn center in the U.S.

The suit alleges the transfer to Doctors Hospital was not approved by the insurance company prior to transfer, and both men incurred substantial bills from the hospital.

Bai said workers' compensation covers a very small portion of patients being treated by providers. Because of this, workers' compensation has the smallest amount of bargaining power against providers.

"If you are a major insurance company, your beneficiaries account for a large proportion of the provider's overall patient volume and you have leverage against that provider," she said. "But in this case, workers' comp doesn't have much leverage; therefore, they don't have power. Usually, they will have no say over the price they pay. There's no negotiation process."

Under South Carolina's Workers Compensation Act, participants are entitled to a medical bill review if there is a dispute as to the amount owed for medical treatment. This forces providers to negotiate with patients who are on workers' compensation plans. However, the dispute resolution procedure is unavailable when the treatment is provided outside the state of South Carolina, as it was in this case.

In April, the insurance company received Doctors Hospital's invoice for medical services rendered to one of the men in the amount of $16,293,628.38, according to the lawsuit. The next month, the lawsuit noted that the insurance company received a Doctors Hospital invoice for medical services rendered to the second man in the amount of $22,385,508.35.

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"In this inter-state situation, the worker's comp plan falls through the cracks," Bai said. "It's not being protected by Georgia law and that's why the hospital can claim that the price should be paid by the insurance plan."

The insurance company, which would face penalties for failing to pay the hospital in 30 days, was forced to pay the hospital what was determined reasonable by the South Carolina's Workers' Compensation Act. That sum amounted to just shy of $4 million.

According to the lawsuit, Doctors Hospital has continued to demand full payment of the two men's expenses. The insurance company is asking the court to rule that it only has to play the about $4 million – the maximum allowable payment as provided by South Carolina's Workers' Compensation Act.

The strategy

For-profit hospitals all across the U.S. use these negotiating tactics to profit off the most financially vulnerable patients, which are those on nonconventional plans – such as automobile insurance or workers' compensation plans – and those who are uninsured, Bai explained.

"If the definition of price gouging is to take advantage of a loophole and then extract a high price, then they are doing price gouging," she said. "They take advantage of the lack of the bargaining power of the workers' comp insurance company. They're exploiting that."

The amounts billed by the hospital "significantly exceed – by millions of dollars – the 'usual, customary, and reasonable charges' that it may charge and reasonably expect to be paid by an entity when generally treating a workers' compensation injury in this state," according to the lawsuit.

Attorneys representing Doctors Hospital and the insurance company behind the lawsuit declined to comment for this story.