Seven years after a landmark health care reform bill, nine out of 10 California hospitals provide free care to the state's poorest residents without insurance. This charity is exceeds the mandate of the 2006 and suggests that public accountability can serve as strong impetus for fair pricing.

An investigation of how hospital pricing has changed since the introduction of the bill was published today in Health Affairs.

"Nationally, more than 50 million people are without health insurance," said co-author Glenn Melnick, a professor at the University of Southern California Sol Price School of Public Policy and the USC Schaeffer Center for Health Policy and Economics.

"The implications of this study are national in that California's law is groundbreaking because it specifically mandates income thresholds and prices," Melnick continued.

California's 2006 Hospital Fair Pricing Act attempted to balance out what many viewed as an unfair pricing situation for people without health insurance.

For the 6.8 million Californians without insurance, hospital emergency rooms often serve as a sole source of medical care. However, there are no limits as to how much hospitals charge for emergency room services.

This had led to runaway pricing, and billed charges now far exceed what hospitals expect to receive from patients. For instance, California hospitals charged insured patients $269 billion in 2010, but only received payments in the ballpark of $69 billion. Medicare and private health care shielded these patients from paying full price for hospital care

The uninsured, however, don't have the same protection and often face the full weight of exorbitant hospital bills.

The new California legislation aimed to reign in billing so the uninsured would be charged the same amount as people on Medicare. For instance, the billed charges for an uninsured hospital stay in 2010 was $47,736, but Medicare recipients paid only only 20 percent of this figure, or $9,547, for a relative savings of $38,189.

"While other states do have legislation about billing uninsured individuals, California's set boundaries on prices and income levels are a bold first," continued Melnick.

Under the 2006 law, hospitals were required to cap how much they charged uninsured individuals at 350 percent above the federal poverty line. In 2012, this should have included a single-person household making less than $39,095 or a three-person household below $66,815. Anyone whose annual medical expenses exceeded 10 percent of their income was also covered.

Hospitals were also forced to publish their pricing structures on the Internet and post viewable informational posters on the walls of their ERs.

"Once hospitals realize that the whole world's going to learn how they treat low-income people, they become pretty generous," Melnick said.

Melnick and his USC colleague Katya Fonkych reviewed the pricing plans submitted by all of the state's general acute-care facilities, which represent 90 percent of the California's hospitals, and found the majority had gone above and beyond the mandate.

They not only dropped prices to medicare levels, but 97 percent provided free care to those with incomes 201 percent above the poverty line (2012 single-person household: $22,452).

This amounts to complimentary care for over four million uninsured individuals.

"Policy makers and health planners in other states searching for options to protect the uninsured should be encouraged by our findings and should seek to learn more about California's approach," wrote the researchers.

The authors were quick to point out this study only reviewed prices and didn't measure what patients actually paid, which they hope to investigate in their next study.

But while the 2006 reform has changed how hospitals behave, major concerns still remain. Hospitals can still charge the millions of impoverished people whose incomes are above 350 percent of the poverty line. In addition, the law only targets hospital decisions, and doctors are still allowed to charge uninsured patients, above and below this arbitrary line, as much as they see fit without public accountability.

The Affordable Care Act emulates many of the principles from California's Hospital Fair Pricing Act, but Melnick and his colleagues worry that it doesn't go far enough.

They predict Obamacare will leave up to 30 million people uninsured and vulnerable to unbalanced hospital pricing.

"The passage of the Affordable Care Act seeks to expand health insurance access and coverage in the United States, but it will take a while to enroll everyone who is eligible, and many will remain without coverage," said Melnick. "Even if it's wildly successful, it won't be to everyone and it won't be right away."

Source: Melnick G, Fonkych K. Fair Pricing Law Prompts Most California Hospitals To Adopt Policies To Protect Uninsured Patients From High Charges. Health Affairs. 2013.