ARIZONA (By Jodie Snyder, Arizona Republic) July 28, 2004 - When Marty Waters found out she had breast cancer, she had more to worry about than the diagnosis. The Tucson woman also had to worry about how to pay for her care.

For the first time in their working lives, the newly retired Waters and her husband lacked health insurance. To pay the hospital bills, they either had to go back to work or take their children out of college.

But Waters received a miracle from an unexpected place. University Medical Center in Tucson had started cutting its rates for uninsured patients. Waters' bill for the July surgery was reduced to $2,142 from $14,331.

"When I heard about it, I just fell to my knees to say, 'Thank you,' " Waters said.

Increasingly, uninsured patients are receiving price breaks at hospitals. At University Medical Center, for example, lab tests that went for $70 are now $22; CAT scans are $200 instead of $1,000.

In the Valley, at least four major hospital systems have changed their policies or are planning to, according to a survey by The Arizona Republic.

Their actions address one of the unpleasant ironies of the health care business: Uninsured patients, who are often least able to cover their hospital bills, are billed at full price, while a 40 to 60 percent discount is given to those with insurance.

Insurance companies negotiate for lower prices from health care providers.

The billing differences have come under scrutiny in congressional hearings and class-action lawsuits. Especially under fire: non-profit hospitals that receive tax breaks in exchange for offering charity care yet file liens against patients' homes and cars to collect unpaid debts.

"They are deathly afraid of having their not-for-profit tax exemption removed for not providing charity care," said Roger Hughes, executive director of St. Luke's Health Initiatives, a Phoenix-based health care policy organization.

Last month, Banner Health, Arizona's largest health care provider, was among 18 hospital systems nationwide to be sued over allegations that they overcharged uninsured patients and used overly aggressive bill-collecting tactics. The lawsuits are being coordinated by Richard Scruggs, a Mississippi lawyer who led major lawsuits against the tobacco and asbestos industries.

Banner strongly denies the allegations.

In June, Banner expanded its discounts, from people who make 150 percent of the federal poverty level up to those who make 500 percent. For example, a family of four making $46,000 a year could get a 65 percent discount on a $1,000 hospital bill. If the bill was $50,000 or more, the discount would be 95 percent.

Two months earlier, University Medical Center was one of the first hospitals in the country to offer discounts to people who are uninsured but don't necessarily meet the poverty definition.

The hospital now charges the uninsured and people whose insurance doesn't cover certain items at the same rate as Medicare patients, which means they could get as much as an 80 percent discount.

Hospital officials said they made the changes after top federal officials gave their permission. The hospitals had believed Medicare regulators would not approve the move because offering different billing rates might be seen to violate Medicare rules against kickbacks.

The changes could not have come at a better time for Waters and thousands of other Arizonans who lack health insurance. About 17 percent of the state's population doesn't have coverage.

Waters and her husband had insurance for more than 35 years. When he decided to retire, they looked into COBRA, a federal program that allows people to carry over their workplace health insurance at their own expense. The family, who had only had a few health problems, decided to wait for a while before getting any coverage.

"We were trying to live on Social Security, and that just covers the house payments," she said. He is 65, but Marty is 57, and so she was ineligible for Medicare.

The changes in how hospitals treat the uninsured were a long time coming, consumer advocates say.

They say uninsured patients bear the greatest burden. Despite the increased attention from congressional hearings, it is unlikely there will be federal changes requiring hospitals to give discounts to the working poor for the rest of the year, said Susan Sherry, deputy director of Boston-based Community Catalyst. The group has been arguing that charges should be waived for patients with income at or below 200 percent of the federal poverty level and discounts given to patients who make up to 400 percent.

That delay will give hospitals time to work on changes and the national elections to play out, she said.

"This (discounts) is not part of the solution; it is just part of an interim solution," Sherry said.

Hughes agrees with Sherry, saying that high costs are forcing hospitals to raise rates and be more aggressive when it comes to getting their money.

"This is the canary in the coal mine for the question of who is going to pay for the stratospheric increase in health care costs," he said.

For hospitals, charging less may mean they have an easier time trying to figure out their bottom lines.

Over the past few quarters, hospitals, especially for-profit institutions, have had to write off millions in bad debt. Financial analysts also have become nervous, worrying that the lawsuits and congressional hearings could hurt hospitals' ability to make bond payments or worse. In Illinois, for example, a hospital lost its property-tax exemption because of its treatment of the uninsured. It was billed for $1 million in back taxes. Analysts now want hospitals to address their charity care and uninsured care as part of their bond prospectuses.

Also, if hospitals charge less, they may have a greater chance of collecting on their bills because people may make more of an effort to pay them if they don't seem so overwhelming. Hospital officials estimate that they get just 10 cents to 40 cents on the dollar if they turn bills over to collection agencies.

That may help hospitals' bottom lines, but it's also a clear benefit for patients' pocketbooks.

Henry Hillis Sr. of Phoenix went to Banner Good Samaritan Medical Center for prostate surgery about two years ago. Since then, he has had many health problems, including infections and colitis.

Hillis, 57, who worked construction for most of his life, retired early because of severe arthritis. Like the Waterses, he couldn't afford the COBRA insurance, which would have taken about a quarter of his $1,200 monthly income.

"You have to have a car, and it has to have insurance. There's housing, there's food," Hillis said.

Hillis estimates his hospital bills are more than $50,000. "I got the first bill for $27,000 and I thought, 'How am I ever going to take care of this?' It was the biggest bill I had ever seen.

"And then they send me one for $29,000."

Late this month, Hillis learned he would not have to pay the bills, under Banner's new policy.

"It's hard in some ways because I have worked all my life," Hillis said, "but sometimes you just really need some help."