Clif CleavelandShop for a new car and you find readily available prices that allow easy comparisons of cost and quality before you make a purchase. For most services, such as household repair, estimates and references of providers facilitate our choices.
Hospital pricing is a different world. The great majority of American hospitals may set their price for each service arbitrarily. And the prices are not publicized.
Yet they form the basis for negotiations between health insurers and hospital administrators to determine what discounts will be accorded patients covered by each insurance company. Once an acceptable discount is obtained, an insurer will include that hospital in its preferred network of providers. The insurer’s customers receive discounted charges so long as they obtain care from hospitals within this network.
Depending upon our individual coverage from private insurers, we are responsible for various deductibles and copayments for hospital-based services. If we are uninsured or receive care from a hospital that is not in the network for our health insurance, we may be expected to pay all or most of a hospital’s charges.
Medicare and Medicaid set their own payment schedules. Patients with coverage under these plans are unaffected by prices set by individual hospitals.
A study released June 8 in the journal Health Affairs presents a disquieting analysis of the 50 hospitals in America with the highest charge-to-cost ratios. The authors analyzed 2012 cost reports from the Centers for Medicare and Medicaid services. Reports came from 4,483 hospitals. The markup for each hospital was calculated by dividing that institution’s total gross charges by the total costs which Medicare allowed. Charges for inpatient and outpatient services were included.
The national average for markups was 3.4 times higher than Medicare’s allowable costs. Markups for the top 50 hospitals ranged from 9.2 to 12.6 times higher than the Medicare benchmark. Within each of these hospitals there were wide variations in the markups for individual services such as anesthesia, cardiology and newborn care.
Forty-nine of the 50 hospitals were for-profit, 46 being owned by chains. Community Hospital Systems in Franklin, Tenn., owned half of the facilities. Hospital Corp. of America owned 13. Most hospitals were in Southern states. Twenty were located in Florida, five in Texas and Alabama, and three in Tennessee. The hospitals were predominantly urban and were not teaching facilities.
An uninsured person who received emergency treatment or was hospitalized at one of the hospitals – one of 30 million Americans in this situation – could be presented with a huge bill that could be financially devastating. In 2013, medical debt was the largest cause of personal bankruptcy, according to USA Today.
The Health Affairs article illustrates the potential for abuse when there are no limits to a hospital’s pricing authority.
Two states have established limits to these powers. Since 1977, Maryland has relied upon an independent Health Services Cost Review Commission to set rates for clinical services for all acute-care hospitals. In setting the rate for a hospital, the commission factors in costs, charity care and severity of illnesses and injuries treated in that facility. Maryland’s hospital industry supported establishment of the commission.
In 2006, California’s Legislature passed the Hospital Fair Pricing Act, which limits the charges that a hospital can assess an uninsured patient. For individuals with yearly incomes up to 350 percent of the federal poverty level, a hospital can charge no more than Medicare’s allowable rate.
In our economy we applaud the investor who makes a huge profit in a stock transaction or the company that generates giant profits because of innovation or clever marketing. For-profit health enterprises pose a unique challenge in our regulation-averse economy because their actions can have such impact on the health and pocketbooks of so many people.
The pricing power of hospitals must be reined in either state-by-state or through congressional action.
* Note: In the June 3 column, the ACA was incorrectly identified; it should have been cited as the Affordable Care Act.
Contact Clif Cleaveland at cleaveland1000@comcast.net.