Are Hospitals Charging Patients Too Much?
By Burt Carey
Media headlines this week called out 50 specific hospitals for price-gouging after a study revealed their published charge rates are up to 10 times the amount allowed by Medicare.
The stories stemmed from a report in the June edition of the journal Health Affairs authored by Gerard Anderson of the Johns Hopkins Bloomberg School of Public Health and Ge Bai of Washington & Lee University. They used Medicare reports from 2012 to set a charge-to-cost ratio, then determined that most of the more than 4,000 hospitals across the country charged on average 3.4 times the amount allowed by Medicare for various procedures, and 50 of them charged an average of more than 10 times the maximum-allowable charge via Medicare.
Anderson and Bai called out Community Health Systems in particular because it owns 25 of the 50 hospitals, and Hospital Corporation of America operates 14 of the 50. Twenty of the 50 are in Florida, and all but one are for-profit corporations.
“They are price-gouging because they can,” Anderson told the Washington Post. “They are marking up the prices because no one is telling them they can’t.”
“The main causes of these extremely high markups are a lack of price transparency and negotiating power by uninsured patients, casualty and workers’ compensation insurers, and even in-network insurers,” the study charges. “Federal and state policymakers need to recognize the extent of hospital markups and consider policy solutions to contain them.”
Bai says only two states, Maryland and West Virginia, regulate hospital fees. “The problem is that the market forces have stopped working here,” she concludes. “Consumers don’t have the time or knowledge or ability to do comparison shopping of hospitals. There are no state or federal regulations in general to protect uninsured patients, so we have a market failure.”
Chip Kahn, president and CEO of the Federation of American Hospitals, says the study is misleading partly because it fails to recognize the $450 million in uncompensated care provided in 2012 by the very hospitals Anderson and Bai accuse of price-gouging. “Including these discounts would have had a significant effect on the charge-to-cost ratio reported, and therefore the implications of the study’s results,” he said. “Had the authors instead compared the actual payment-to-cost ratio of these hospitals compared to the national average, they would have discovered virtually no difference between the two groups – 1.3 for the 50 hospitals and 1.2 for the national average.
“The notion advanced by the authors that hospital charges determine the results of negotiations with insurers is false and misleading. Insurers have tremendous market power and assert this power in arms-length rate negotiations with healthcare providers.”
A Community Health Systems also responded to the study: “Last year, our organization provided over $3.3 billion in charity care, discounts and other uncompensated care for those who can’t afford healthcare services.
“We support pricing transparency, but a hospital’s charges, and its charge-to-cost ratio, are not relevant measures of what consumers, insurers or the government pay for services,” stated CHS. “Medicare and Medicaid determine the rates they will pay for our services, and those rates don’t always cover the cost of providing care. Insurance companies negotiate the rates that they will pay. And uninsured patients are offered significant discounts or charity care.”
The study also failed to mention that a third of the CHS hospitals listed among the 50 were purchased two years after the reporting period.
The U.S. healthcare system itself can be confusing. Insurance companies, employers, government systems and individual patients oftentimes negotiate rates with hospitals, but even insured patients often don’t know if they treatment they received is covered. With so many moving parts within such a complex system, hospital execs say an accurate study would encompass all of the complexities of the healthcare industry, comparing actual payments and services instead of using charge sheets that every hospital is required to provide to Medicare.
Robert Berenson, a fellow with the Urban Institute and former vice chairman of the Medicare Payment Advisory Commission, told the International Business Times that merely publishing rates for services is a far-too simplistic response to help consumers. “Charges are at a service level, which consumers don’t react to,” he said. “They’re going in because they have chest pain or they have stomach pain, so having hundreds of items with charges isn’t very useful for comparative shopping. If it were added up into ‘Here’s how much we charge for a heart attack,’ it might be something one could use for shopping.”