The 50 hospitals in the United States with the highest markup of prices above their actual costs are charging out-of-network patients and the uninsured, as well as auto and workers’ compensation insurers, more than ten times the costs allowed by Medicare, new research suggests. It’s a markup of more than 1,000 percent for the same medical services.
The findings, from Gerard F. Anderson, PhD, a professor in the Johns Hopkins Bloomberg School of Public Health Department of Health Policy and Management, and Ge Bai, PhD, an assistant professor of accounting at Washington & Lee University, show that the combination of a lack of hospital rate regulations and no market competition is leading to price-gouging that trickles down to nearly all consumers, whether they have health insurance or not, and plays a role in the rise of overall healthcare spending. The report is published in the June issue of Health Affairs.
“There is no justification for these outrageous rates but no one tells hospitals they can’t charge them,” said Anderson. “For the most part, there is no regulation of hospital rates and there are no market forces that force hospitals to lower their rates. They charge these prices simply because they can.”
For their study, Anderson and Bai analyzed the 2012 Medicare cost reports from the Centers for Medicare and Medicaid Services to determine a charge-to-cost ratio, an indicator of how much hospitals are marking up charges beyond what Medicare agrees to pay for those with its government-subsidized health insurance.
The 50 hospitals, they found, charged an average of more than ten times the Medicare-allowed costs. They also found that the typical hospital charges were on average 3.4 times the Medicare-allowable cost in 2012. In other words, when the hospital incurs $100 of Medicare-allowable costs, the hospital charges $340. In one of the top 50 hospitals, that means a $1,000 charge.
Of the 50 hospitals with the highest price markups, 49 are for-profit hospitals and 46 are owned by for-profit health systems. One for-profit health system, Community Health Systems, operates 25 of the 50 hospitals. Hospital Corporation of America operates more than one-quarter of them. While they are located in many states, 20 of the hospitals are in Florida.
“For-profit hospitals appear to be better players in this price-gouging game,” said Bai. “They represent only 30 percent of hospitals in the U.S., but account for 98 percent of the 50 hospitals with highest markups.”
Many hospital patients don’t actually pay the “charge master” or full price. Along with government insurers, most private health insurers negotiate lower rates for their patients.
But 30 million uninsured Americans are likely to be charged the full rate, as are patients receiving out-of-network care, and those receiving workers’ compensation or auto insurance benefits. As a result, uninsured patients, who are often the most vulnerable, face exceptionally high medical bills, which often leads to personal bankruptcy, damaged credit scores, or the avoidance of needed medical services.
The impact of overcharging extends beyond hospital patients. Noted Anderson: “The cost of workers’ compensation and auto insurance policies are higher in the states where hospital charges are unregulated because companies must pay those higher rates.”
In addition, privately insured in-network patients may also end up paying greater premiums due to hospitals’ high markups, which are often used by hospitals as leverage to negotiate higher prices with private insurance companies. “Except for patients with government insurance, few consumers are immune from negative financial impacts caused by hospitals’ high markups,” Bai said.
In Maryland and West Virginia, the state sets the rates that hospitals can charge for services. No federal law regulates them for all Americans.
“We as consumers are paying for this when hospitals charge ten times what they should,” Anderson said. “What other industry can you think of that marks up the price of their product by 1,000 percent and remains in business?”
For the most part, the hospitals with the highest markups are not situated in pricey neighborhoods or big cities, where the market might explain the higher prices. The most expensive hospital is North Okaloosa Medical Center, located in the Florida Panhandle about an hour outside Pensacola. There, patients are charged 12.6 times more than Medicare allowable costs.
Anderson said changes are unlikely to drop to levels closer to costs allowed by Medicare unless state or federal officials decide to legislate a maximum markup that a hospital could charge a patient. He said states could choose to have their hospital rates set by a state agency as is done in Maryland and West Virginia, which guarantees that hospitals can’t gouge their patients.
He said that price transparency could also help only to a limited extent because people cannot bargain or comparative shop when they are sick. Most hospitals aren’t required to-and don’t-publicly share how much they charge for different procedures.
“This system has the effect of charging the highest prices to the most vulnerable patients and those with the least market power,” Anderson said. “The result is a market failure.”
This article was adapted from information provided by the Johns Hopkins Bloomberg School of Public Health.