Hospitals' Immunity from Price Ceilings have Ill Effects On Patients’ Finances

NEW YORK (MainStreet) — When people are ill and in need of hospital care, they are often unable to shop around for the best prices. Further, the closest or best hospital suited for their care may be out of their health insurance network. Some hospital systems and independent hospitals are taking advantage of this.

Some 50 hospitals across the nation are charging out-of-network patients, uninsured patients and auto and workers’ compensation insurers prices that are more than 1,000% higher than the costs allowed by Medicare, according to new research published in the June issue of the journal Health Affairs.

The researchers, Gerard F. Anderson of the Johns Hopkins Bloomberg School of Public Health and Ge Bai of Washington and Lee University, attribute the price-gouging problem to both the lack of federal regulation of hospital charges and the lack of market competition and say that the economic fallout trickles down to almost all consumers, whether or not they have health insurance. As a result, they argue, these sky-high prices play a role in the hike in overall health spending.

While the top 50 hospitals charged, on average, more than ten times the Medicare-allowed costs, other hospitals typically charged 3.4 times the Medicare-allowable cost, on average, in 2012. That means, for example, when a hospital incurs $100 of Medicare-allowable costs, it charges $340. In one of the top 50 hospitals, the charge would be $1,000.

“We as consumers are paying for this when hospitals charge ten times what they should,” Anderson said in a release.

“What other industry can you think of that marks up the price of their product by 1,000% and remains in business?” he asked. “There is no justification for these outrageous rates, but no one tells hospitals they can’t charge them.”

Anderson further expressed disapproval of exorbitant medical feeds. 

“For the most part, there is no regulation of hospital rates and there are no market forces that force hospitals to lower their rates," he said. "They charge these prices simply because they can.”

But perhaps there is a reason. The researchers found that 49 of the 50 hospitals with the highest price markups are for-profit hospitals, and 46 are owned by for-profit health systems. One for-profit health system, Community Health Systems Inc., operates half of the 50 hospitals. Hospital Corp. of America operates more than one-fourth of them. In fact, 20 of the hospitals are in Florida, where there are a lot of Medicare patients.

“We see high markups as a tool to generate more revenues,” Bai tells TheStreet. “There are many reasons why these hospitals are so motivated to generate revenues. To make up for the low rates received from public programs might be one reason,” she says.

Neither Community Health Systems Inc. nor Hospital Corp. of America responded by press time to TheStreet’s requests for comment.

Only two states, Maryland and West Virginia, set state rates for how much hospitals can charge. Other states, such as California, protect uninsured patients. California, for example, does not allow hospital charges for certain low income patients to exceed the price that Medicare would pay. There is no federal law that regulates hospital prices.

The sting of overcharging may be felt by more than just hospital patients. Privately insured in-network patients may pay higher premiums, because hospitals markups are often used as leverage in negotiating higher prices for private insurance companies. In addition, workers’ compensation and auto insurance policy are more expensive in states where hospital charges are unregulated, because those companies must pay the higher rates, according to Anderson.

Anderson believes price transparency would be of limited help, because people needing hospitalization are not in a position to bargain or comparison shop. Further, most hospitals are not required to publicly share their charges.

However, physician and attorney Jeffrey Rice, the chief executive officer of Healthcare Bluebook, sees things differently.

"We believe consumerism and price transparency would have a substantial impact on healthcare pricing," Rice says. He cites the pricing for medical services that are not covered by insurance, such as plastic surgery and Lasik. Rice acknowledges, though, that patients can’t shop for care during emergencies, but, he argues, “if most patients behaved like consumers for their standard health care needs, then many of the more emergent services would likely fall into line.”

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