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Study: Some Hospitals Mark Up Prices More Than 1,000%

Authors call for legislation to limit charges

The 50 hospitals in the U.S. with the highest markup of prices over their actual costs are charging out-of-network patients and the uninsured, as well as auto and workers’ compensation insurers, more than 10 times the costs allowed by Medicare, new research suggests. It’s a markup of more than 1,000% for the same medical services.

The findings, from the Johns Hopkins Bloomberg School of Public Health and Washington and Lee University, show that the combination of a lack of regulation of hospital charges in the U.S. 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 health-care spending. The report was published in the June issue of Health Affairs.

For their study, Drs. Gerard F. Anderson and Ge Bai analyzed the 2012 Medicare cost reports from the Centers for Medicare & 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 10 times the Medicare-allowed costs. They also found that typical U.S. hospital charges were on average 3.4 times the Medicare-allowable cost in 2012. In other words, when a hospital incurred $100 of Medicare-allowable costs, the hospital charged $340. In one of the top 50 hospitals, that meant a $1,000 charge.

Of the 50 hospitals with the highest price markups, 49 were for-profit hospitals and 46 were owned by for-profit health systems. One for-profit health system, Community Health Systems Inc., operates 25 of the 50 hospitals. Hospital Corp. 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 represent only 30% of hospitals in the U.S. but account for 98% of the 50 hospitals with the highest markups, Bai notes.

Many hospital patients don’t pay the “charge master” (full) price, however. 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, the authors say. As a result, uninsured patients, who are often the most vulnerable, face high medical bills, often leading to personal bankruptcy, damaged credit scores, or the avoidance of needed medical services.

The impact of overcharging extends beyond hospital patients. “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,” Anderson says.

In addition, privately insured in-network patients may have to pay higher premiums because of the hospitals’ 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 says.

In Maryland and West Virginia, the state sets the rates that hospitals can charge for services. No federal laws regulate these rates for all Americans.

“We, as consumers, are paying for this when hospitals charge 10 times what they should,” Anderson says. “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 in big cities, where the market might explain the higher prices. The most expensive hospital was North Okaloosa Medical Center, located in the Florida Panhandle about an hour outside of Pensacola. There, patients were charged 12.6 times more than Medicare-allowable costs, according to the authors.

Anderson says 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 can charge a patient. He says states could choose to have their hospital rates set by a state agency, as is done in Maryland and West Virginia.

He says that price transparency could help only to a limited extent because people cannot bargain or comparison shop when they are sick. Most hospitals aren’t required to –– and don’t –– publicly share how much they charge for different procedures.

Anderson and Gai identified the following Top Ten hospitals with the highest charge-to-cost ratios in 2012:

1. North Okaloosa Medical Center (FL)

2. Carepoint Health–Bayonne Hospital (NJ)

3. Bayfront Health Brooksville (FL)

4. Paul B. Hall Regional Medical Center (KY)

5. Chestnut Hill Hospital (PA)

6. Gadsden Regional Medical Center (AL)

7. Heart of Florida Regional Medical Center (FL)

8. Orange Park Medical Center (FL)

9. Western Arizona Regional Medical Center (AZ)

10. Oak Hill Hospital (FL)

Source: Bloomberg School of Public Health; June 8, 2015.

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