Some Hospitals Inflating Prices More Than 1,000%

June 17, 2015
Diagnostic Imaging Staff

Some hospitals charging much higher fees than Medicare allowable costs.

Fifty hospitals in the U.S. charge more than 10 times Medicare-allowable costs, according to a study published in Health Affairs.

Researchers from Washington and Lee University, in Lexington, VA, and Johns Hopkins Bloomberg School of Public Health, in Baltimore, MD, examined the costs and charges of 4,483 hospitals in the U.S., using the overall hospital charge-to-cost ratio to measure the markup of charge master rates over Medicare allowable costs.

They found that many hospitals started charging higher costs in the late 1980s, when the cost ratio was 1.35. This continued to increase and by 2012, the hospitals were charging an average of 3.4 times the Medicare-allowable cost.

In 2012, most hospitals were found to be in the 1.5 to 4.0 range, but 50 hospitals charged – on average – 10.1 times their cost. Forty of these hospitals are in Florida. "There is no justification for these outrageous rates but no one tells hospitals they can't charge them," coauthor Gerard F. Anderson said in a release. "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."[[{"type":"media","view_mode":"media_crop","fid":"38590","attributes":{"alt":"","class":"media-image media-image-right","id":"media_crop_1193029460956","media_crop_h":"0","media_crop_image_style":"-1","media_crop_instance":"3837","media_crop_rotate":"0","media_crop_scale_h":"0","media_crop_scale_w":"0","media_crop_w":"0","media_crop_x":"0","media_crop_y":"0","style":"border-width: 0px; border-style: solid; margin: 1px; float: right;","title":"Gerard F. Anderson","typeof":"foaf:Image"}}]]

Forty-nine of the hospitals are for-profit facilities; 46 are owned by for-profit hospital systems. According to the authors, one for-profit hospital system owns half of the 50 hospitals.

“While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers’ compensation insurers are often expected to pay a large portion of the full charges,” the authors wrote. “Because it is difficult for patients to compare prices, market forces fail to constrain hospital charges.”

Hospital executives suggested that part of the reason their charge-to-cost ratio is so high is because Medicare and Medicaid are not keeping up with spending growth. The authors noted that this still did not explain the wide discrepancy in costing, however.

"This system has the effect of charging the highest prices to the most vulnerable patients and those with the least market power," Anderson said in the release. "The result is a market failure."

The authors concluded that policy makers, at both the federal and state levels, need to recognize the issue and they need to consider policy solutions, such as limiting overall charge-to-cost ratios, providing unified form of all-payer rate setting, and mandating price disclosures.