50 Hospitals with Extreme Markups Revealed

Researchers using 2012 data find that the markup for most hospitals averaged 3.4 times the Medicare-allowable cost. By that measure, a hospital incurring $100 of Medicare-allowable costs charges $340. In a Top-50 hospital, the charge is $1,000.

For-profit hospitals comprised 49 of the nation's Top 50 hospitals with the highest charge-to-cost ratios for out-of-network and uninsured patients, according to a study published this week in Health Affairs.

Researchers Gerald Anderson from Johns Hopkins Johns Hopkins Bloomberg School of Public Health, and Ge Bai of Washington & Lee University examined 2012 Medicare cost reports from the Centers for Medicare & Medicaid Services to determine a charge-to-cost ratio. The metric shows the mark-up that hospitals charge beyond what Medicare agrees to pay.

The 50 hospitals identified from more than 4,000 hospitals across the nation charged an average of more than 10 times the Medicare-allowed costs. Beyond that, Anderson and Bai found that the mark-up for most hospitals averaged 3.4 times the Medicare-allowable cost in 2012. By that measure, when a hospital incurs $100 of Medicare-allowable costs, the hospital charges $340. In a Top-50 hospital, the charge is $1,000.

"The main causes of these extremely high markups are a lack of price transparency and negotiating power by uninsured patients, out-of network patients, casualty and workers' compensation insurers, and even in-network insurers," the study concludes. "Federal and state policymakers need to recognize the extent of hospital markups and consider policy solutions to contain them."

The study recommends limiting mark-ups on overall charge-to-cost ratios, mandating price disclosures, and creating some form of all-payer rate setting.

Community Health Systems, Inc., operates 25 of the 50 hospitals. Hospital Corporation of America operates more than one-quarter of them, and 20 of the hospitals are in Florida. Only one not-for-profit hospital, Crozer Chester Medical Center, in Chester, PA, made the list.

"For-profit hospitals only account for 30% of all U.S. hospitals. They are a minority. But on our list, they are the majority," Bai says. "They are vital players in this price-gouging game. Nobody tells these hospitals not to do that. For-profit hospitals are more profit-oriented so they have more incentive to do these high mark-ups."

Bai says HCA and CMS hospitals dominate the list most likely because they are also the largest for-profit hospital chains in the nation.

No Regulations
She says the mark-ups are not illegal because only Maryland and West Virginia have regulations limiting fees. "The problem is that the market forces have stopped working here," Bai says. "Consumers don't have the time or knowledge or ability to do comparison shopping of hospitals. We don't have the options. There are no state or federal regulations in general to protect uninsured patients, so we have a market failure."

Bai says states or the federal government could tell hospitals that "this is the maximum mark-up you could have, for example 300% of what Medicare would pay. You can't charge over that."

The lack of price regulation deeply affects the more than 30 million people in the United States without insurance. "They are the most vulnerable among us with no market power," Bai says. "Those debts will turn over to a collection agency, and the result is personal bankruptcy."

"This also costs those of us who are insured. We are not immune from this system. Our premiums are higher because our employers have to pay a higher price. We are all victims of this price-gouging game."

The Federation of American Hospitals, HCA, CHS all take issue with the study's findings.

FAH
FAH President and CEO Chip Kahn issued a 404-word rebuttal of the Anderson-Bai study, and noted that the research "does not recognize that the listed hospitals provided nearly $450 million in uncompensated care in 2012 alone."

"FAH member companies have been pioneers in creating and implementing programs that provide substantial discounts to uninsured and underinsured patients who cannot cover their out-of-pocket costs," Kahn says. "The FAH member companies cited in this study have these programs firmly in place."

Kahn says that the study's authors acknowledge "a critical limitation" in the study that omits discounts attributable to these programs. "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," Kahn says.

"Indeed, 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."

"These figures illustrate, in part, the significance of discounts, and more broadly, why a myopic focus on charges misses the mark on what matters and is no justification for the menu of policy options offered."

Kahn says the for-profit sector backs price transparency, but that it still won't help the uninsured patients.

"Absent coverage, the true resolution is having programs in place, like those in our hospitals, which offer discounts so that these patients do not have to prioritize concern about their ability to pay over their own health and well-being," he says.

"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."

Kahn also questions "a puzzling disconnect between the authors' conclusion that charges drive rising health care spending, and widely known and readily available data."

"We have experienced a historic slowdown in spending growth over the last five years, while hospital price growth remains at record lows – 0.3% in April compared to the prior year," he says.

"Indulging the same arguments about hospital charges, over and over again, does not make them more meaningful and does not justify the reforms the authors recommend. It is not the time to embark on the major policy changes suggested, which could have unintended consequences or disrupt recent positive trends, especially for patients."

CHS
CHS issued this statement: "All hospitals are required by CMS to maintain a charge master – or a list of prices – for the numerous services they provide. However, these charges rarely reflect what consumers actually pay for their healthcare.

"All hospitals affiliated with Community Health Systems offer significant discounts for uninsured patients and charity care for those who qualify. 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. Our hospitals also paid millions of dollars in taxes that help fund critically important services in every community where we operate.

"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. 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. Because we know the financial aspects of healthcare can be confusing, each hospital provides financial counselors to assist our patients and to answer billing and insurance questions. 

"Finally, it is important to note that the study is based on data that is approximately three years old and that one-third of the CHS-affiliated hospitals on this list were acquired from HMA two years after the reporting period."

HCA
HCA issued this statement: "The amount patients pay for hospital services has more to do with the type of coverage they have than prices listed in the charge master. As the study notes, government programs like Medicare and Medicaid determine how much they reimburse hospitals, and insurance plans negotiate rates. Uninsured patients are eligible for free care through our charity care program or they receive our uninsured discounts, which are similar to the discounts a private insurance plan gets. In addition, we were one of the first providers to make detailed pricing information publicly available; we have been providing this information on hospital web sites since 2007."

The 50 Hospitals with Highest Charge-to-Cost Ratios, 2012: