Imagine opening up your hospital bill and being shocked by the numbers you see there. It happens to people all the time. Maybe it’s happened to you.
Some markup on costs is probably expected. Nationally, the average hospital charges about 3.4 times the cost of a procedure. But researchers recently found that the 50 hospitals charging the most for their services are marking up prices a full 10 times, or 1,000 percent over Medicare-allowable costs.
“We knew the high markups have been going on for a while, but the magnitude of the markup was really surprising to us,” says Ge Bai, assistant professor of accounting at Washington & Lee University and co-author of the study, which recently appeared in the journal Health Affairs.
“I cannot think of anything to justify such high markups by these 50 hospitals,” says Gerard Anderson, Ph.D., of Johns Hopkins Bloomberg School of Public Health and study co-author. “And there are no market forces and no regulations to monitor these charges.”
Bai and Anderson used 2012 data from the Centers for Medicare and Medicaid services to calculate charge-to-cost ratios and isolate the 50 hospitals charging the most over Medicare’s allowed prices. They found that markups at those 50 hospitals ranged from 9.2 to 12.6 times Medicare-allowable costs.
While consumers with health insurance going to an in-network hospital won’t see those prices, people without insurance or at an out-of-network hospital could. “We are actually charging the highest prices to the most vulnerable patients and the patients with the least market power,” Bai says.
One of the big issues is that there is no way for a consumer to find out how much a procedure will cost before going to a particular hospital. “If you buy a TV or a car, you can do comparative shopping,” Bai says. “You can go to different places and compare price and quality. But in healthcare, consumers do not have the option. If I break my leg, I won’t ask the price before I go the emergency room. We don’t have the knowledge, time or ability to do comparative shopping.”
Another concern is that these prices have repercussions in other ways, because various insurers pay these high charges, and that price risk trickles down to consumers. “Our auto insurance and workers compensation premiums are much higher than they should be,” Anderson says.
In other words, even if you have great health insurance, this is still a problem. In their study, Bai and Anderson call for federal and state governments to consider limitations on the ratio of charges to costs or mandated price transparency to help control hospital markups.
“You never know when you’ll end up at an out-of-network hospital, and your premiums are higher because of the insurance pool,” Bai says. “All of us should care about this.”
