The 50 U.S. hospitals with the highest markups charge an average of ten times the Medicare-allowable cost, greatly impacting uninsured and out-of-network patients, according to a recent study published by Health Affairs.
Ge Bai, assistant professor at Washington and Lee University, and Gerald F. Anderson, professor at the Johns Hopkins Bloomberg School of Public Health, authored the study. Using CMS Medicare data from 2012, they calculated the charge-to-cost ratios (a hospital’s total gross charges divided by its total Medicare-allowable cost) of more than 4,400 hospitals.
The authors found that the average charge-to-cost ratio is 3.4, which means the average U.S. hospital charges 3.4 times the costs associated with patient care. However, the 50 hospitals with the highest markups average a ratio of 10.1. Of those 50 hospitals, the lowest ratio is 9.2, and the highest is 12.6.
“These hospitals’ charge-to-cost ratios were more than three standard deviations above the US average, which suggests that they are outliers and warrant additional scrutiny,” Bei and Anderson wrote.
These high markups primarily affect uninsured and out-of-market patients, the authors explained, because publicly insured patients pay amounts much closer to the cost.
“Collectively, this system has the effect of charging the highest prices to the most vulnerable patients and those with the least market power,” Bei and Anderson wrote. “While it is not uncommon for those with the least market power to pay the highest prices in many industries, in the case of hospitals, the very large differential in the markups charged to various patient groups and the pivotal role played by hospitals in caring for critically ill patients are worthy of policy makers’ attention.”
The authors’ analysis of those 50 hospitals with the highest markups brought forward some other noteworthy statistics. For instance, 49 of the 50 hospitals are for profit, compared to 30% of all hospitals. (The one nonprofit hospital to make the list was Crozer Chester Medical Center in Chester, Penn.) In addition, 47 of the 50 hospitals are affiliated with a healthcare system, compared to 56% of all hospitals.
The data also shows that the fifty hospitals are all found in one of 13 states: Florida, New Jersey, Kentucky, Pennsylvania, Alabama, Arizona, Texas, Arkansas, Tennessee, Oklahoma, California, Virginia and South Carolina. Florida alone accounts for 20, or 40%, of the hospitals in question. In New Jersey and California, the authors explained, there is legislation in place that require for-profit hospitals to offer discounts to certain uninsured patients. Similar legislation does not exist in the other 11 states.
These extreme markups, the authors concluded, come from the lack of price transparency and the fact that so many patients have no negotiating power. And the situation is in desperate need of attention by U.S. policymakers.
“Federal and state policy makers need to recognize the extent of hospital markups and consider policy solutions to contain them,” Bei and Anderson wrote. “Options include limitations on the overall charge-to-cost ratio, limitations on the charge-to-cost ratio for specific services, some unified form of all-payer rate setting, and mandated price disclosure.”
Chip Kahn, president and CEO of the Federation of American Hospitals (FAH), wrote a response to the study, focusing on one of the limitations of the authors’ research.
“A critical limitation of this study, acknowledged by the authors, is its omission of discounts attributable to these programs,” Kahn wrote. “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. 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.”
Kahn also came out against the study’s suggested policy changes.
“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,” Kahn wrote. “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.”