The open secret in medical billing is also a bit of a dirty one: Doctors and hospitals typically charge more for their services when their patients don’t have insurance. Now, health policy researchers have put a number on just how big the difference is: On average, hospitals charge 3.4 times what Medicare will pay, and some charge 10 times or more the Medicare amount.
It’s tempting to think that the value of an insurance policy lies mainly in the financial security it provides in case you get sick. While that’s an important factor, the real power lies in the numbers. With so many people paying in, there’s less risk that any one individual’s bills will affect an insurer’s bottom line. And then there’s collective bargaining. Because insurers are gatekeepers of sorts to millions of patients, they can negotiate lower prices for everything from penicillin to brain surgery. That’s true of both private and public insurers, such as Medicare.
People without insurance, on the other hand, get screwed, and when they can’t pay—the uninsured typically belong to low-income families—hospitals have been known to send bill collectors after them. Following pressure from lawmakers and news outlets, some hospitals suggested they’d introduce discounts for low-income patients in 2003, even as they put the blame for high prices on government regulations.
Hospitals charge what they want because they can.
More than 10 years on, however, hospitals are still charging much more than what Medicare does, the reason being almost the opposite of what hospitals have claimed, according to Washington and Lee University accounting professor Ge Bai and Johns Hopkins University health policy and management professor Gerard Anderson. Writing in the June issue of Health Affairs, Bai and Anderson argue that a complete lack of market competition and insufficient government oversight has allowed prices to reach exorbitant levels. In other words, hospitals charge what they want because they can.
First, the numbers. Working from cost reports submitted by 4,483 Medicare-certified hospitals and collected by the Centers for Medicare and Medicaid Services, Bai and Anderson calculated that in 2012 hospitals on average charge 3.4 times what Medicare determines those services actually cost, up from a factor of just 1.35 in 1984. The 50 worst offenders charge 9.2 to 12.6 times Medicare-calculated costs. Nearly all are operated for profit, and 39 of those 50 are run by just two companies, Community Health Systems and Hospital Corporation of America.
The main causes, Bai and Anderson argue, are a lack of price transparency and limited negotiating power. “The result is a market failure that forces uninsured patients, out-of- network patients, and casualty and workers’ compensation insurers to pay charges that are marked up multiple times above costs” and well above what patients with insurance pay, the pair writes. “Federal and state policy makers need to recognize the extent of hospital markups and consider policy solutions to contain them,” such as caps on charge-to-cost ratios or mandating hospitals disclose prices to patients up front.
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