New Study Shows U.S. Hospital Charges Continue to Rise, Even After Changes in Medicare Payment Policy

December 15, 2005

California Nurses Association

December 13, 2005

Contact: Charles Idelson, 510-273-2246, 415-559-8991 (pg/cell), or the IHSP at 510-267-0634.

New research on pricing practices of over 4,200 hospitals across the U.S. documents that huge markups in charges to patients are continuing, even after federal changes in Medicare reimbursement policies that were supposed to help contain skyrocketing costs.

The research is contained in the third annual report on charges by the Institute for Health and Socio-Economic Policy (IHSP), the research arm of the California Nurses Association. For the third consecutive year, the report documents a strong correlation between huge hospital markups on their sticker prices over their costs, high profits and the growth of large corporate hospital chains.

What may be most striking in the new report is that charges continue to be scandalously high even after Medicare changed its reimbursement policy following the huge public outcry over outlier payments, made for especially complicated medical procedures.

But, the new report shows, the nation's 100 most expensive hospitals set their gross charges at an average of 680% (up from 673% in 2002-2003) of their costs– meaning the average top 100 hospitals would bill $680 for a patient's case where the actual costs were $100, or a 680% charge to cost ratio. The national average for all 4,184 hospitals surveyed was 244% of costs, an increase from 232% the prior year.

Notably, 77% of the hospitals – and 95 of those in the 100 most expensive – had at least one fiscal quarter included in their cost reports after the Medicare changes were announced.

Medicare, noted IHSP director Don DeMoro, adjusted the financial threshold at which outlier payments would kick in, with a resulting decline in reimbursements of $1.8 billion for those hospitals included in this year's report. “Yet it's abundantly clear that hospitals, in the aggregate, responded by raising their charges at an increasing social cost. The impact of the Medicare ruling overall appears to be minimal.”

“The result,” said CNA President Deborah Burger, RN, “is that more people than ever are priced out of access to care. High hospital charges are a direct contributor to skyrocketing increases in healthcare costs that result in more people losing healthcare coverage, more employers eliminating benefits or raising co-pays or deductibles, and the ongoing implosion of our health care system.”

Burger noted that since the Medicare ruling went into effect, hospitals have recorded all time record profits, an aggregate $22.6 billion in 2003 and $26.3 billion in 2004, and the number of uninsured has climbed to 46 million. “The system is working for well-heeled execs of the healthcare industry, but not for the rest of us.”

Included in the report is a listing of the nation's 100 most expensive and 100 least expensive hospitals, the top 10 most expensive hospitals by state, and the 40 hospitals that charge the most for operating room services, prescription drugs, and medical supplies. The research is based on federal cost reports with aggregated data for over 30.5 million patient discharges in fiscal years 2003-2004 filed for all patient services and other financial categories for 4,222 U.S. hospitals.

Among the key findings:

The report contradicts two notable paradigms:

a- Public oversight, or regulation, reputedly reduces profit and harms the public interest. But, the most regulated state, Maryland, for the second year in a row, had the lowest average hospital charges while the number of Maryland hospitals making profits is right at the national average.

b- Mergers supposedly produce greater efficiency for consumers and thus lower costs. However, the efficiencies gained seem to produce higher charges and profits and more marketing, not lower costs.

Hospital industry officials have contended that the charges don't matter, but:

a- Charges, or the list price, are the starting point for negotiations with HM Os and other insurers, the higher the charge, the higher the eventual payment.

b- Medicare's “flat” reimbursement rates vary by individual hospital and are influenced by a number of variables, including a federally computed relative weighting system for each DRG. The DRG weights are heavily impacted by the list prices for products or services. Rather than saying Medicare rates are “flat” or “fixed” it would be more accurate to say the rates “float” year by year relative to variables in the reimbursement system, of which gross charges are a main factor.

c- Self-payers, the uninsured, are forced to pay the full list price.

“This report, said Burger, “reinforces that no amount of market tinkering can resolve the healthcare crisis. All sectors drive up costs, reducing access to care and undermining quality. Only fundamental change, a universal system based on a single standard of care for all, will end this vicious spiral and produce a humane system that works for Americans.”