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Congress is responsible for hospitals' price-gouging

Hospital room.

Hospital room. Photo Credit: iStock

U.S. hospitals are price-gouging the people who can least afford it, according to a new paper. But don't blame them. Blame Congress.

The paper, written by Ge Bai at Washington and Lee University and Gerard F. Anderson at Johns Hopkins and published Monday in Health Affairs, compared the 2012 list price for services at 4,483 hospitals to what Medicare paid that year for the same services. Because Medicare rates are a proxy for what it actually costs hospitals to provide a given service, the difference between the two numbers indicates how much hospitals are marking up their prices.

Bai and Anderson found that, on average, hospitals charge for a service at 3.4 times their actual cost. What's more striking is what happened at the top of the distribution: The highest-priced 10 percent of hospitals charged at least 5.7 times what Medicare paid, while the 50 most expensive hospitals charged an average of 10.1 times more.

For people covered by Medicare or Medicaid, which have their own fee schedules, those differences are irrelevant. The same is true for people on private insurance, so long as the hospital is in their coverage network. But if you're among the 30 million or so adult Americans who don't have health insurance, or if you wind up at a hospital that's not in your network, then in most cases you're at the mercy of a hospital's prices. That can mean chewing through your savings, relying on whatever discounts the hospital is willing to provide or declaring bankruptcy.

You could read these results to mean that too many hospitals are for-profit enterprises, which describes 49 of the 50 highest-charging hospitals (compared with just 30 percent of hospitals nationwide): Half of the 50 were run by Community Health Systems Inc., and another quarter by the Hospital Corporation of America. (Both companies said in statements that their hospitals offer discounts to the uninsured.) But these data are better interpreted as evidence of policy failure. The Affordable Care Act took some steps to stop hospitals from price-gouging the uninsured, requiring they charge these patients no more than what commercial health plans will pay.

But those protections only apply to nonprofit hospitals, which, as Bai and Anderson's data suggest, aren't the problem. And if for-profit hospitals are willing to offer meaningful discounts to the uninsured, as they contend, why not enshrine those policies in legislation? Meanwhile, there remains little protection against high out-of-network prices -- and that has become more important as insurers narrow their networks to reduce costs.

The conservative response to these types of problems is more transparency: Force hospitals to post their prices, and people will respond by shopping around. The answer to market failure is, by this reading, more market.

Bai and Anderson explain the limits of that approach. First, it requires that prospective patients know the diagnostic codes for each individual service they'll receive, which each hospital may bundle differently. That requires knowing which services the physicians involved will order. That, in turn, means knowing which physicians will be involved in the first place. And all that goes out the window if the service is an emergency.

There are fixes for this. California has a law that prevents hospitals from charging most uninsured patients no more than what Medicare pays. From the 1970s until last year, Maryland required each of its hospitals to charge all payers the same price for services, and it recently switched to an even more radical system of global budgets for hospitals, under which they get a fixed amount of money for treating all patients.

The problem isn't an absence of options but an absence of time. By wasting the past five years on a fake debate over Obamacare -- premised on a theoretical Republican alternative that the party still can't agree on, culminating in a disingenuous argument over the precise meaning of "established by the state"-- Congress and the states have squandered time that could have been spent fixing some of the actual problems that still plague U.S. health care.

The culprit behind hospital price-gouging isn't the people who run those hospitals. It's the policy makers who can't get around to fixing it.

Christopher Flavelle writes editorials on health care, economics and taxation for Bloomberg View.


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