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Investigation

Hospital Charges: A 1,000 Percent Markup!

If you’re going to get sick and need hospitalization, you might want to avoid Crestview, Florida. Why? Because the town, located near the midpoint of the Florida panhandle is home to the North Okaloosa Medical Center, the hospital with the highest charge-to-cost ratio in the U.S., according to “Extreme Markup: The Fifty U.S. Hospitals With the Highest Charge-To-Cost Ratios” published June, 2015 in the journal Health Affairs.

By analyzing 2012 Medicare cost reports from the Centers for Medicare and Medicaid Service, researchers Gerard F. Anderson, PhD, of the Johns Hopkins Bloomberg School of Public Health and Ge Bai, PhD, of Washington and Lee University identified the top-charging facilities. They looked for the hospitals that most aggressively marked up charges beyond the Medicare payments allowed for patients with government-subsidized health insurance.

What they found was staggering: The 50 hospitals with the highest charge-to-cost ratios were routinely charging out-of-network patients, uninsured patients and automobile and workers’ compensation insurers more than 10 times the costs allowed by Medicare, or a 1,000-percent markup.  

In addition to identifying the top 50 most over-charging hospitals, the researchers also discovered that the typical United States hospital charges were on average 3.4 times the Medicare-allowable cost in 2012. In other words, when the hospital incurs $100 of Medicare-allowable costs, the hospital charges $340. In one of the top 50 hospitals, that means a $1,000 charge.

Anderson and Bai blame the overcharging trend on a combination of a lack of regulation of hospital charges across the U.S.—only Maryland and West Virginia have laws regulating what hospitals charge—as well the lack of competition for health care services. The result is a plague of price gouging that raises insurance rates and increases health care costs for all consumers.

“There is no justification for these outrageous rates, but no one tells hospitals they can’t charge them,” says Anderson, a professor in Health Policy and Management. “For the most part, there is no regulation of hospital rates and there are no market forces that force hospitals to lower their rates. They charge these prices simply because they can.”

Of the 50 hospitals with the highest price markups, 49 are for-profit hospitals and 46 are owned by for-profit health systems. One for-profit health system, Community Health Systems Inc., operates 25 of the 50 hospitals. Hospital Corp. of America operates more than one-quarter of them. While they are located in many states, 20 of the hospitals are in Florida.

While it might seem safe to assume that these high-cost hospitals serve high-income areas, the opposite is often true. North Okaloosa Medical Center, the hospital that tops the list, is in a fairly rural area an hour outside of Pensacola.

Unfortunately, Anderson doesn’t see the situation improving any time soon unless state or federal officials decide to regulate what hospitals charge patients. Price transparency in health care would help, too, he believes, because it would allow consumers to compare health care providers on price. Unfortunately, hospitals aren’t required to publicly share their prices. Not surprisingly, most don’t.

“This system has the effect of charging the highest prices to the most vulnerable patients and those with the least market power,” Anderson says. “The result is a market failure.”

For more information, click here “Extreme Markup: The 50 U.S. Hospitals with the Highest Charge-to-Cost Ratios.”