Health Care and Hospitals

A new Milliman study released and partially sponsored by CalPERS (California Public Employees’ Retirement System) designed to uncover the key to understanding hospital prices confirms what large purchasers have long suspected: a disturbing number of hospitals appear to be grossly overcharging and not being held accountable. The study analyzed how hospitals compare with each other relative to their total costs of service, the total amount they charge private insurers and patients (after negotiated discounts), and a ratio of charges to costs – after adjusting for patient severity and regional wage differences – showing relative hospital markups.

Among the troubling findings in the report were that:

1.) Private payers, such as employers and their covered employees, pay about 40% more than they should to make up for both shortfalls from the uninsured and government reimbursement programs, such as Medicare, and hospital profits.

2.) There are wide and unexplained regional differences in what hospitals are charging private insurers and patients. For example, the average price paid to hospitals in the Sacramento region was 30% higher than the statewide average for the same mix of hospital services – even after adjusting for wage differences. Across the state, the markup for some hospitals is about five times that of others.

3.) These differences would appear to be due primarily to variation in hospital pricing policies related to market conditions. They cannot be explained by charity and indigent care or by teaching status. For example, several of the major teaching hospitals in the state were found to have prices at or below their regionally-adjusted norms.

According to CalPERS, since hospitals are not required to disclose their actual prices for specific health care services, private purchasers and patients are unable to shop appropriately for health care based on quality and costs. The sponsors indicate that the next step is to press for full transparency of hospital prices by service, and a standardized format so that purchasers and patients can pay prices based on value. Hospital quality data are reported mainly at the individual service level. Currently, hospitals in large networks are more likely to be able to demand higher payments from insurers, as well as facilities in rural areas where competition is minimal, according to the San Francisco Chronicle.

The study indicated that the inconsistencies in actual costs versus payments demonstrates that privately insured patients are subsidizing hospitals for the low rate of reimbursements for treating beneficiaries of government assisted programs. However, according to the California Hospital Association, health plans clearly know that when they sit down to negotiate contracts with a given hospital, part of what the rates they are negotiating include are subsidies for the "shortfalls" in reimbursements.

Additionally, uninsured Americans pay more for hospital care. Currently, the uninsured are the victims of complex hospital pricing policies that penalize people who don't have private or government health insurance according to a Chicago Tribune news release. Both private insurers and government programs such as Medicare and Medicaid use their clout to win favorable prices from medical centers. By contrast, people without insurance have no bargaining power; they are the only customers who get billed the "sticker price." It's unfair and everyone knows it: People without insurance pay far more for hospital care than people with some kind of coverage. A study last year in Health Affairs, a leading policy journal, found that hospitals charged the uninsured 2.5 times more than what health insurers paid and more than three times more than Medicare's allowable costs.

By law, hospitals must treat all patients who are experiencing medical emergencies, regardless of their insurance status. But once patients are stabilized, the obligation to treat ceases. The Chicago Tribune article also stated that extensive research indicates that uninsured residents get less medical care and suffer poorer outcomes than people who have coverage. Additionally, U.S. hospitals treated 308,200 people for attempted suicide, assault, rape, abuse, and other violence-related trauma in 2005 at a cost of $2.3 billion, according to the latest News and Numbers from the Agency for Healthcare Research and Quality reported in March, 2008. Children accounted for nearly 52% of abuse cases. About one-third of those patients suffered from child neglect, physical and psychological abuse, or physical battery such as shaken child syndrome. Many of the hospital cases were paid for by tax dollars or written off by the hospital: roughly 23% of hospitalizations involved uninsured patients and 27% were for Medicaid enrollees.

New data from Dartmouth Medical School highlights a problem that is likely to become more widely discussed as health reform schemes--and related calls for pricing controls--continue to move forward. Unfortunately, more hospital care often does not equate to better outcomes; some patients were seen by more specialists, and spent more time in the ICU, but didn't live longer on average. Costs vary widely based on geographic region according to this study as reported in April, 2008, by the Associated Press.

So, the need for price "transparency" or disclosure is emerging as one of the hotter topics in the area of consumer directed health care. The National Association of State Legislatures have also indicated a desire to know more accurate costs associated with hospitals and health care. The Association reports that patients should also be able to see an estimate of the overall cost of the procedure, how much their insurer will pay and how much they will be expected to pay. That kind of information will allow patients to become informed consumers making informed choices about one of the most 'priceless' things in life — their health. Also, the federal government push to increase people's awareness of their health care spending goes hand-in-hand with getting hospitals, physicians and health insurance companies to share more price information. More people have a reason to know what they spend on health care, due in part to the increasing popularity of high-deductible health insurance and the persistent rise in uninsured consumers.

Hospital care is radically expensive. Americans should have access to care when needed that will permit not only access for treatment but also options for payment. Those who have the fortunate circumstance to hold catastrophic care coverage can find it a little easier to breathe at night if they must have emergency services or hospital care. Those who do not need workable opportunities that the private and public markets can support and are consumer friendly. The financial and emotional toll is too great for anyone who must have access to hospital care but is not able to afford coverage. As the nation moves toward electing a new President in a few months, the medical community, government, private insurers, and the public will need to focus on how to develop ways to affordably treat the uninsured and reign in costs.

Until next time. Let me know what you think.