Who pays for hospitals’ high prices?

Tim Fitzsimons Jun 10, 2015
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Who pays for hospitals’ high prices?

Tim Fitzsimons Jun 10, 2015
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A new Johns Hopkins University study published Monday in the journal Health Affairs says that a number of mostly for-profit hospitals are charging certain groups of patients 10 times the rates paid out to Medicare for the same procedures.

The key thing to understand in the realm of hospital pricing is negotiation, or rather, the lack of negotiation.

At hospitals, there’s a price that Medicare pays for its patients, and then there’s the list price for a service. Private insurers regularly negotiate for lower rates, and only some groups actually pay that list price. 

Dr. Gerard Anderson, director of the Johns Hopkins Center of Hospital Finance and Management and coauthor of the study, says some hospitals mark up their prices about 10 times, and some are stuck with that sticker price “because the auto insurers and the workers’ compensation insurers are not able to negotiate prices.” 

And higher health insurance costs have effects elsewhere in the economy, like higher workers’ compensation premiums or automobile insurance premiums, which can cover health costs after accidents. The study says this also pushes up costs for everyone else because hospitals can say they’re regularly underpaid when negotiating prices.

Jarrod Bernstein is spokesperson for CarePoint Health, which owns CarePoint Health Bayonne Medical Center in Bayonne, N.J., the second-most expensive hospital on the top 50 list published in the study. Bernstein says CarePoint’s prices are a result of serving many low-income customers. “Being out of network is not a business strategy, it is a survival strategy,” Bernstein says. 

CarePoint is calling for an overhaul of the healthcare reimbursement system. In the meantime, its hospital’s list price for treating pneumonia is about $200,000, while Medicare pays out just under $10,000.

Note: An earlier version of this story used imprecise language in referring to hospital list prices. The copy has been changed to include greater detail.

 

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