Hospital prices in the news
The Sunday Denver Post recently ran a front-page story, “Health care can hurt.” A seven-year study of hospital prices in Colorado showed a 76% price hike on hospital services for residents and payers, a doubling of administrative costs, and a splurge of building new (and unneeded) facilities. Was this all to treat new patients? No, inpatient admissions rose only 8.3%, and occupancy rates in 2016 were 63%. Clearly the theory of supply and demand does not apply to hospitals.
Between 2009 and 2016, Colorado hospitals spent $12B on capital expenditures. Besides new hospitals, Colorado health systems added freestanding emergency rooms far from hospitals that are easily mistaken for urgent care centers. In fact, Colorado now ranks fourth in the nation for free-standing emergency rooms that charge unsuspecting patients with emergency room prices for urgent care scope of services, generating untold numbers of “surprise” medical bills.
Hospital prices around the country
But, what if you don’t live in Colorado? Do you think you (and your premium-paying employees) are safe? According to the article, the Colorado Department of Health Care Policy and Financing study shows that average revenues per patient nationally rose a whopping 53% per patient during the same seven years, to $50,668.
Recent headlines for Kaiser Permanente of Colorado show a loss of $65M in the past three years. Kaiser blames hospital price hikes as “the primary reason.” As in any business, the likely impact according to the insurer is to pass these costs along to the customers if hospitals will not contract at fair and reasonable rates. That customer is likely to be you and your employees, in the form of higher premiums.
For 50 years, Medicare and Medicaid have set the rates they pay hospitals. Although many hospitals claim to “lose money” on Medicare, enough studies show that efficiently run hospitals can — and do— make a profit on Medicare patients. Hospitals balance reimbursement from government payers with what they charge employers and insurers in commercial plans. It’s called cost-shifting. Commercial insurance prices are based on what the market will bear — who’s got the most leverage. Recent trends in hospitals consolidation give a powerful edge to healthcare systems. At a National Alliance of Healthcare Purchasers conference some years back, the keynote speaker from Verizon remarked that hospital prices were limited “only by the imagination of their CFOs.” There was a ripple of groans and chuckles through the audience.
If your business was only at 63% capacity, would you be hiring more people or building more facilities? As Cuba Gooding, Jr. reminds us in the hit film Jerry McGuire, “Show me the Money.” Did your paycheck or your company’s revenues increase by 76% from 2009 to 2016. We’re guessing it didn’t.
So, how do we fix this?
Pricing solutions abound. Some 35 states have certificate of need laws, which can at least waylay excess building sprees. Other states limit the building of free-standing emergency rooms, or require transparency of pricing to try to protect consumers. But employer power, through direct contracting or in concert with health plans, can change the prevailing reimbursement policy of “discounts off of billed charges.” Bundled prices for many planned stays, such as births, hip or knee replacements, or certain cardiac procedures, are offered by many employers such as Wal-Mart and Boeing. These admissions are at Centers of Excellence institutions, and participation by employees is entirely voluntary. Geisinger Health Plan and Hospitals offers a bundled price for these services and (gulp) with a safety and quality guarantee of “be satisfied, or get your money back.” Many employers are now studying a way to tie their reimbursements to a Medicare standard price, such as 200% of Medicare for admissions.
The real question is not, “Are employers paying too much”? Nor is it, “Are there other strategies to prevent egregious pricing?”
The real question is, “Will employers and purchasers such as trusts and unions use their leverage to change the way they pay for services?” If not, it will be business as usual for hospitals and insurance companies, and the purchasers and employees will continue to overpay.