The Real Question to the Real Problem of High Hospital Prices

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.