The Headlines:

"RAND Study: Hospitals Charging The Privately Insured 2.4 Times What They Charge Medicare Patients” - Forbes, May 11, 2019

“Private plans pay California hospitals more than double the Medicare rate” - Modern Healthcare May 20, 2019

The Story:

RAND Corporation analyzed the cost of hospital care across 25 states and found that hospitals, on average, charged the privately insured 2.4 times what they charge Medicare patients. A separate study by West Health found that private insurers paid California hospitals more than two times as much as Medicare paid for similar services. Private non-profit hospitals charged the most for privately insured patients.

Both studies concluded that the concentrated hospital market has given a few hospitals monopolistic pricing leverage over insurers, who then pass on the higher cost to employers, who are ok with the situation because their workers want generous healthcare plans with access to the local brand-name hospitals. The most concentrated hospital markets had the highest prices. This is known as “monopoly exploitation”.

Some hospitals claim that Medicare doesn’t pay them enough so they have to charge private insurers more just to cover their costs. The RAND study found this to be false: no connection was found between what hospitals pay Medicare and what they pay private insurers. The California study found some cost shifting but concluded monopolistic hospital pricing was the main culprit.

Why haven’t the exploitative practices of hospitals been exposed before? Because contracts between insurers and hospitals have been a closely guarded secret. Luckily, the RAND and West Health researchers penetrated this veil of secrecy.

The cost of healthcare is a huge problem in this country but the tax system and political biases have undermined reform. And hospital care represents more than one-third of the cost of health insurance. The public doesn’t get that mad about hospital prices because private insurers do most of the paying. Employers benefit because they don’t have to pay payroll taxes on employee healthcare benefits. Employees like generous plans. And progressives focus on easy villains like Big Pharma and insurance companies while ignoring the main sources of our sky-high healthcare costs: hospitals and physicians. (Although this post focuses on hospitals, note that physicians are allied with hospitals to form a power block against insurers and also fight to keep fee arrangements secret. Plus, physicians over-test and over-treat, which alone is thought increase US healthcare spending by 20% or more.)

Some promising fixes are on the way, mostly from Republicans. The Trump administration has proposed a national all-payer claims database in combination with the requirement that all hospitals disclose the prices they secretly negotiate with insurers. And Congress has introduced two bills: the Hospital Competition Act of 2019 by Rep. Jim Banks (R., Ind.) and the Fair Care Act of 2019 by Rep. Bruce Westerman (R., Ark.). These bills would end the ability of hospital monopolies to charge exploitative prices, by requiring them to accept rates no higher than Medicare’s from private payers, unless they divest their holdings and restore a competitive hospital market.

Of course, we also need to eliminate the employer tax incentives to spend more on healthcare benefits and less on wages. But that’s a subject for another post.

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References

Lyu H, Xu T, Brotman D, Mayer-Blackwell B, Cooper M, et al. (2017) Overtreatment in the United States. PLOS ONE 12(9): e0181970. https://doi.org/10.1371/journal.pone.0181970

“How Employer-Sponsored Insurance Drives Up Health Costs” by Avik Roy and  The Apothecary/Contributor Group May 12, 2012 https://www.forbes.com/sites/theapothecary/2012/05/12/how-employer-sponsored-insurance-drives-up-health-costs/#85f064dea2ee

“Private plans pay California hospitals more than double the Medicare rate” by Shelby Livingston/Modern Healthcare May 20, 2019 https://www.modernhealthcare.com/hospitals/private-plans-pay-california-hospitals-more-double-medicare-rate

“Private Insurance Payments to California Hospitals Average More Than Double Medicare Payments “ Richard Kronick and Sarah Hoda Neyaz/West Health Policy Center May 2019

" RAND Study: Hospitals Charging The Privately Insured 2.4 Times What They Charge Medicare Patients” by Avik Roy and The Apothecary/Contributor Group May 11, 2019 https://www.forbes.com/sites/theapothecary/2019/05/11/rand-study-hospitals-charging-the-privately-insured-2-4-times-what-they-charge-medicare-patients/#250e77ae58d9