Markups on care can fatten hospital budgets—even if few patients foot the full bill


This story originally appeared in Kaiser Health News.

Few patients pay a hospital’s full price for a procedure or test. But a new study shows why those charges still matter.

Economists at the Federal Reserve Board and the American Enterprise Institute found that list prices, often dismissed as meaningless by the hospital industry, are a critical gauge of which hospitals ultimately receive higher payments.

An additional dollar in list price was associated with an additional 15 cents in payment to a hospital for privately insured patients, according to the study, which relies heavily on data from California. It was published Monday in the journal Health Affairs.

The researchers, Michael Batty and Ben Ippolito, also found key differences in list prices across hospitals and how much they were marked up, compared to operating costs. A large, for-profit urban hospital that was part of a chain had list price markups that were 360 percent higher than those of a small, independent nonprofit hospital in a rural area. (The hospitals were not named in the study.)

Consumers might assume that higher prices indicate better care and improved outcomes for patients. However, the study looked at rates of hospital readmission—a potential indicator of poor outcomes—and couldn’t find any evidence that higher list prices corresponded with better quality.

Hospital care accounts for a third of the nation’s $3.4 trillion in annual health spending. Hospital prices and payments are key to any discussion about bringing the high cost of healthcare under control for U.S. employers, government programs and consumers.

“High list prices do matter for patients,” said Ippolito, one of the study’s co-authors and a healthcare economist at the American Enterprise Institute, a conservative think tank in the District of Columbia. “This directly contradicts the mantra you hear from providers that there’s no reason to pay attention to this.”


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