How hospitals protect high prices

Large hospital systems don’t command high prices just because patients like them, or just because they have strong market share. There’s also another big reason: their contracts with insurance companies actively prohibit the sort of competitive pressures a free market is supposed to support.

“The free market has been distorted in an unhealthy way,” health care consultant Stuart Piltch told the Wall Street Journal’s Anna Wilde Mathews for this deep dive into hospitals’ pricing practices.

How it works: Hospital systems are consolidating rapidly and buying up physicians’ practices (which charge higher prices once they’re part of a hospital).

On top of that, per WSJ: Hospitals’ deals with insurance companies “use an array of secret contract terms to protect their turf and block efforts to curb health-care costs.”

  • Some hospitals do not allow their prices to be posted on the comparison-shopping sites insurers provide to their customers.
  • They often require insurers to cover every facility or doctor the hospital owns, and prohibit insurers from offering incentives — like lower copays — for patients to use less expensive competitors.
  • When Walmart, the country’s biggest private employer, wanted to exclude the lowest-quality 5% of providers from its network, its insurers couldn’t do so because of their hospital contracts.

The other side: Hospital executives told the Journal that mergers don’t drive higher prices, and reiterated their position that hospitals have to collect higher payments from private insurance to make up for the lower rates they get from Medicare and Medicaid.

My thought bubble: High-deductible health plans are increasingly popular, in part, because of the idea that patients will use their purchasing power to drive a more efficient system overall.

  • But if Walmart doesn’t have enough market power to actually penalize low-quality providers, you and I definitely don’t, either — especially if we can’t find out what the prices are, and especially if we only have one hospital to choose from in the first place.

Go deeper: Think drug costs are bad? Try hospital prices



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.”