Two researchers used Medicare cost reports to find the 50 U.S. hospitals with the largest difference between charges and Medicare-allowable cost in 2012.
Here are 10 things to know about their findings, which are published in Health Affairs.
1. On average, hospital charges were 3.4 times the Medicare-allowable cost in 2012. This means when the hospital incurred $100 in cost, it charged $340. This markup has increased over time. In 1984, the average charge-to-cost ratio was 1.35, for instance. In 2004, it was 3.07.
2. The 10 percent lowest-charging hospitals had ratios below 1.5 — hospitals in Maryland had markups of less than 1.5, lower than any other state. The upper 10 percent had ratios above 5.7.
3. The researchers focused on those hospitals in the top 1 percent — 50 hospitals with charges that, on average, were 10 times their Medicare-allowable cost.
4. Of the 50 hospitals, 49 are for-profit and 46 are owned by for-profit hospital systems. Franklin, Tenn.-based Community Health Systems operates half of these 50 hospitals and Nashville, Tenn.-based Hospital Corporation of America operates more than 25 percent of them. Most (86 percent) of the hospitals are categorized as urban and few are teaching hospitals (18 percent). Twenty of them operate in Florida.
5. The researchers noted that hospital executives suggest high charge-to-cost ratios are partially attributable to the slow rate growth in Medicare and Medicaid spending and the need to have operating surpluses in order to remain in business. "This argument, however, cannot completely explain the wide variation in the charge-to-cost ratio...or why some hospitals are charging 10 times their own costs," the researchers wrote.
6. The study authors attributed the high markups to a lack of price transparency and negotiating power by uninsured patients, out-of-network patients, casualty and workers' compensation insurers and in-network insurers.
7. Noting that no federal or state law (other than in Maryland and West Virginia) regulates hospital markups, the authors recommended several policy solutions, including:
- Federal and state requirements for hospitals to post overall charge-to-cost ratios on their website, or a new initiative for Medicare to post them more explicitly for the public.
- Legislation that sets the maximum a hospital can charge a patient over the cost.
- Legislation that requires all insurers to use the same payment system but not necessarily pay the same rates, which would facilitate price comparisons.
8. Chip Kahn, CEO of The Federation of American Hospitals, which represents for-profit hospitals, said "a critical limitation of the study" is its omission of for-profit hospital discounts for uninsured and underinsured patients who cannot cover out-of-pocket costs. These discounts are mandated in for for-profit hospitals in California and New Jersey, but for-profit hospitals in other states can determine discounts voluntarily. "The FAH member companies cited in this study have these programs firmly in place," said Mr. Kahn. "Indeed, had the authors instead compared the actual payment-to-cost ratio of these hospitals compared to the national average, they would have discovered virtually no difference between the two groups —1.3 for the 50 hospitals and 1.2 for the national average." Mr. Kahn also said the study fails to recognize that the listed hospitals provided nearly $450 million in uncompensated care in 2012.
9. The 10 hospitals with the highest charge-to-cost ratios in 2012 were:
1. North Okaloosa Medical Center — 12.6
Location: Crestview, Fla.
Operator: CHS
2. Carepoint Health - Bayonne Hospital — 12.6
Location: Bayonne, N.J.
Operator: Carepoint
3. Bayfront Health Brooksville — 12.5
Location: Brooksville, Fla.
Operator: CHS
4. Paul B. Hall Regional Medical Center — 12.5
Location: Paintsville, Ky.
Operator: CHS
5. Chestnut Hill Hospital in Philadelphia — 11.9
Location: Philadelphia
Operator: CHS
6. Gadsden Regional Medical Center — 11.9
Location: Gadsden, Ala.
Operator: CHS
7. Heart of Florida Regional Medical Center — 11.5
Location: Davenport, Fla.
Operator: CHS
8. Orange Park Medical Center — 11.4
Location: Orange Park, Fla.
Operator: HCA
9. Western Arizona Regional Medical Center — 11.4
Location: Bullhead, Ariz.
Operator: CHS
10. Oak Hill Hospital — 11.0
Location: Brooksville, Fla.
Operator: HCA
10. The researchers are Ge Bai, PhD, an assistant professor in accounting at Washington and Lee University in Lexington, Va., and Gerard Anderson, PhD, director of the Center for Hospital Finance and Management at Johns Hopkins Bloomberg School of Public Health in Baltimore.