Healthcare News & Insights

Hospital prices, mergers come under fire in new report

There’s more scrutiny coming about the prices facilities charge patients for services – and new research challenges some fairly common assumptions about what really drives hospital prices. 

ThinkstockPhotos-468673318Researchers from several prominent universities, including Yale, Carnegie Mellon and the University of Pennsylvania, reviewed healthcare costs for many procedures across the country.

Their primary goal was to compare the costs shouldered by patients with private insurance with the costs for Medicare and Medicaid patients. And they just published their results in a new report about hospital spending: The Price Ain’t Right: Hospital Prices and Health Spending on the Privately Insured.

Big variations

Ever since healthcare reform became the law of the land, one of its guiding principles was to make pricing for patients with private insurers align more closely with the reimbursement set by Medicare.

But according to the researchers, that hasn’t happened. Private insurer costs still vary wildly in different regions of the country. Areas with lower spending per Medicare beneficiary had some of the highest inpatient prices for privately insured patients.

In the past, hospitals have attributed this cost difference to the lower payments they receive from Medicare for services. The logic goes that facilities tend to make up the difference by charging higher prices to private payors for similar services.

However, researchers say this argument falls flat in the current healthcare climate, where many hospitals receive supplementary payments for treating higher numbers of Medicare patients, as stated in a Hartford Courant article about the report.

Facilities have also argued that certain characteristics make them more likely to charge higher prices to patients.

One example mentioned in the Courant article: Teaching facilities say they have higher costs than other hospitals because of what they spend on training doctors and nurses. However, the researchers found there was no real difference between the prices teaching hospitals charged and those of other facilities.

Since this study debunks a lot of traditional arguments used to justify pricing, hospitals will have to start taking a closer look at why prices are set at certain levels – before the feds do it for them.

More bad press for mergers

If these findings alone aren’t enough to get the feds to start scrutinizing hospital costs more closely, another conclusion from the study will: Hospitals in areas with less competition charge much higher prices to private insurance companies.

The price of the average inpatient stay in an area with only one major hospital is almost $1,900 higher than it is in areas with four or more competitors. This shines more negative light on hospital mergers, which have been recently called into question by the Federal Trade Commission (FTC).

Researchers leave no question about their feelings toward mergers, stating specifically in the report’s executive summary that “our work suggests that antitrust enforcement is crucial to addressing healthcare providers’ prices.”

Transparency is critical

With that in mind, expect mergers to be looked at extremely closely in the new year and beyond. If your facility’s considering one, you’ll want to make sure all the i’s are dotted and the t’s are crossed before proceeding.

It’s clear that cost transparency isn’t going away, either. In fact, the report calls for hospitals to be more open about the charges they set – and why they’re at certain levels compared to those of other facilities.

As time goes on, it’ll become more important for hospitals to do their own analyses of the prices they set and the agreements they make with other facilities to provide care together. Being open about these business practices is the only strategy that can help hospitals avoid unfair scrutiny.

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