Why Are Hospital Prices So Artificially High?
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| Aspirin |
Cost analysts maintain it really costs ten dollars to write a simple business letter, so it's no surprise when hospitals charge ten dollars to administer an aspirin tablet. But there's also another form of hospital overcharging. Mark-ups of prices (publicly listed, at least) of several hundred percent over audited costs are routine in hospital bills. These are not hidden cross-subsidies, either; they emerge on the yearly audit as multi-million dollar "losses", neatly balanced by "contractual allowances". Translated, they are discounts to insurance companies. My daughter, armed with several accounting degrees, spoke out recently at a hospital board meeting, "Why do you do this? Why do you raise prices, then turn around and discount them? Why do you overcharge, then call it a loss when you write it off?" The replies to her question, she recalls, were mumbles.
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| Hospice |
This is an important question, because it results in confronting patients without insurance with much larger bills than the effective price to insured ones; patients who can't afford things are charged more than those who can. Every time a hospital takes an uninsured patient to court to collect such kited charges, the publicity for the hospital is highly negative. Health savings accounts with high deductibles are thwarted by facing such overcharges, and it makes people mad. Two or three million HSA arrangements will be started in 2005, but without this obstacle to jump, several times as many would probably be issued. Since HSA deductibles are guaranteed money in the bank, hospitals thwarting HSAs perpetuate their present largest source of loss -- unpaid deductibles. So why do hospitals continue to post these largely fictional prices?
Until hospital officials come forward with a coherent defense of their practices, outsiders can only guess at motives. Start with the old legal approach of "Cui bono?" (Who might have a motive?) and divide the answers into those with a motive and those with the means (but no visible motive.) The police line-up will then consist of hospitals, insurance companies, limited-license practitioners, and the state government. Limited licensees, acupuncturists and the like, surely must hate high-deductible health insurance because their fees mainly fall below the two or three thousand annual deductible. Old-line health insurance companies also have plenty of motive to keep out competitors, fearing antitrust action if they get too obvious. That leaves the state government.
States have ample power over hospitals. Substantial annual payments are negotiated with hospitals for Medicaid services, charity care, and educational grants and subsidies. Tax exemptions are repeatedly challenged and re-negotiated, and overall non-profit corporations are entirely creations of the state legislature. So, unless it is a violation of federal law, state government has the means to compel hospitals to do anything. Power, yes, but where is the incentive for states to wish for exorbitant hospital prices? Or confer monopoly status on certain insurance vendors by according them sweetheart discounts?
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