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MASSACHUSETTS NURSE NEWSLETTER :: November/December
2004
Study shows hospital charges are increasing,
fueling inflation
According to a new study released
Sept. 8, high hospital markups across the nation can be blamed
for fueling the
national health care crisis and the rate of medical inflation.
The study was conducted at 4,184 hospitals by The Institute for
Health & Socio-Economic Policy (IHSP)—a non-profit policy and research
group with a focus on health care. IHSP has a prestigious advisory
board with scholars from Boston University, Harvard University
and the University of California.
Key findings included the following:
- The national average hospital price markup,
known as the "total
charge to cost ratio," was 232.4 percent in fiscal year 2002-2003.
This was a 13 percent inflationary increase over the previous
year, at 205.84 percent.
- Massachusetts hospitals ranked in the middle
of all states (at 25) with charges coming in at 203.49 percent
of costs. Massachusetts
hospitals cited in the study included:
- Partners HealthCare System at 227.45 percent
- UMass Health System, at 215.29 percent
- Caritas Christi Health care at 209.5 percent
- Baystate Health System at 205.52 percent
- The average share-to-cost ratio was highest
for hospitals with 232-330 beds (and an average of 277 beds)
at 295.91 percent. Hospitals
in this category generated an average charge per patient discharge
of $31,652.53, and the average net income for these hospitals
was $7.56 million per year.
Interestingly, Maryland—the most regulated state—had
the lowest average hospital charge ratio despite the frequent
charge that
public oversight, or regulation, reduces profit and harms the public
interest. The number Maryland hospitals making profits is right
at the national average.
Higher charges correlated to higher profits and were associated
with large hospitals, hospital networks and for-profit hospitals.
How high is a 232% markup?
In an article in a California newspaper1, it was
noted that the typical markup recommended by auto manufacturers
to their dealers
is about a 10 percent margin for a dealer. Using that example,
a new car costing a dealer $25,000 would be sold to a buyer for
$27,500. Selling a $25,000 car at the average hospital profit margin
of 232.4 percent would cost the buyer a shocking $83,100. What
the hospitals say The hospital industry contends that charges don’t
matter—that they do not equate with payment. However, charges are
very important in determining reimbursement to a hospital. Charges
are the starting point for negotiations with HMOs and other insurers
and the higher the charge, the higher the eventual payment to the
hospital.
Charges are also a financial tool to trigger what
are referred to as "Medicare outliers" or HMO "Stop Loss" payments—payments
to reimburse a hospital above the flat rate DRG compensation that
are intended for unusually costly or complicated cases. The study
found that some hospitals appear to be exploiting the outlier program
to increase their reimbursement from Medicare or HMOs.
1 "Hospitals Got to Make a Profit, Sure, But Let’s
Be Reasonable," Jeff
Jardine, Sept. 16, 2004.
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