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Some Hospitals Marking Up Treatments By as Much as 1,000 Percent: Study

by Maggie Fox /
A new study finds some hospitals charge some unlucky patients 1,000 times more than what Medicare allows.Thomas Kienzle / ASSOCIATED PRESS

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Some hospitals are marking up treatments by as much as 1,000 percent, a new study finds, and the average U.S. hospital charges uninsured patients three times what Medicare allows.

Twenty of the hospitals in the top 50 when it comes to marking up charges are in Florida, the researchers write in the journal Health Affairs. And three-quarters of them are operated by two Tennessee-based for-profit hospital systems: Community Health Systems and Hospital Corporation of America.

“We just want to raise public awareness of the problem,” said Ge Bai of Washington & Lee University in Virginia, an accounting professor who wrote the study along with Gerard Anderson of Johns Hopkins University in Baltimore.

“Because it is difficult for patients to compare prices, market forces fail to constrain hospital charges."

The hospital with the highest charges? North Okaloosa Medical Center, about an hour outside Pensacola, Florida. It charges uninsured and out-of-network patients 12.6 times what Medicare allows.

"Last year, our organization provided over $3.3 billion in charity care, discounts and other uncompensated care for those who can’t afford healthcare services," Community Health Systems said in a statement. "Our hospitals also paid millions of dollars in taxes that help fund critically important services in every community where we operate."

The Federation of American Hospitals, which represents for-profit hospitals, said the study leaves out important facts. "The study does not recognize that the listed hospitals provided nearly $450 million in uncompensated care in 2012 alone," federation CEO Chip Kahn said.

Bai and Anderson acknowledge this, but say it doesn't clear up the underlying questions they raise.

Part of the problem is the convoluted U.S. healthcare system. Medical costs can be paid by private insurance companies, directly by employers, by government-funded systems such as Medicare or Medicaid, and directly by patients. Hospitals negotiate different rates with different payers.

Then there are in-network and out-of-network rates. And patients often don’t know until after they’ve received a treatment whether their insurance will pay for it, or for the doctors who delivered it.

It leads to confusion, and Bai says hospitals are taking unfair advantage of this. “Because it is difficult for patients to compare prices, market forces fail to constrain hospital charges,” Bai and Anderson wrote in their report, published in the journal Health Affairs.

“We really want policy makers to read the paper,” Bai said. She said she started doing the research when she had a baby and looked at her hospital bills which, luckily, were paid for by her health insurance.

“I looked at the bill and realized I did not understand the bill,” Bai told NBC News. “If I, a CPA, did not understand a hospital bill, how can an average American understand it? We understand the bills for all the other assets we buy. We do not understand the bill for our most valuable asset. That is our health.”

She and Anderson studied charging policies at more than 4,000 American hospitals. Medicare carefully controls what it reimburses hospitals for treating patients, so they looked at 2012 Medicare data. The top 50 hospitals charged a lot more than that and, not surprisingly, all but one were for-profit hospitals.

“These hospitals have markups (ratios of charges over Medicare-allowable costs) approximately 10 times their Medicare-allowable costs compared to a national average of 3.4,” Bai and Anderson wrote.

They explain what that means. “On average, U.S. hospital charges were 3.4 times the Medicare-allowable cost in 2012. In other words, when the hospital incurs $100 of Medicare-allowable costs, the hospital charges $340,” they wrote.

But any hospitals mark up prices far, far more than that.

“Analysis of the fifty hospitals showed that 49 are for profit (98 percent), 46 are owned by for-profit hospital systems (92 percent), and 20 (40 percent) operate in Florida.”

More than half of Americans get their health insurance through employers, who mostly provide private insurance, and these companies usually negotiate payments.

But up to 13 percent of Americans still don’t have any health insurance at all, even with the new Obamacare exchanges that help people buy often subsidized insurance with heavy government subsidies.

“While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers’ compensation insurers are often expected to pay a large portion of the full charges,” Bai and Anderson wrote.

This could help explain why health insurance costs have steadily risen, they said. It can also help explain medical bankruptcies. “Hospitals with substantial market power can use the high markups as leverage with private insurers in price negotiations,” Bai and Anderson wrote.

Bai alleges these hospitals are taking advantage of the most vulnerable patients. North Okaloosa Medical Center did not return calls from NBC News.

Many hospitals offer discounts.

"Uninsured patients are eligible for free care through our charity care program or they receive our uninsured discounts, which are similar to the discounts a private insurance plan gets," Hospital Corporation of America said in a statement.

"In addition, we were one of the first providers to make detailed pricing information publicly available; we have been providing this information on hospital web sites since 2007."

But Bai said hospitals set their own policies for reduced or charity care and have their own criteria for who is eligible.

"Because we know the financial aspects of healthcare can be confusing, each hospital provides financial counselors to assist our patients and to answer billing and insurance questions," Community Hospitals said in its statement.

"We do not understand the bill for our most valuable asset. That is our health.”

Hospitals did not used to mark up their charges so much.

“The increases began in the late 1980s and started to accelerate in 2000,” Bai and Anderson wrote. “In 1984 the average charge-to-cost ratio was 1.35. In 2004 and 2011 the average charge-to-cost ratio was 3.07 and 3.30, respectively. The markup in 2012, therefore, represents a 10 percent increase from 2004, and 3 percent increase from 2011.”

Hospital executives have argued that Medicare and Medicaid have not raised their reimbursement rates to match inflation, and say they often lose money on Medicare and Medicaid patients.

“Clearly, hospitals need to receive sufficient revenue to remain in business, and having revenues that are above costs is necessary,” Bai and Anderson noted. “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.”

Bai says states can and should regulate what hospitals charge. Maryland sets hospital rates but is the only state that does. West Virginia regulates rates, while only California and New Jersey have state legislation that requires for-profit hospitals to offer discounts to eligible uninsured patients.

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