Hospital Prices Out Of Control, Competition Not Working

If there ever were evidence that competition does not work to drive down prices in the healthcare marketplace, look at the hospitals. A new report in Health Affairs by Gerard Anderson and Ge Bai reveals the failure of market forces to drive hospital prices down. There are 4,050 hospitals in America, and some prices are inexplicably high. What makes matters worse, try comparing hospitals based on their prices; they're often not transparent.

Hospital prices are rising way faster than inflation, particularly among the for-profit hospitals. The 50 hospitals with the highest markups have list prices for their services that are easily 10 times more than what Medicare pays. According to Bai, "For-profit hospitals appear to be better players in this price-gouging game." "They represent only 30 percent of hospitals in the U.S., but account for 98 percent of the 50 hospitals with highest markups."

What's the reason for these high markups? It's hard to make the case that they reflect actual costs given that the other 4,000 or so hospitals mark up their charges some 3.4 times Medicare's approved rate, which is already an enormous amount. It's more likely that Community Health Systems, which owns 25 of these hospitals and Hospital Corporation of America, which owns 14 of them, take advantage of the lack of price transparency or price regulation in the hospital marketplace to drive greater profits.

Until Congress regulates hospital prices, it's likely they'll keep rising. As with the drug companies, which often can charge what they will for their patented drugs--(check out this post on the cost of cancer drugs) -- hospitals generally have the power to set prices however they see fit. In most states, no one is regulating their charges. Only Maryland and West Virginia have laws regulating hospital prices.

Unreasonably high hospital prices drive up health care costs for everyone, if not directly, then indirectly. The 30 million Americans without insurance get stuck with the biggest bills and likely are least able to afford the charges. But, anyone with insurance who's getting out-of-network care can get hit with huge bills. All of these people often end up dunned by collection agencies and saddled with tremendous debt and bad credit ratings. Workers compensation and auto insurance rates are higher as well in states with unregulated prices.

Insurers are able to negotiate hospital rates down from the list price for their members. But, in many markets, insurers tend to lack the leverage to bring down hospital rates to a reasonable level. As a result, insured people getting in-network care end up paying higher premiums and out-of-pocket costs than they otherwise would if hospital prices were regulated.

Keep in mind that if you are uninsured or need to use an out-of-network hospital, you could be better off using a non-profit hospital, since you might qualify for financial assistance. And, if a collection agency is going after you for a debt you don't owe, report it to the Consumer Financial Protection Agency and click here for help. Finally, if you have Medicare, click here for six tips for keeping your drug costs down and five programs to lower your costs.

N.B. Massachusetts has a law that requires hospitals to reveal their charges, both their list price and the insurer price, within two days of the request. But, according to the Pioneer Institute, compliance remains an issue. 

If you or someone you know has received an unreasonably high hospital bill, post a comment below or email us at

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