Some Hospitals Markup Service Costs by as Much as 1000%

Some hospitals in the United States are marking up costs approximately 10 times the Medicare-allowed costs, according to a study published in Health Affairs. This equals a markup of more than 1000% for the same medical services.

The researchers examined the 50 hospitals with the highest charge-to-cost ratios in 2012. Of the hospitals analyzed, 49 are for-profit systems and 20 are operating in Florida. In addition, 1 for-profit hospital system owns half of the hospitals.

“For-profit hospitals appear to be better players in this price-gouging game,” Ge Bai, PhD, assistant professor of accounting at Washington and Lee University, said in a statement. “They represent only 30% of hospitals in the US, but account for 98% of the 50 hospitals with highest markups."

According Dr Bai, while the markup effect trickles down to every consumer, the effect is worse for vulnerable populations.

She and colleague Gerard F. Anderson, PhD, a professor in the Department of Health Policy and Management and the Department of International Health at the Johns Hopkins Bloomberg School of Public Health, analyzed the 2012 Medicare cost reports from CMS. The charge-to-cost ratio is an indicator of how much hospitals are marking up charges beyond what Medicare agrees to pay for its consumers.

These 50 hospitals may be the worst offenders, but they are not alone. Typically a hospital in the US charges an average of 3.4 times the Medicare-allowable cost.

“There is no justification for these outrageous rates, but no one tells hospitals they can’t charge them,” Dr Anderson said. “For the most part, there is no regulation of hospital rates and there are no market forces that force hospitals to lower their rates. They charge these prices simply because they can.”

Although there is no federal law that regulates the rates hospitals can charge for services, Maryland and West Virginia do have state-set rates.

“Federal and state governments may want to consider limitations on the charge-to-cost ratio, some form of all-payer rate setting, or mandated price disclosure to regulate hospital markups,” the authors wrote.