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New research on the pricing practices of more than 4200 hospitals across the United States documents continuing markups in charges to patients, even after federal changes in Medicare reimbursement policies that were supposed to help contain skyrocketing costs.


The research is contained in the third annual report on charges by the Institute for Health and Socio-Economic Policy (IHSP), the research arm of the California Nurses Association. The report documents a strong correlation between markups on sticker prices over costs, high profits, and the growth of large corporate hospital chains for the third consecutive year.


According to the new report, charges continue to be high relative to costs, even after Medicare changed its reimbursement policy following the huge public outcry over outlier payments, made for especially complicated medical procedures.


The nation's 100 most expensive hospitals set their gross charges at an average of 680% (up from 673% in 2002-2003) of their costs, meaning that the average top 100 hospitals would bill $680 for a patient's case where the actual costs were $100, or a 680% charge-to-cost ratio. The national average for all 4184 hospitals surveyed was 244% of costs, an increase from 232% the prior year.


Notably, 77% of the hospitals -and 95 of those in the 100 most expensive-had at least one fiscal quarter included in their cost reports after the Medicare changes were announced.


Medicare adjusted the financial threshold at which outlier payments would kick in, with a resulting decline in reimbursements of $1.8 billion for those hospitals included in this year's report. However, since the Medicare ruling went into effect, hospitals have recorded all-time record high profits, an aggregate $22.6 billion in 2003 and $26.3 billion in 2004, and the number of uninsured has climbed to 46 million.


Included in the report is a listing of the nation's 100 most expensive and 100 least expensive hospitals, the top 10 most expensive hospitals by state, and the 40 hospitals that charge the most for operating room services, prescription drugs, and medical supplies. The research is based on federal cost reports, with aggregated data for more than 30.5 million patient discharges in fiscal years 2003-2004 filed for all patient services and other financial categories for 4222 US hospitals.


Among the key findings are the following:


* Higher charges correlate to higher profits.


* Higher charges are also associated with hospital chains and large hospitals: 89 of the top 100 hospitals were system affiliated, compared with only 30 of the 100 least expensive.


* For-profit hospitals had the highest average charges, 366% of cost; government hospitals, the lowest, 181%.


* Hospital markups are much higher for drugs, medical supplies, and operating rooms, which are now a primary profit center for hospitals. For drugs, medical supplies, and operating rooms, the top 40 hospitals had respective average charges of 2319%, 5090%, and 1073% of costs.


* High hospital charges are, in part, a result of the hospitals' battle with other segments of the healthcare industry, especially pharmaceuticals and HMOs.


* New Jersey, Florida, California, and Pennsylvania are the most expensive places to get sick. New Jersey hospital charges were an average 415% of costs.



The report contradicts two notable paradigms:


1. Public oversight, or regulation, reputedly reduces profit and harms the public interest. However, in Maryland, the most regulated state with the lowest average hospital charges, the number of Maryland hospitals making profits is right at the national average for the second year in a row.


2. Mergers supposedly produce greater efficiency for consumers and, thus, lower costs. However, the efficiencies gained seem to produce higher charges and profits and more marketing, not lower costs.



Hospital industry officials have contended that the charges do not matter, but charges, or the list price, are the starting point for negotiations with HMOs and other insurers, and the higher the charge, the higher the eventual payment. In addition, Medicare's "flat" reimbursement rates vary by individual hospital and are influenced by a number of variables, including a federally computed relative weighting system for each DRG. The DRG weights are heavily impacted by the list prices for products or services. Rather than saying that Medicare rates are "flat" or "fixed," it would be more accurate to say that the rates "float" year by year relative to variables in the reimbursement system, of which gross charges are a main factor.


Other data in the report include the following:


* Drug companies: The world's 13 largest alone recorded $62 billion in profits in 2004.


* HMOs: The 20 largest in the United States made $10.8 billion in profits in the most recent fiscal year.


* Hospitals: Aggregate profits for US hospitals reached a record $26.3 billion in 2004, and profits have risen substantially the past few years, even as the number of hospitals and hospital beds has been shrinking.


* Executive compensation: 12 top HMO executives pocketed $222.6 million in direct compensation in the most recent fiscal year. The top 12 drug company executives collected $192.7 million for the same period.


* Mergers: $1.15 trillion has been consumed by pharmaceutical, hospital, HMO, medical device, and biotech corporate mergers and acquisitions in the past 12 years.



CNA also noted another report, "A Study of Hospital Charge Setting Practices" by the Lewin Group released in December 2005, which was commissioned by the Medicare Payment Advisory Commission or MedPAC, the independent federal agency that advises the Congress on issues related to Medicare.


Hospital comments cited in that study included respondents who said that the "key goal with the charge master (charges) is to help the hospital meet its profitability and cash flow needs" and that they focus on areas that "give us the 'biggest bang for the buck.'"


"The result," said CNA President Deborah Burger, RN, "is that more people than ever are priced out of access to care. High hospital charges are a direct contributor to skyrocketing increases in healthcare costs that result in more people losing healthcare coverage, more employers eliminating benefits or raising co-pays or deductibles, and the ongoing implosion of our health care system."


To download a copy of the report, visit the California Nurses Association Web site at