Federally Mandated Disclosures Show Exorbitant Variance in Hospital Rates – WSJ

A Wall Street Journal investigation from Feb. 11 has revealed ultra-high variation in healthcare prices negotiated by the nation’s roughly 6,000 hospitals and insurers.

The disclosures revealed that a cesarian section costs from $6,000 to over $60,000, depending on the hospitals’ rate and whether a hospital is in an insurer’s network.

A Trump-era rule that took effect last month requires all hospitals to disclose their prices publicly, a move that stirred mixed feelings in the industry. Hospital rates are the largest component of U.S. medical costs and are among the highest in the world, hovering at around 40%, with physician and prescription drug costs trailing closely behind. The U.S. also spends close to 20% of its gross domestic product (GDP) on health care.

The Journal’s analysis studied the Northern California hospital system, showing that for one of the network’s billing codes, complex cardiac procedure costs ranged from $90,000 to $515,000. For California, such spreads are “typical of what you’re going to see across big delivery systems,” a former Cigna Corp. executive told the Journal.

Insurance plan spreads have a wide variety in other procedures. Spinal fusions spread at $223,000, and hip or knee replacements converged at $78,000.

Hospitals frequently set prices that have little to no effect on the cost of a service. They are instead set for specific target margins or based on what the market demands for a service. Privately-insured patients are typically relied on for margin setting. According to a study cited by the Journal, hospitals also raised charges to commercial insurers over the past decade.

Some prominent regional healthcare systems have not yet disclosed their prices, including the Mayo Clinic and NewYork-Presbyterian. There are mandated penalties for failing to meet disclosures, with charges of up to $300 per day at hospitals. However, this is not enough to force hospitals in large networks into compliance, Amanda Starc, an associate professor at Northwestern University’s Kellogg School of Management, told the Journal.

A rise in hospital prices tends to correlate with consolidation deals, according to healthcare economists. While industry authorities have opined that consolidations raise the quality of healthcare delivery, a recent study showed this was not reflected.

Over time, hospital systems have been acquiring primary care practices. 2018 data from the University of California at Berkeley shows that nearly 44% of primary-care doctors work in hospitals or healthcare systems.

Hospital pricing is negotiated confidentially between hospitals and insurance companies that pay for care. This feat has “obscured market rates that have helped drive up the cost of health insurance premiums paid by employers and workers,” a related Journal story said.

Economists are unsure how the public pricing move will affect the greater healthcare sector or patients. A Cigna spokesman told the Journal its examination “is in no way indicative of value nor cost competitiveness” when looking at the healthcare space.

The issue expands to other healthcare components amid the ongoing coronavirus pandemic, such as excessive and possibly illegal COVID fees.

The Healthcare sector outlook for the end of 2020 was deemed poor, according to analysis from S&P Global Ratings, with dozens of credit downgrades in hospital systems occurring after June. Hospitals are continuing their climb back from high costs due to COVID-19, especially with large declines seen in March and April.

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