Hospitals Are Price-Gouging the Uninsured, and Here’s Why

Source: Thinkstock

Source: Thinkstock

“They are price-gouging because they can,” Gerard Anderson, a professor at the Johns Hopkins Bloomberg School of Public Health, told The Washington Post in regards to a new study about healthcare prices. “They are marking up the prices because no one is telling them they can’t.”

As if to confirm all of America’s long-held suspicions, Anderson co-authored a new study published in Health Affairs that found hospitals vastly overcharged uninsured patients — by as much as ten times the cost of care. By looking at pricing from 50 different hospitals from across the country, 49 of which were run by for-profit companies, Anderson and his team found that healthcare companies evidently felt no sympathy in dealing with patients in need of financial assistance, or those who had no insurance at all.

“These are the hospitals that have the highest markup of all 5,000 hospitals in the United States. This means when it costs the hospital $100, they are going to charge you, on average, $1,000,” he said.

Two companies operate a majority of the hospitals the study targeted, Community Health Systems with 25, and Hospital Corporation of America with 14. Twenty of the hospitals were in Florida. While those two facts could have played a part in the ultimate findings published by Anderson and his team, the results were still pretty shocking. For good measure, the average markup a typical U.S. hospital places on a final bill is about 3.4 times the actual cost of care. The highest markup the researchers found was 12.6 times that amount.

It’s been well-documented and discussed that healthcare costs have spiraled out of control in the U.S., and this study has only added more fuel to the fire. The thing that trips a lot of people up is how these costs get so inflated. We’ve all seen the reports of unreal charges for a single blood draw, but what the public still isn’t getting is why, and how, those kinds of prices happen.

The numbers are shocking, but we really shouldn’t be all that surprised by the study’s findings. The healthcare industry has largely been shielded from traditional market forces by legislators and a myriad of laws and regulations, and it’s not common for patients to go shopping around for the best deal between providers, especially if they live in an area which may only have one or two hospitals or clinics. Because we have protected these healthcare companies from market forces, it’s hardly a surprise that they are immune to the same price-dropping remedies we may see in other industries.

Competition is the biggest missing factor. The U.S. currently allocates about $2 trillion in annual healthcare spending, or roughly 17% of GDP, according to a report from The Council on Foreign Relations, making it obvious that the U.S. system has some serious issues that other countries, most with universal healthcare programs, are not experiencing. At its core, it’s because the government has padded the industry from competition.

What are bootstrapping entrepreneurs going to do? Start their own hospital? Fat chance.

The other big factor that the researchers point out is that it’s a matter of supply and demand. The highest prices from hospitals included in the study were in big cities and in more expensive areas, meaning that demand for health and hospital services was higher in more populated areas. For example, if a city only has a certain number of surgeons or hospital beds, the price is going to be higher to rent out either one for a specified amount of time. If there were hundreds of thousands of surgeons walking around, their time and skill would be much less valuable, and therefore cheaper.

But that’s not the case, and since so many people are in need of care, a hospital’s resources are in high demand almost all the time, ergo higher prices.

If anything, this study gives us some flashy headlines, and more things to argue about when it comes to healthcare. What still remains is the fact that hardly anyone, whether it be politicians, business leaders, or anyone else, seems willing to really take the problem seriously.

The Affordable Care Act may have been a first step, assuming it survives a second Supreme Court challenge, but the underlying problems still persist. And if costs aren’t brought under control, eventually, healthcare costs will bankrupt the entire country.

Follow Sam on Twitter @Sliceofginger

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