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California Hospitals Charges are 4 1/2 Times Their Cost

California Nurses Association Press Release, 5/14/13

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RNs: Findings Show Out of Control System Needs Reform

California hospitals set their charges at just over 4 and half times their total cost, well beyond the national average with the charges a significant factor in high healthcare costs in the state, according to new data released today by the California Nurses Association/National Nurses United.

The sizable gaps in the Affordable Care Act on costs that are pricing increasing numbers of Americans out of access to care, or driving more people into financial ruin due to high out of pocket costs reflect the significance of the new findings and a national and state problem with high charges, say the nurses.

Medicare last week released data showing hospital billing practices for a variety of common procedures. That prompted state lawmakers to call for more disclosure or hospital pricing information. The new findings go the next step, documenting the total charges by California hospitals above their costs. CNA will assess the reasons for and the impact of those charges.

  • California hospitals set charges of $4.51 for every $1 of their cost, exceeding the national hospital average of $3.31 per $1 of cost. In statistical terms, that is a charge to cost ratio of a whopping 451 percent for California hospitals, compared to the national average of 331 percent.
  • Nationally, the charge to cost ratio took its biggest jump ever, 22 points from 2010 to 2011, the most recent year for which the data is available. In California, the ratio also took a huge leap of 14 points.
  • Overall, average national hospital charge to cost ratios have exploded since the market crash of 2008. From 2009 to 2011 total hospital charges nationally have increased by 16 percent while costs have gone up just 2 percent.

Findings are based on the most recent publicly available federal data, Medicare cost reports, as of March 31, 2013, analyzed by the Institute for Health and Socio-Economic Policy, the CNA/NNU research arm. The IHSP has been studying and reporting on the data for the past decade.

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“Hundreds of California hospitals are engaged in disgraceful price gouging. For uninsured patients and their families, it too often results in massive un-payable medical bills that can lead to bankruptcy and financial ruin, or discourage people from forgoing needed medical care because of the high cost,” said Deborah Burger, RN, a co-president of CNA.

  • Some hospitals went far beyond the average. Olympia Medical Center in Los Angeles, for example, had a charge to cost ratio of 1,034 percent. It charges $10.34 cents for every $1 of cost.

Charge to cost ratios for individual California hospitals are available by calling 510-273-2246.

The hospital industry typically seeks to dismiss reports on the massive disparity between its costs and charges insisting that few actually pay the “list” price, and insists the charges are “random” when in fact there are distinct patterns in the pricing practices.

“But if there is no reason for the high prices, why bother charging them?” Burger asks. “The reason should be obvious. The more they charge the more they ultimately get paid – the very reason why these pricing practices have such a significant impact on driving up health costs.”

In practice, hospitals generally negotiate with insurance companies on payments. The higher the starting point on a charge, the higher the ultimate reimbursement, CNA notes. The insurance companies typically just pass their higher costs on to employers or individual purchasers of insurance.

The ripple effect, says CNA, was evident in a report last month by the California Healthcare Foundation. It found that insurers respond by raising premiums or limiting covered services. Since 2002, premiums in California have risen by 170% -- more than five times the inflation rate. As their costs skyrocket, more employers drop health coverage, jack up out of pocket costs, through co-insurance, co-pays, and deductibles.

The CHF report found that the number of California employers providing coverage during the past decade has dropped from 71 percent to 60 percent; 21 percent said they’d increased workers’ co-insurance premiums while 17 percent said they had reduced benefits or increased other out of pocket costs. More than one-fourth of workers in small firms have deductibles of $1,000 or more on their health plan.

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For the uninsured who do not have the collective clout to reduce their bills that Medicare or big insurance firms have, the results can be even more dire. While some patients don’t end up paying the charge, many are hounded by hospitals or bill collection agencies to pay up, a major reason for medical bankruptcies.

  • During that same period, hospitals have been making record profits. Nationally, hospitals reported $53.2 billion in profits in 2011. California hospital profits for 2011were over $6.2 billion, according to the American Hospital Association.
  • For-profit hospitals are the most expensive, with an average charge to cost ratio of 542 percent, followed by non-profit hospitals at 452 percent. The lowest ratio of charges to cost were at government facilities, such as county hospitals, 307 percent on average.

“Absurdly high charges are driving their record profits, while contributing directly to high health care costs, threatening individuals and families with bankruptcy, and limiting access to needed care by those who choose to self-ration medical care due to the high charges,” said Burger.

“Price gouging is a symbol of what is wrong with our profit-focused healthcare system, and the need for real reforms, including a crackdown on inflated charges as well as greater public oversight and protection generally. Long term the solution is still the transformation of our broken healthcare system to a more humane system, such as in expanding and improving Medicare to cover everyone,” Burger said.

The fact that public hospitals, especially country, government run hospitals every year tend to have the lowest charges over their costs, emphasizes that point, Burger added.

One immediate fix CNA supports is making sure non-profit hospitals, which are supposed to help people without health coverage who are most directly affected by the high charges, are held to account on provision of uncompensated care.

To that end, nurses are calling for the California legislature to pass AB 975 that would clearly define charity care to ensure it is care for the poor while exempting the public hospitals that are the most publicly accountable, as reflected by their record as having the lowest markups.

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