fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

Charges Study Lacks Policy Making Relevance

June 08, 2015 | Chip Kahn

Category: Financing, Health Care Delivery

The Bai-Anderson paper on hospital charge-to-cost ratios released in Health Affairs today struggles to support implications for health policy reform.

The study does not recognize that the listed hospitals provided nearly $450 million in uncompensated care in 2012 alone. Federation of American Hospitals member companies have been pioneers in creating and implementing programs that provide substantial discounts to uninsured and underinsured patients who cannot cover their out-of-pocket costs. The FAH member companies cited in this study have these programs firmly in place.

A critical limitation of this study, acknowledged by the authors, is its omission of discounts attributable to these programs. Including these discounts would have had a significant effect on the charge-to-cost-ratio reported, and therefore the implications of the study’s results.

Indeed, had the authors instead compared the actual payment-to-cost ratio of these hospitals compared to the national average, they would have discovered virtually no difference between the two groups– 1.3 for the 50 hospitals and 1.2 for the national average. These figures illustrate, in part, the significance of discounts, and more broadly, why a myopic focus on charges misses the mark on what matters and is no justification for the menu of policy options offered. While we agree price transparency, conceptually, is essential, the transparency the authors call for will not help the average uninsured or underinsured patient. Absent coverage, the true resolution is having programs in place, like those in our hospitals, which offer discounts so that these patients do not have to prioritize concern about their ability to pay over their own health and well-being.

The notion advanced by the authors that hospital charges determine the results of negotiations with insurers is false and misleading. Insurers have tremendous market power and assert this power in arms-length rate negotiations with health care providers.

And there is a puzzling disconnect between the authors’ conclusion that charges drive rising health care spending, and widely known and readily available data. We have experienced a historic slowdown in spending growth over the last five years, while hospital price growth remains at record lows – 0.3 percent in April compared to the prior year.

Indulging the same arguments about hospital charges, over and over again, does not make them more meaningful and does not justify the reforms the authors recommend. It is not the time to embark on the major policy changes suggested, which could have unintended consequences or disrupt recent positive trends, especially for patients.