NCPA - National Center for Policy Analysis

HIGH COSTS AND LOW REIMBURSEMENTS

September 29, 2004

Hospital costs account for the largest portion of the nation's $1.8 trillion medical costs annually, says the Kansas City Star, but the "sticker price" charged by hospitals and the payments they receive for services are quite different.

  • The California Nurses Association reports that the nation's hospitals charge an average of 232 percent above cost, with the country's 100 most expensive hospitals charging over 673 percent above cost.
  • The American Hospital Association reports that the aggregate hospital profit margin increased from 4.2 percent to 4.4 percent between 2001 and 2002 (the first increase since 1996), but about one-third of the country's more than 5,000 hospitals are losing money, while another third are barely breaking even.
  • Over half of hospital costs are attributed to the number of services provided to patients, while about 45 percent is attributed to the rising cost of goods and services, including wages.
  • Furthermore, Medicare, Medicaid and health insurer reimbursements usually pay less than what it costs to provide care, and the nation's 45 million uninsured pay little or nothing for hospital care.

In inner city areas, hospital especially struggle to make ends meet since they treat more low-income individuals with no ability to pay. Additionally, hospitals do not get needed rate increases from managed care companies, although the Center for Studying Health System Change notes that many hospitals do have leverage in demanding higher reimbursement rates from managed care.

Some, however, view increasing hospital costs as an indicator that people are using more needed hospital care, which is good for patients and communities.

Source: Julius A. Karash, "A Healthy Workout," Kansas City Star, September 21, 2004; and "The Second Annual IHSP Hospital 200: Hospitals, Big Pharma, HMOs and the Health Care War Economy," Institute for Health and Socio-Economic Policy, September 8, 2004.

 

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