New research has found “significant variation” between the price markups different hospitals charge for four elective inpatient surgeries and that those with the highest increases also demonstrated worse outcomes than their peers.
The analysis of nearly 2,000 hospital organizations published Wednesday in JAMA Surgery found higher median cost to charge ratio (or, the ratio of what a hospital billed against their actual incurred costs for a care episode) of 3.0, which is higher than prior studies on the issue. The researchers also noted that 10% of the hospitals had charged more than eight times their incurred costs and that the 50 most expensive hospitals they reviewed marked up their costs for the procedures by a median factor of 13.
“Altogether, it appears that there is a considerable trend toward increasing hospital markups across the U.S. that warrants both increased attention and regulation,” the researchers wrote in the journal.
The analysis defined 194 institutions in the top decile of markup ratios as “high-markup hospitals” for four procedures: abdominal aortic aneurysm repair, colectomy, isolated coronary artery bypass grafting and hip replacement.
These organizations had median markup ratios of 8.5, as determined by their Medicare all-payer cost reports—which notably do not reflect privately negotiated agreements and discounts with payers but “remain important” as a starting point on reimbursements negotiations, the researchers wrote. On average, these hospitals were more often private investor-owned facilities, had more beds and were metropolitan teaching centers.
Though the high-markup hospitals treated patients with clinically similar characteristics, risk-adjusted analysis of 2022's Nationwide Readmissions Database found those receiving care at a high-markup hospital faced greater odds of mortality and any major complication, including new cardiac, respiratory, infectious and kidney issues. Patients at high-markup hospitals were also more likely to be discharged to a setting other than their homes and to be readmitted for nonelective reasons within 30 days of discharge.
The researchers noted that markups have traditionally been justified as necessary to cover growing expenses and that recent slow or negative growth in government reimbursement has only amplified the pressure on hospitals.
“However, these challenges do not explain the significant variation in hospital markup, which we found to range from 0.5 to 17.5 across centers,” they wrote. “We did not observe a substantial difference in the proportion of Medicare patients between [high-markup hospitals] and other centers, suggesting no apparent basis for variation in cost-shifting practices.”
They also put a spotlight on private and investor-owned hospitals, which made up 74% of the identified high-markup hospitals and are not beholden to all of the upcharge limitations legislation like the Affordable Care Act imposed on nonprofits.
Limiting their analysis to for-profit hospitals alone yielded a median markup ratio of 6.3, “more than double the national average.” Based on profit estimates prior literature, that means that the for-profit hospitals are seeing more than $300 more profit per discharge on the elective procedures than the national average, they wrote.
The researchers wrote that “national policy-level changes are needed” to address the various issues highlighted by the findings, including potentially unnecessary cost burdens and high-markup hospitals’ lower-value care. They advocated for more extensive and better enforced public disclosures of cost-to-charge ratios and chargemasters, so regulators have greater insight why these facilities have worsened outcomes. The researchers also warned policymakers not to target high markup ratios alone “as an isolated symptom” but to pair any policy changes for providers with payer-focused counterparts addressing the low reimbursement pressuring hospital margins.
“Within the current hospital billing landscape, health systems and payers operate within an umbra of secrecy, leaving insurance beneficiaries and patients responsible for paying the price,” the researchers wrote. “Identifying high markup, low-value hospitals and regulating pricing practices may represent an initial approach to lowering expenditures and protecting patients, but more transparent, fair and equal billing practices could create a more effective system for all.”