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Are inflated hospital bills affecting your cost of care?

In the great debate over why health care costs so much, some have pointed to inflated hospital charges, while others say those sticker prices don't really matter.

Photo of Chestnut Hill Hospital from
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In the great debate over why health care costs so much, some have pointed to inflated hospital charges, while others say those sticker prices don't really matter.

What is clear, however, is that Southeastern Pennsylvania has a significant cluster of high-price-tag hospitals.

Of the 50 hospitals in the nation with the highest markups over cost, six are in the city and its surrounding counties, according to an analysis published Monday; a seventh is 50 miles north. Only Florida, with 20 hospitals on the list scattered around the state, had more than Pennsylvania.

Just one hospital in the local cluster - Hahnemann University Hospital - is an academic medical center whose highly skilled physicians and sophisticated technology might be expected to lead to high charges. The researchers, however, considered not just charges but the ratio of charges to costs.

Officials at Hahnemann, owned by for-profit Tenet Healthcare, declined to comment on the report.

Most of those on the list are medium-size community hospitals - particularly those owned by Community Health Systems Inc., the giant for-profit chain whose properties accounted for half of the 50 hospitals nationwide with the highest charge-to-cost ratios in 2012.

No. 5 is CHS-owned Chestnut Hill Hospital, with a markup of nearly 1,200 percent. (Most of the 4,500 hospitals studied bill 150 to 400 percent of costs, according to the paper.)

Also among the top 50: Brandywine Hospital in Coatesville, Phoenixville Hospital, Pottstown Memorial Hospital, and Easton Hospital. All are owned by Community Health Systems.

The only nonprofit on the top 50 list is Crozer-Chester Medical Center.

Few patients pay full list price. The government sets payment rates for Medicare and Medicaid. Private insurance companies negotiate contracted rates with hospitals. Such negotiated rates are far below hospital "chargemaster" rates, the huge amounts that appear on "explanation of benefits" statements from insurers.

More vulnerable to sticker shock are the uninsured, along with those who have insurance but end up with a provider outside their network.

But some health economists believe that inflated charges have an even broader impact by adding clout to hospitals' negotiations with insurers, effectively increasing premiums for all consumers.

Hospital markups have increased dramatically nationwide in recent years. An exception is Maryland, where the state rate-setting agency restricts them. The practice actually added to hospital profits by encouraging efficiencies, said Robert B. Murray, a consultant who headed the agency for 17 years.

He believes that inflated charges matter a lot.

Increasing mergers plus acquisitions of doctor practices are giving health systems more leverage with insurers, he said. Another trend - rising admissions through emergency rooms - leaves more patients, some seriously injured - stranded at out-of-network hospitals that bill at list price.

The argument that sticker prices have no meaning is a "red herring," he said. "If it is meaningless, why do they keep raising them?"

New Jersey contributed just one hospital to the list: Bayonne Medical Center, with the second-highest charge-to-cost ratio in the nation.

"The for-profits are really good at playing the gouging game," said Ge Bai, an assistant professor of accounting at Washington and Lee University and lead author of the new paper in Health Affairs.

The "charges" that the researchers used for their calculations are what hospitals bill. The "costs" are the Medicare allowable costs that health economists consider to be around 90 percent of the true costs of providing care. The ratio is simply a total of the former divided by the latter, both from federal records.

About 88 percent of Americans have health insurance, according to the latest Gallup poll, and insurers pay a fraction of the billed amount.

"The uninsured, they don't pay these rates either," said Gregory Kruse, a doctoral candidate at the Wharton School and special assistant to the CEO of the University of Pennsylvania Health System, which has no hospitals on the top 50 list. Many work out lower payments.

But some of the most vulnerable patients don't realize they have that option. And some hospitals refer cases to bill collectors who aggressively pursue payment, leading consumers to ruined credit and bankruptcy.

A new provision of the Affordable Care Act limits nonprofit hospitals' billing practices, but says nothing about for-profits. A handful of states, including New Jersey, require for-profits to offer discounts.

Casualty and workers' comp insurers often are required by law to let patients choose their providers, so those companies may pay higher percentages of hospital charges, as well.

Daniel Polsky, executive director of Penn's Leonard Davis Institute of Health Economics, noted that deductibles on private insurance policies have been growing at the same time that covered networks have been narrowing.

The secret negotiations between insurance companies and hospitals come down to two things: how much a hospital will be paid, and whether it will be in- or out-of-network. Inflated sticker prices can be "one tool" used to win higher payments, Polsky said.

"If it is more profitable to be out of network for a hospital, that gives them more leverage to negotiate to be in the network," he explained. "So they might show these high charges and say: 'Heck, I'm going to do pretty well, so you give me a good rate to be in your network or hey, I'll see you later.' "

Still, Polsky said the impact would be small.

The nonprofit owner of Crozer-Chester said in a statement: "We can say without reservation that what Crozer-Keystone is paid - by Medicare, Medicaid, private insurers, and patients - is in line with the market."

Chestnut Hill Hospital, one of Community Health Systems' 19 Pennsylvania hospitals, also released a statement.

"Hospital charges do not accurately portray what consumers pay for their healthcare. At our hospital, we provide substantial discounts for those who are uninsured and we offer charity care for those who qualify," said CEO John Cacciamani.

"Healthcare costs are complicated, and we know what really matters to patients is what they personally pay out of pocket," the statement said. "Our positive operating margins allow us to reinvest in the services we provide."