Fair pricing laws lead to less revenue for hospitals

Hospital fair pricing laws could actually lead to a reduction in revenue, according to a Duke University physician and behavioral scientist.

Peter Ubel writes in Forbes that California's decade-old fair pricing law capped what hospitals could charge uninsured patients, and most facilities bill them at Medicare rates these days. That's a departure from hospital conduct in most states. Hospitals tend to bill uninsured patients based on their chargemasters and that data tends to be vastly different from what organizations charge insured patients.

Ubel cited a study published in Health Affairs earlier this year from Washington and Lee University economist Ge Bai. That study examined California's fair pricing law and concluded that the sum actually collected by hospitals for every dollar in gross price charged dropped from 32 percent to 11 percent. That's despite the fact that the net price charged by patients dropped from an average of 6 percent above Medicare rates to 68 percent below Medicare rates.

The conclusion seems to defy Ubel's reasonable conclusion: "Charge everyone a billion dollars, and you probably won't get much money from anyone. Charge everyone a reasonable fee, and you might end up getting more money."

Other studies have suggested that when fair pricing laws are in effect, hospitals are compelled to actually provide more efficient care because management is aware they will be paid less for caring for an uninsured or underinsured patient.

But Ubel believes other factors are at work, including the impact of the Great Recession that began not long after California's fair pricing law went into effect, as well as the large number of uninsured patients in the Golden State. Ubel decided that getting more insured patients means hospitals will be paid more.

To learn more:
- read the Forbes article 
- check out the Health Affairs study abstract