Hospital cost and charge gap grows immensely

The difference between what it costs a hospital to provide a service and what it charges for it--a gap that often confounds and maddens healthcare economists and patients--has widened dramatically since the 1990s, according to a new study by the Jayne Koskinas Ted Giovanis Foundation for Health and Policy.

Hospital charges are increasing at approximately twice the rate of costs, with the gap more than quadrupling between 1991 and 2011, News Medical reported. Altogether, the margins rose from 72 percent in 1991 ($1,720 charged for each $1,000 in costs) to 343 percent in 2011 ($3,430 charged for each $1,000 in costs).

Large urban medical centers had an average charge markup of 262 percent in 2011, up from 74 percent in 1991. Rural facilities marked up charges 178 percent in 2011, up from 69 percent in 1991.

New Jersey has had a remarkable transformation, according to the study. In 1991, its hospitals marked up charges an average of 128 percent, with no facility marking up charges more than 169 percent. The following year, a new law abolished state regulation of hospital pricing. In 2011, the average markup statewide was 623 percent, with some markups approaching 1,300 percent--the biggest in the nation. It is one of six states that reported hospitals marking up charges by 1,000 percent or more.

Such markups often lead other constituents in the healthcare sector to claim that they have contributed to the dramatic overall increase in costs over the past couple of decades.

The study concluded that the gap has a lot to do with hospitals needing to make up shortfalls from ever-tightening reimbursements from government and commercial payers.

"As hospitals are forced to do more with less, charges have become a tool for negotiating higher reimbursement/payment from insurers. For too long hospital prices have not been understood therefore dismissed, but prices do matter and we need to rethink how they are set," JKTG Foundation Founder and President Ted Giovanis told News Medical.

To learn more:
- read the News Medical article
- here's the study