MedPAC: Many hospitals charge too much for care

costs
To combat high hospital prices, MedPAC recommends initiatives such as reference pricing, greater use of accountable care organizations, the barring of balance billing for out-of-network emergency care, and more empowerment of patients to shop for their care based on costs.

The Medicare Payment Advisory Commission has concluded that many hospitals charge too much for care.

Hospital costs "are highly dependent on the financial pressure that a hospital experiences," MedPAC said in a recently posted analysis. For the last several years, MedPAC's analyses have established that when hospitals are reimbursed at higher commercial rates, "they have higher costs per patient and can cut costs when they are under competitive and fiscal pressures,” it adds.

Larger hospitals with greater market share are able to extract more payments from commercial insurers. That appears to be confirmed by studies suggesting that mergers and acquisitions among hospitals tend to lead to greater price variation. And price hikes can occur even when mergers and acquisitions are consummated across different regions.

By contrast, “Medicare has restrained rates in recent years, while commercial payers increased their rates faster than economy-wide inflation," the analysis says. Even as employees’ wage growth has slowed and uncompensated care costs have declined, hospitals have generally continued to obtain material rate increases of 4% to 6% from commercial insurers, MedPAC says.

For-profit hospitals actually have more incentive to keep their costs under control because their investors expect them to maximize profits, while not-for-profit hospitals typically incorporate any excess profits into their cost structure, raising their costs and reducing their Medicare margins, the report concluded.

Even when hospitals are called out for high prices—as was the case recently in Florida—little actually occurs in response.

Although MedPAC suggested greater antitrust scrutiny in the hospital arena, that is not likely to address market concentration throughout the country. Instead, it recommended initiatives such as reference pricing, greater use of accountable care organizations, the barring of balance billing for out-of-network emergency care, and more empowerment of patients to shop for their care based on costs.