Would you go to a car mechanic who charges $200 for a $20 oil change? Surely not.
Yet a combination of a lack of regulation, competition and clarity in billing practices enables many hospitals to routinely charge fees to patients that are more than 1,000 percent of the amount that is reimbursable by Medicare, a new study has found.
The study, published today (June 8) in the journal Health Affairs, lists the 50 U.S. hospitals with the most extreme price markups. The researchers claim that these markups are largely motivated by profit, not service quality, and that this price-gouging trickles down to nearly all consumers, whether they have health insurance or not, contributing soundly to the high level of U.S. health spending.
Among these 50 hospitals: 49 are for-profit hospitals; the majority are operated by two health systems (Community Health Systems Inc. and Hospital Corporation of America); and 20 are located in Florida. Topping the list is North Okaloosa Medical Center in Florida, which charges more than 1,200 percent of what Medicare will reimburse for procedures, on average.
"What we have is a market failure," said Ge Bai, an assistant professor of accounting at Washington & Lee University in Lexington, Virginia, and lead author of the new study. Patients who need health care "don't have time to do comparative shopping [for a hospital] beforehand," she said. [7 Medical Myths Even Doctors Believe]
And the prices for hospital services, Bai added, tend to be exorbitant and poorly defined.
Many hospital patients don't pay the full price for services but rather a reduced fee negotiated by their health insurers. But many others are charged the full rate, and these can include the more than 30 million uninsured Americans, patients receiving out-of-network care, and those receiving workers' compensation or auto insurance benefits, the researchers said.
As a result, patients can face exceptionally high medical bills, often leading to personal bankruptcy, damaged credit scores, or avoiding medical services that are needed, the researchers said.
"There is no justification for these outrageous rates, but no one tells hospitals they can't charge them," said Gerard Anderson, a professor of policy and management at the Johns Hopkins Bloomberg School of Public Health, a co-author on the study.
"For the most part, there is no regulation of hospital rates and there are no market forces that force hospitals to lower their rates. They charge these prices simply because they can," Anderson said
For their analysis, the researchers examined 2012 Medicare cost reports to determine a charge-to-cost ratio, an indicator of how much hospitals are marking up charges beyond what Medicare agrees to pay. Medicare is the U.S. health insurance program for people ages 65 or older.
On average, U.S. hospitals charged 3.4 times the Medicare-allowable cost in 2012, the study found. Maryland had the lowest markups, averaging about 1.5 times higher than the Medicare-allowable cost. More than 75 percent of the hospitals with the highest markups were in the Southern states.
The Tennessee-based Community Health Systems, which manages 25 of the 50 hospitals on the list, could not be reached for comment. Hospital Corporation of America (HCA), also based in Tennessee, manages 13 hospitals on the list. The company told Live Science that the amount patients pay for hospital services in general has more to do with the type of health coverage they have, more so than a hospital's internal list of prices, known as the chargemaster.
"Uninsured patients are eligible for free care through our charity care program, or they receive our uninsured discounts, which are similar to the discounts a private insurance plan gets," said HCA spokesman Ed Fishbough.
"In addition, we were one of the first providers to make detailed pricing information publicly available; we have been providing this information on hospital websites since 2007," Fishbough said.
Among the main causes for extremely high markups is a lack of price transparency, Bai said. Few people understand the full pricing before being admitted to the hospital, and few can comprehend their bill. Indeed, Bai said she was inspired to conduct the hospital study after she herself was befuddled by a bill.
"I'm a CPA, and I couldn't understand [the hospital bill]," Bai told Live Science. "If I can't understand it, how can the average American?"
The researchers recommended that state or federal regulations be put in place to limit the charge-to-cost ratio and to provide mandated price disclosures and comparisons. Maryland and West Virginia are the only states that set maximum hospital rates, and these states have lower charge-to-cost ratio compared with other states.
The Federation of American Hospitals (FAH), which represents investor-owned or managed-community U.S.-based health systems, explained its costs in a 2013 blog post.
The FAH issued a statement on the new study, disagreeing with the findings. The FAH noted, as the study authors did, that hospital programs that offer discounts were not included in the study, and also that the study did not recognize the cost of care that goes uncompensated, which was $450 million in 2012 for the hospitals on the list.
Follow Christopher Wanjek @wanjek for daily tweets on health and science with a humorous edge. Wanjek is the author of "Food at Work" and "Bad Medicine." His column, Bad Medicine, appears regularly on Live Science.