For many Americans, that’s true. But it’s because they don’t understand that the prices hospitals charge are reflected in the premiums and other out-of-pocket costs, which ultimately eat into their raises and affect them in ways far beyond their out-of-pocket costs, said Suzanne Delbanco, executive director of Catalyst for Payment Reform.
“It’s like you put a jar of candy in front of kid and they’re focused on eating it right then,” she said. “They don’t focus on the ramifications.”
Then of course there’s the argument that hospitals simply can’t get any leaner, especially when you consider that more than half of a hospital’s budget is typically tied up in wages and benefits for employees, Pollack noted.
With supply and labor costs varying from market to market, key factors that go into pricing structures are outside of a hospital’s hands, added Chip Kahn, CEO of the Federation of American Hospitals, a trade group that represents the for-profit sector.
But there’s some evidence hospitals have more control than they let on. Delbanco pointed back to a 2011 Medicare Payment Advisory Commission report that found hospitals in more competitive markets tend to control their costs better than those in less competitive markets.
The 25% of hospitals in the study experiencing high competitive pressure had median costs per case that were roughly 10% lower than the national median, according to MedPAC. Those hospitals in turn generated Medicare profit margins that were 10 percentage points above the national median. The 60% of hospitals experiencing low competitive pressure had costs per case that were 4% above the national median and a median Medicare profit margin that was 4 percentage points below the national median, the study found. The study didn’t explore what the more profitable hospitals did differently, but it shows that when pressure is applied, they find ways to be more efficient.
“It’s much easier to keep charging more than to figure out how to root out costs,” Delbanco said. “It’s like swimming downstream as opposed to swimming upstream.”
Salt Lake City-based Intermountain Healthcare is unique in its outspokenness about its success in lowering its prices, both in the form of cheaper services and lower premiums through its health plan. Its CEO, Dr. Marc Harrison, said being integrated with a health plan allows Intermountain to align incentives across the payer and provider segments.
Intermountain has identified certain shoppable procedures and lowered their out-of-pocket prices. One example is a normal, vaginal delivery, with a plan available for uninsured patients that reduced the cost from approximately $6,000 to $4,150, Harrison said.
“We thought it was really important,” he said. He estimates Intermountain’s pricing initiatives will save Utah consumers $35 million in 2019. “If we have the discipline to change our cost structure without hurting quality, we should do that.”
Intermountain’s SelectHealth insurance plans decreased their premiums 2.7% on average in 2019 for individuals insured through the exchange.