High hospital “list prices” matter even if patients don’t pay the full bill

Chances are good the hospital bill you received contains “discounts” negotiated either by your health insurance carrier or by you. These discounted prices draw attention – and angst – away from the hospital’s list prices.

Almost everybody gets a discount, so the list prices don’t matter. Right?

Wrong.

Economists at the Federal Reserve Board and the American Enterprise Institute found that hospital list prices are a good gauge of which hospitals receive higher payments across the board.

Their study, published in the journal Health Affairs, relied upon data from California hospital systems. Researchers found that each additional dollar built into a hospital’s list price translated to an additional 15 cents paid by privately insured patients.

The researchers also found key differences in list prices among hospitals and how much they were marked up compared to the hospital’s actual operating costs. One large for-profit urban hospital that was part of a chain had markups that were 360 percent higher than list prices at a rural, independent, nonprofit hospital.

One might assume that higher prices indicate patients get better care and with improved results. Also not true. The study looked hospital readmission rates and found no evidence that higher prices corresponded to higher quality.

In the end, this study and others like it suggest that hospitals use high charges to put themselves in a better negotiating position with private insurers. The high charges also help them recoup losses incurred from treating Medicare and Medicaid patients.

Even if many patients never get stuck with the full bill, they can leave the hospital with a substantial amount to pay. Experts say consumers would be better served by more transparency in pricing.

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