For some time it has been known that unit prices are the driving force in health spending growth and that hospital prices in particular have risen at a rate substantially greater than general inflation. An analysis undertaken by the New York Times shows that even over the last few years hospital prices for commercial health insurance have grown rapidly. (NY Times Article) Unlike Medicare and Medicaid , which can largely set their prices by fiat, subject to political pressure, commercial payers must negotiate and hospital systems often have significant market power. Overall the Times found that hospitals increased prices for a common set of services at over 10% between 2011 and 2013, twice the rate of inflation. These prices are significantly higher than Medicare’s reimbursement. For example, the average hospital charged about $54,000 for a joint replacement in 2013, while Medicare paid on average $12,000. Some examples of the rate of price increases are back and neck procedures rising 22% since 2011, chest pain going up 18% and percutaneous cardiovascular procedures growing 17%. In all cases, the prices in 2013 were much higher than, usually multiples of, what Medicare pays.
While the prices disclosed appear to be list prices, and plans typically get a discount from those prices, the trend tends to be similar. The American Hospital Association says, with some justification, that the cost of running a hospital is going up as well. But studies also show that well-run hospitals have managed to maintain or even increase their margins under Medicare payments, so one suspects that they are doing okay in the private insurance world. Ultimately consumers bear these higher prices, whether directly or through insurance premiums. And consumers don’t need to see continued financial pressures from health care needs.