Extreme Markup: The Fifty US Hospitals With The Highest Charge-To-Cost Ratios

Abstract

Using Medicare cost reports, we examined the fifty US hospitals with the highest charge-to-cost ratios in 2012. These hospitals have markups (ratios of charges over Medicare-allowable costs) approximately ten times their Medicare-allowable costs compared to a national average of 3.4 and a mode of 2.4. Analysis of the fifty hospitals showed that forty-nine are for profit (98 percent), forty-six are owned by for-profit hospital systems (92 percent), and twenty (40 percent) operate in Florida. One for-profit hospital system owns half of these fifty hospitals. While most public and private health insurers do not use hospital charges to set their payment rates, uninsured patients are commonly asked to pay the full charges, and out-of-network patients and casualty and workers' compensation insurers are often expected to pay a large portion of the full charges. Because it is difficult for patients to compare prices, market forces fail to constrain hospital charges. Federal and state governments may want to consider limitations on the charge-to-cost ratio, some form of all-payer rate setting, or mandated price disclosure to regulate hospital markups.

Keywords: Financing Health Care; Health Economics; Hospitals.