As health care costs spiral higher, hospital price increases are flying under the radar

Trudy Lieberman is a veteran health care journalist and regular contributor to HealthNewsReview.org. She tweets as @Trudy_Lieberman.

Let’s face it. The U.S is not coming to grips with the high cost of medical care anytime soon.

The media’s fling with high drug prices is about over. Mylan now sells a generic version of the EpiPen — $300 for two doses instead of $600 — low enough to smother the fires of outrage but high enough to make enough money to burn. Martin Shkreli, the hedge fund guy turned PhRMA “bro” who raised the price of a drug for treating a life-threatening parasitic infection from $13.50 a pill to $750, has faded from the news. “The issue has gone quiet,” Ceci Connolly, the CEO of the Alliance of Community Health Plans, told Modern Healthcare. “We are very worried that the issue of unsustainable drug prices is falling off the national agenda.”

Despite bigger impact, hospitals get a free pass on pricing

What about the system’s other players? Prescription drugs, after all, eat up only about 10 percent of the spending pie. Hospitals consume about one-third, and doctors about one-fifth. Where’s the outrage when hospitals and doctors raise their prices? There isn’t much. News outlets have discovered gold  in hospital advertising.  And the public still believes doctors sit at the right hand of God.

What’s a journalist to do?  Continue to cover ribbon cuttings for new cancer wings, health fairs for poor people, and the latest medical miracles from a hospital advertiser? Or ignore the sins of your local hospital as too many journalists did when they didn’t report their hospitals were fined for violating a Medicare coverage decision and possibly endangering the lives of hundreds of heart patients?

None of the above are satisfactory given how high the stakes are for patients in the next few years. The Centers for Medicare & Medicaid Services  estimate that healthcare expenditures will account for 20 percent of the U.S. economy by 2025 — a stat so compelling that good reporting on hospitals should rise to the top of list of health stories to investigate this year.

Lack of transparency makes reporting on prices difficult

That’s why I was intrigued by a recent tweet from Bob Herman who has just moved over to Axios, a new media company, from his perch covering hospitals for Modern Healthcare.


Herman linked to a financial report for the San Francisco-based chain of 39 hospitals, which noted increased revenues for the company “primarily due to higher volumes associated with acute care activities, physician organizations and consolidated joint ventures, and rate increases.” It’s a good bet that Dignity’s increase was not big news like drug prices and insurance premiums were last year.

“There’s almost an aura about hospitals that they are doing the right thing so they don’t get much attention,” Herman told me. “Hospital systems fly under the radar.”  Then, too, he adds, “Hospital pricing is confusing and laborious and not easily understood and that’s probably what they want.”

Indeed pricing is confusing because it is far from transparent as Steven Brill pointed out a few years ago in his well-read piece for TIME.  Still, as Herman’s tweet revealed, public documents like financial reports and investor calls say a lot about what a hospital system is up to. Consolidation and rate increases helped boost one chain’s revenue, and that’s a good place to begin looking at how other hospital systems are faring.

Chad Terhune of Kaiser Health News reported more about Dignity last summer, basing his story on a study showing that prices at Dignity’s hospitals and those operated by Sutter Health, another big California hospital chain, were 25 percent higher than for hospitals in the rest of the state. The reason, researchers found, was not that these organizations were treating sicker patients or because of regional wage differences — often reasons hospitals give for hiking prices. It was because they had market power that let them, as Kaiser put it, “win higher rates.” Although hospitals that buy up other facilities, physician practices, and clinics argue that consolidation improves efficiency and results in better service, the study found no evidence that any potential savings were passed on to those who pay the bills.

Predictably, Dignity and Sutter Health disputed the findings. Dignity attributed the increases to higher labor costs, among other factors.

Consolidation, touted as efficiency booster, helps keep prices high

Another story showed up a few weeks ago in The Journal News, which covers New York’s Lower Hudson Valley. It, too, examined the role of market concentration in keeping prices high. Reporter David Robinson told how big, well-known New York City hospitals were competing with each other to open new cancer centers for the affluent Westchester County population. Within an eight-mile area, he wrote, three cancer facilities are fighting with each other to attract patients. Kevin Dahill, who heads the Northern Metropolitan Hospital Association, told the paper that genomics and costly precision medicine technology were the new table stakes in cancer care, but competition among hospitals to obtain it hasn’t reduced patients’ medical bills. “Sometimes people conclude that (competition) means lower prices, but it’s anybody’s guess if it eventually will lower the price to the consumer,” Dahill said.

Charles Kahn, who heads the Federation of American Hospitals, told me the future financial situation for hospitals is “precarious” and that much will depend on the service mix. Facilities that can provide more cancer care will be in a better position to weather market changes, he suggested. That’s something journalists covering their local hospitals should follow and helps explain why so many medical “miracles” are embedded in cancer care advertising.

More evidence of what happens when there’s little competition came a few weeks ago from the New York State Health Foundation, which studied 107 New York hospitals and found that hospitals with greater market share are generally higher-priced, and those part of a hospital system that has a large regional market share are also higher priced even if their own market share is small. A hospital with market leverage can demand higher prices from an insurer, especially if the insurer wants the hospital in its network or if it’s the only game in town.

The Foundation’s report seconded what many journalists already know. Sorting out hospital prices is damn hard, and the proverbial deck is stacked against patients, and snoopy journalists for that matter, trying to learn anything about prices and costs. Gag clauses written into contracts between hospitals and insurers tie an insurer’s hands when it comes to posting providers’ prices on their member websites. Other clauses say that either hospitals or insurers can pull out of the contract if one of the parties engages in practices that hurt the other. If the insurer tries to expand a list of procedures requiring prior approval, or tries to steer consumers to lower-priced providers, the hospital can pull out.

Beyond ribbon cuttings: Journalists should probe deeper on pricing claims

The Foundation study reported no association between price and quality of care. Facilities with higher prices didn’t necessarily deliver better care. Ones with lower prices did not necessarily give poor care, a point that’s hard for patients to understand, especially in this time of more hospital advertising for medical miracles. The Albany Times Union offered readers a fine, meaty, front-page story by Claire Hughes built on the Foundation report and her own reporting. She quoted a representative of the Healthcare Association of New York State, a hospital trade group, who acknowledged that hospital pricing is “not like typical products and services.”

Hughes didn’t it leave it there. She obtained the association’s consumer guide to help patients compare prices and manage out-of-pocket costs. “Among reasons the guide gives for price variations are hospital, size, the populations served and the service provided,” Hughes wrote. But according to the foundation’s report, “none of these correlate with higher price.”

Now that’s the kind of hospital reporting that moves beyond ribbon cutting and miracles.

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Comments (4)

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Richard Rahl

January 4, 2017 at 1:19 pm

The goal of this article is to challenge the quality of journalism in health care, correct? Yet it cites Glenn Melnick’s research, which has repeatedly been exposed as TMZ-level caliber, and a Kaiser article decrying the pricing of its two biggest competitors.
At the very least, attempt to comment on the validity of the response from Bill Gleeson so that the article is weighing both sides of the argument.

Kevin Lomangino

January 4, 2017 at 1:52 pm

Richard,

Kaiser Health News is an editorially independent non-profit news service not affiliated with Kaiser Permanente. To describe KHN as somehow in competition with insurance companies is way off base.

Kevin Lomangino
Managing Editor

Stephen Cox, MD

January 9, 2017 at 10:21 am

Excessive price gauging by legitimate health care providers(some physicians and most hospital/clinic administrators, etc) is a significant driving force for the growing unethical popularity of Alternative fake health care. Frustrated patients resort to the bogus claims of fraudulent sirens whose rhetoric further widens the gap between truth and deception. Even real health centers are promoting pseudo science “Integrative services and study” to reap more of the revenue they cannot obtain from excessive medical costs. It is sad and discouraging!

Frances Weston

January 9, 2017 at 3:09 pm

Our Lake County has a hospital tax which was put in place to treat the poor. The hospitals make a big profit and pay the CEO lots. Voters were asked to do away with the tax. Quess what the hospitals did to advertise the need which is not longer. The Hospital tax won due to there push.

the poor.