Gap between hospital costs and charges widens significantly, finds new research

The gap between hospital costs and charges has widened significantly. With individuals increasingly responsible for more of their bill and hospitals grappling with payment cuts and payment reforms, charges matter more than ever. New research shows the rise drastically outpaces inflation during the same time and details the rise in cost-to-charge ratio by state.

"As hospitals are forced to do more with less, charges have become a tool for negotiating higher reimbursement/payment from insurers. "For too long hospital prices have not been understood therefore dismissed, but prices do matter and we need to rethink how they are set," said JKTG Foundation Founder and President Ted Giovanis.

The paper, "An Analysis of Real Price Effects Resulting from Charge Setting Practices in the US Hospital Sector" was written by Richard L. Fuller, an economist, and commissioned by the Foundation to inform policy around affordable health care efforts. Findings include:

• Hospital charges are increasing at roughly twice the rate of costs.
• Over ten years, New Jersey went from lowest hospital cost-to-price markup to leading the nation with an average cost-to-price mark up of 623%. Florida and Nevada, ranked first and second ten years ago, now rank second and third.
• Large urban hospitals have an average markup of 262 percent in 2011 (compared to 74 percent in 1991) while rural hospitals have an average markup of 178 percent in 2011 (69 percent in 1991).
• A cap on average hospital charges relative to their cost could mitigate the negative effects of soaring hospital charges without directly establishing what should be paid for a given service to a given provider.