California Nurses Association: New Study Documents High Markups on Hospital Charges.

OAKLAND, Calif. -- New research on pricing practices of over 4,000 hospitals across the U.S. documents that huge markups in charges to patients, especially for prescription drugs, medical supplies, and surgeries, are a major factor in exacerbating the nation's health care crisis and the pricing scandal that has prompted hearings, lawsuits and a growing public outcry.

The research is contained in the second annual report on charges by the Institute for Health and Socio-Economic Policy (IHSP), commissioned by the California Nurses Association. It underscores that high prices are directly linked to industry profits and the increased corporatization of the healthcare industry, and correlates hospital markups to other healthcare industry pricing practices, especially by the pharmaceutical giants.

The Nation's Most Expensive -- and Least Expensive -- Hospitals

Included in the report is a listing of the nation's 100 most expensive and 100 least expensive hospitals, the top 10 most expensive hospitals by state, and the 40 hospitals that charge the most for operating room services, prescription drugs, and medical supplies. The research is based on federal cost reports with aggregated data for over 30 million patient discharges in fiscal years 2002-2003 filed for all patient services and other financial categories for 4,100 U.S. hospitals.

Overall, the nation's 100 most expensive hospitals marked up their gross charges an average of 673% over their costs -- meaning the average top 100 hospital would bill $673 for a patient's case where the actual costs were $100.

The national average for all 4,184 hospitals surveyed was a 232% markup, a 13% increase over the national average for the prior IHSP report. The increase was even greater for the 100 most expensive hospitals, a 28% jump over the prior IHSP/CNA survey.

Among the highest markups are those that have become the major profit centers for hospitals -- charges to patients or health plans for prescription drugs, medical supplies or operating room services.

For the top 40 hospitals, the study found medical supply markups of up to 9,593%, drug charge markups as high as 6,796%, and operating room markups of up to 1,950%. In other words, the hospital that leads in supply charges puts an average sticker price of $9,593 on supplies that cost the hospital on average $100. On drugs, the national average sticker price was a 399% markup -- an increase of more than 50 points over prior IHSP findings.

Other highlights include:

--Hospitals that charge the most tend to make the most profits or net income. The hospitals ranked in the top 10% of markups on charges reported an average of $14.8 million in profits. The bottom 10% in charges reported average financial net loses of $159,000.

--Hospitals that are part of systems and large hospitals tend to have higher markups on charges than independent and small hospitals. For-profit hospitals had the highest average sticker prices, a 351% markup, while government hospitals had the lowest average charges of 185% over their costs.

--Contrary to the argument that an unfettered market reduces costs, Maryland, the most highly regulated state on healthcare in the U.S., had the lowest state average markups on charges over cost, an average of 120% -- with no effects on profitability, about two thirds of Maryland hospitals were profitable, right at the national average.

--New Jersey, California, Florida, and Pennsylvania are the most expensive places to get sick. New Jersey hospitals marked up their charges over costs by an average 415%.

The IHSP study cites the list price charged by hospitals. Typically Medicare as well as HMOs and other large third party payers negotiate discounts on final payment. But high charges also prompt higher payments by Medicare and the other payers, a fact increasingly recognized in the current national debate on charges.

However, the list price is the charge demanded of the uninsured, one reason for the widespread scrutiny and lawsuits over hospital billing practices.

Massive Markups by Pharmaceutical Corporations

Drug companies have been shown to mark up their prices over costs fueled by the unprecedented economic concentration among big pharmaceutical firms. Fifty companies now control two-thirds of the world's pharmaceutical market, and five of the 10 largest firms have recently merged.

As these firms consolidate and gain market power, they can more easily dictate higher drug prices, and fan consumer demand for name drugs through massive advertising campaigns. HMOs and health plans respond to the price hikes with their own premium increases and tightening up drug formularies available to plan members.

"The battle among HMOs, Pharmas and Hospitals to enrich and/or protect their market shares, revenues and profits" is a key factor in driving up overall healthcare costs, increasing the ranks of the uninsured, and fostering a growing healthcare crisis, writes IHSP executive director Don DeMoro.

"Tough restrictions on price gouging, which should be applied to all segments of the healthcare industry are long overdue. But that step will fall far short of resolving the broader healthcare crisis unless accompanied by fundamental overhaul of our market driven healthcare system," said CNA President Burger, RN.