What's really driving hospital price increases

The Wall Street Journal article on 6/23/24 titled When Hospital Prices Go Up, Local Economies Take a Hit illustrates a fundamental misunderstanding of how healthcare operates economically. 

The article suggests that health system mergers cause rising hospital prices. This analysis confuses correlation with cause and effect. The fundamental question of the article is why hospital prices are rising. The answer is the growing problem of cross-subsidization in healthcare. 

Hospitals receive 70-80% of their payments from Medicare and Medicaid. These government payments are not based on hospital prices but based on regulation. These regulatory payments have been declining over the past two decades. Recent studies document that today, Medicare only pays for 82% of hospital costs. Medicaid is even worse, paying only 50-70% of hospital costs depending on the state. So hospitals must recover 20-25% of their costs from private insurance carriers to break even. 

As these government payments decline, hospitals are forced to raise prices; otherwise, they will go bankrupt. This pattern of cross-subsidization, not health system mergers, is the cause of higher hospital prices. 

In addition, cross-subsidization has been a driving force that encourages hospital mergers as an opportunity for health systems to lower costs and raise prices. This analysis's proof is demonstrated in declining hospital margins despite higher prices.

We need fundamental reform of the healthcare payment model. Potential solutions exist. Visit https://www.thejourneys-end.org/ to learn more.

Thank you for the honor!

Thank you to the The Catholic Health Association of the United States and the Catholic Media Association for the Best Coverage - Political Issues Award for my article on hospice and palliative care. I am grateful for the honor. You can read the piece in the Fall 2023 edition of Health Progress, the journal of the Catholic Health Association of the United States.

Thoughts on the battle for healthcare's soul

4sight Health’s recent article by David W. Johnson titled “Site-Neutral Payment and the Battle Healthcare's Soul” raises critical health policy issues that have been ignored for far too long. David is critical of the American Hospital Association’s (AHA) attacks on site-neutral payments. He observes “saving money by eliminating irrational pricing variation [like drug reimbursement by delivery location] is elemental to good policy creation.”

AHA’s CEO Rick Pollock's strong resistance to this policy logic lack’s credibility. AHA should be offering constructive reforms to Medicare payments instead of fighting a rational change to policy. The real issue for hospitals is that Medicare Reimbursement Payments, at 82% of hospital costs, are woefully inadequate. However, Congress and taxpayers cannot afford to increase hospital funding - there is no money. 

AHA should be offering Congress new reimbursement models to pay providers more fairly and innovatively. For example, Medicare’s use of an insanely complex coding system to determine payments for healthcare has created a one trillion dollar annual billing expense that offers no benefit to patients and taxpayers. The administrative burden created by this coding system for billing encourages waste, fraud and has demoralized health care caregivers. 

There are alternatives to simplify payments that will increase quality outcomes and lower cost. Target two areas that represent the core of healthcare delivery: primary care and end-of-life care. These are low cost care models that should not be paid for with a complex coding system. 

An insurance driven system of payment reform using reasonable salaries and cost reimbursement for these care areas would lower costs and improve quality. For more details supporting these recommendations go to my website www.thejourneys-end.org.