By David Belk, M.D.
David Belk, a California doctor, has an interest in pricing and has researched and written on this topic for The Huffington Post and at his own site, TrueCostOfHealthCare.org. He sent this via email the other day, and I asked if I could repost it. The next time hospitals tell you they’re suffering, remember this. For Belk’s fuller look at hospital finances, click here.
You’ll remember that a couple of weeks ago I wrote you with an update on hospital utilization trends showing that hospital inpatient censuses have been declining for decades. Using the same sources I used for that utilization analysis, I’ve updated my webpage on hospital finances as well. The bottom line: in spite of their declining censuses, hospitals in the U.S. are billing more, and being paid more, than ever before.
Once again, the information presented on this page is derived from data I obtained from three main sources:
1) The American Hospital Association (AHA).
2) The Centers for Medicare and Medicaid Services (CMS).
3) California’s Office of Statewide Health Planning and Development (OSHPD).
My analysis addresses the financial trends for all U.S. hospitals going back several decades and here are my main findings:
1. Hospitals in the U.S. billed an average of 3-1/2 times what they received in payments for all of the services they provide in 2015.
2. The amount hospitals bill over what they receive has increased dramatically over the last few decades. Four decades ago, most hospitals billed only a few percent, on average, more than what they received in payments.
3. Very little of the care hospitals provide is uncompensated; about 2-4% on average. Deductions by Medicare, Medicaid and the insurance companies account for almost all of the differences between billing charges and receipts.
4. Even though hospitals in the U.S. are paid an average of less than 30% of what they bill, their profit margins have averaged around 8% in recent years.
5. Over 80% of hospitals in the U.S. are non-profit.
6. The proportion of a hospital bill a private insurance company pays is substantially higher, on average, than the proportion Medicare or Medicaid pays, and that difference has grown steadily since 2000.
7. Private health insurance companies deliberately overpay hospitals to ensure that their revenues continue to grow each year.
8. Hospital costs per enrollee have been nearly static for Medicare and Medicaid recipients since 2008, whereas they’ve grown by more than 60% for the privately insured.
If you read nothing else on the link I’m sending, at least read the conclusion at the bottom of the page where I explain point 7 more fully. The last two paragraphs of the conclusion are the most important, so I’m quoting them here:
“The revenue for any health insurance company is tied directly to its expenses. In other words, the more a health insurance company spends each year, the more revenue they can earn ((through premium increases the next year). Therefore, the last thing any health insurance company would want is for their overall expenses to drop. If their expenses were to drop, they couldn’t justify raising (or even maintaining) the amount they charge policy holders in premiums. That would be a disaster for them.
“Since hospital utilization has been declining overall, it would be hard for private health insurance companies to continue to show an increase in their costs each year unless they deliberately overpaid hospitals, so that’s exactly what they do. Hospitals don’t mind be overpaid, so they’re not complaining. Since hospital bills always show enormous discounts from the insurance companies (due to persistent over-billing) most people wouldn’t suspect what the insurance companies are really doing. This way, both sides can work together to profit from our ignorance.”
That’s an important concept people need to understand since it’s a major financial incentive for driving healthcare costs up in the U.S.