Why do hospital set their prices so high? The answer was at least in part tax law. Until a recent ruling by the Internal Revenue Service, a hospital could use the higher prices when calculating the amount of charity care it was providing (not for profit status).
The New York Times explains how hospitals (bought by private equity) now use high prices to increase their profits:
- Convert not for profit hospitals to for-profit.
- Cancel existing contracts with large private insurers making the hospital an out-of-network hospital for most insurance plans.
- The out-of-network hospital can now bill the patient’s insurer at essentially whatever rate it cares to set. While the insurers can negotiate with the hospital, they generally end up paying more than they would have under a contractual agreement.
- If the insurer does not pay the high rates, go after the individual.
- Advertise your great emergency room services!
As an example, the Bayonne Medical Center (New Jersey) charged the highest amounts in the country for nearly one-quarter of the most common hospital treatments, according to a New York Times analysis of 2011 data, the most recent available. No other hospital was at the top of the price list more often.