Employer Group to Hospitals: Your High Prices Aren't Justified and Here's Why

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A national organization that represents large employers who purchase healthcare coverage issued a sharply worded report today that blamed hospitals for rising U.S. healthcare costs.

The report from the National Alliance of Healthcare Purchaser Coalitions says the primary reason U.S. healthcare costs are so high is “clear and unambiguous: Hospital prices make up about half of the bill of employer healthcare costs — by far the largest cost of any sector — had have consistently been the fasting growing.”

The report, titled “The Urgency of Achieving Hospital Fair Price,” goes on to debunk what it characterizes as 10 myths about the hospital costs and prices. For example, the report says it is a myth that hospital prices are based on the cost of providing services. “There is no correlation between hospital prices and the actual cost of providing care,” says the report, adding that “vertical integration is being used to raise prices to what the market will bear without any cost accounting — and for profit maximization.”

The report says that employers and other health plan sponsors in the commercial market pay between 150% and 700% more than Medicare for hospital services. The "hugely inflated prices" are borne by businesses and are experienced by employees as higher premiums, higher deductibles and lower wages, says the report.

The National Alliance of Healthcare Purchaser Coalitions is an umbrella organization for employer healthcare purchaser groups at the city and state level. The group issued a 34-page guidance, or “playbook,” last year for employers on how to use hospital transparency and quality data that was also barbed with pointed criticism of the hospital industry.

Asked to respond, the American Hospital Association (AHA) volleyed back with an edgy statement of its own, which said that "this new 'report' simply recycles anti-hospital talking points and distorts facts that have been debunked time and time again by data, including from the government itself."

The AHA statement went on to say that "Instead of continuing to take aim at hospitals and health systems, the authors of this report and their dark money funders should spend more time focusing on massive and monolithic commercial health insurers."

"The sponsors of this rhetoric would have people believe these corporations — including one that is the 10th largest company in the world — are powerless in the face of community hospitals," the AHA statement continued. "And yet, these companies continue to blow through their own revenue and profit projections quarter after quarter by increasing premiums, denying patient care, delaying payments to providers, and directing a larger share of the premium dollar to their myriad middleman subsidiaries."

The alliance's report was published as employers are facing the prospect of significantly higher healthcare insurance costs next year. According to a survey by the International Foundation of Employee Benefit Plans, employers are anticipating a median cost increase of 7% next year for their healthcare plan coverage. Other reports have said the increase could be as high as 8.5%.

Meanwhile, price transparency legislation that would require hospitals to make public standard charges for all items and services through machine-readable files as well as payer-specific negotiated charges had been gaining steam in Congress, with members of three House committees joining forces to support it. But Politico reported yesterday that the Lower Costs, More Transparency Act, which also has provisions that apply to health plans and pharmacy benefit managers, was pulled from the House floor after some powerful Democrats indicated that they would oppose the bill.

Today's report refers to an ongoing disagreement with hospitals, although it does not mention the American Hospital Association by name. The introduction says the report was developed in response to "various hospital association assertions that continue to support industry opacity."

Many of the issues and arguments in the report about hospitals pricing and costs have been discussed and debated for years among those who work in, study or report on hospitals and the high cost of U.S. healthcare.

The report says, for example, that it is a myth that mergers help keep hospitals open. Decades of research “overwhelmingly show” that consolidation increases prices by 10%-20% and that mergers have not improved quality and access, says the report.

The alliance also takes hospitals to task for representing Medicaid reimbursement as being below the cost of care. Once Medicaid Disproportionate Share, Upper Payment Limit Supplemental Payments, uncompensated care pools, Medicaid Graduate Medical Education and other sources of funding are factored in, Medicaid payment matches Medicare payment, according to the report.

The allliance also challenges as a myth that hospitals have an “unsustainable workforce crisis that threatens their ability to care for patients.” The alliance’s report says that existing prices are not justified even when the raises being offered are considered and that workforce crisis “was brought on by a strategy of the hospitals to maximize profits.”

The alliance's report also swipes at assertions that hospitals provide a great deal of uncompensated care.

“The amount of uncompensated care is minimal, discounted care is a misnomer, and charge master pricing is unintelligible,” says the report. “The time for talking about ‘discounts’ is over. It’s time to focus on cost plus margin. Hospitals are charging what they charge because they can.”