Irrational Hospital Pricing
48 Pages Posted: 28 Jan 2014 Last revised: 15 Oct 2014
Date Written: June 16, 2014
Hospital prices are almost completely irrational. They bear no relationship to the cost of providing the services, they are opaque, and the prices vary wildly among hospitals and payers. The craziness of hospital pricing was laid bare when the federal government released data on hospital charges in May 2013. In response to public shock and outrage, hospitals maintained that their chargemasters, or list of retail prices, are harmless because no one actually pays these prices. Hospitals have a variety of incentives to inflate their charges, including increasing their bargaining leverage against health insurance companies. This article posits that irrational hospital pricing harms many who do pay these prices, including middle class uninsured patients and those insured with high deductible health plans or who receive out-of-network care. Irrational hospital prices also further distort the health care market and undermine efforts to keep costs under control, leading to higher prices overall. The harms of irrational hospital prices fall heavily upon many more individuals than we typically think of, perpetuate a great deal of inequity and uncertainty among health care consumers, and reverberate through the health care system in ways that harm us all.
Keywords: hospitals, healthcare, hospital charges, healthcare costs, uninsured
JEL Classification: I11, I12, I18, I19, K32, K23, K39
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