Rand Corporation conducted an in-depth study of hospital costs across America and found that, on average, private insurance pays hospitals 247% more than Medicare pays for the same services. (1) Rand’s conclusion is that hospitals are price-gouging. Is that a fair characterization?
I think not. On the contrary, it has been commonly understood within the benefits community for as long as I remember, that health care providers, including hospitals, charge more to private insurers to offset the low reimbursement from Medicare and the uninsured. There are even some private health providers will not treat patients on Medicare because of the low payments.
Another question to consider is whether hospitals are making a lot of money. According to the Advisory Board the profit margins of not-for-profit hospitals have ranged from 1.5% to 3.5% in recent years. (2) The “True Cost of Health-Care” website indicates that the margins for all hospitals are in the 4% to 8% range. (3) Neither of these profit margin reports suggest price-gouging.
So, it appears that hospitals are charging an appropriate amount to stay financially viable. This brings to mind the proposal by some to provide “Medicare for All”. Could hospitals survive by charging all patients at current Medicare rates? That is questionable.
(3) https://truecostofhealthcare.org/hospital_financial_analysis/