Hospital ERs To Blame For High Health Care Costs

By Consumers for Quality Care, on September 12, 2018

A recent New York Times column highlighted the role of hospital emergency rooms in ever-increasing health care costs.

Glenn Melnick, a professor of public policy at the University of Southern California’s Schaeffer Center for Health Policy and Economics, wrote that well-intentioned regulations have given hospital ERs incredible leverage to price services however they wish.

Most states have implemented regulations to ensure that consumers are covered by their insurance for emergency services. The regulations stipulate that even if an insurance company does not have a contract with a hospital, it must cover emergency room care. Policy makers intended to ensure that all consumers are able to receive care when it is most needed.

Unfortunately, the provisions have also had negative consequences for consumers, Melnick writes:

These regulations have granted hospitals what is essentially a monopoly over emergency room patients, allowing them to charge basically whatever they want.

The regulations have created a loophole when hospitals and insurance companies are negotiating contracts.

Increasingly, hospitals have learned that if they demand higher prices from health plans and do not get them, the hospitals can just cancel their contract. They will still get paid for treating emergency patients under those plans — and in fact will be paid more, because those patients will be out of network.

Hospitals are incentivized to negotiate higher and higher rates. If they win their negotiations, they get paid. If the negotiations break down and no contract is reached, the hospital’s ER department is assured to get paid – and the patients will be charged at an inflated “billed charge” rate.

Data from California shows that hospital bills jumped from $263 billion to $386 billion between 2002 and 2016, despite no increase in patient traffic. Daily billed charges spiked from $6,900 to $19,500.

In effect, they could threaten: Pay us $7,200 per day to sign a contract or $19,500 per day for emergency admissions without a contract.

Melnick argues that consumers should be aware of this pricing struggle. “Whenever insurance companies have to pay more, patients do too,” often in premium increases but also occasionally in balanced billing. An American family of four now pays an average of $28,000 a year for a PPO health plan.

If the current trend persists, Melnick argues, it will put even more pressure on consumers and the health care system.