High hospital prices inflict pain, but treatment options exist

The first step in curing a disease is to diagnose it and determine its root cause. Our nation’s health care system has been ailing for years, plagued by steadily rising prices that threaten the ability to access life-saving treatments for a growing number of working people.

High hospital prices are one of the main drivers of this increase, but it has been hard to quantify exactly how much purchasers are being overcharged for care – especially as the cost of the exact same procedures can vary wildly between and within health care facilities in the same region.

Last year 32BJ Health Fund, a self-insured plan that provides benefits to 200,000 union members and their families, released a report illustrating the disparities between what private nonprofit hospitals charge Medicare versus the Fund. In an analysis of claims data from 2016-2019, the Fund spent over $1.9 billion in total hospital claims for its participants. If it had been charged what Medicare pays for the same services, that figure would have been significantly less – $803.7 million – a difference of $1.1 billion, or 58%. The majority of the Fund’s spending in 2019 alone went to cover hospital services across the five New York City boroughs, where prices have increased far faster than in nearby Connecticut, New Jersey, or Pennsylvania markets.

According to the report, there is no strong correlation between higher hospital prices and enhanced quality of care for patients, or higher levels of charity and public care. What we do know, however, is that escalating hospital prices have cost 32BJ SEIU members as much as $5,000 per year in potential wage increases over the past decade.

The Fund is far from the only entity harmed by out-of-control hospital prices.

In 2020, national spending on health care increased 9.7% to $4.1 trillion, more than double the increase in 2019. Between 2009 and 2022, hospital price inflation increased at more than double the rate of inflation for medical care and medicinal drugs. This upward trajectory cannot continue – especially as we seek to address deep-seated disparities in access to high-quality care, which have left underserved communities more vulnerable to deadly viruses like COVID-19.

Using calculations from the RAND Corporation and other peer reviewed research relating to average hospital spend and applying those to New York City, we estimate that New York City may be paying more than $1.7 billion per year above what Medicare pays for the same hospital services for the health care it provides to its 330,000-person workforce and their families.

Now that we have diagnosed the problem, we can turn our attention to finding a cure. While there is no silver bullet to fix these longstanding issues, there are potential solutions that can help to create a truly equitable health care system. The 32BJ Health Fund released a compendium of regulatory and nonregulatory solutions being pursued by other states to address cost growth. Although New York is notably absent from the states that are actively engaged in tackling the issue of high hospital prices, we have the opportunity to learn from other states and move more effectively and rapidly as a result.

New York lags behind other states in considering large-scale payment reforms and setting in place mechanisms to ensure data transparency and hospital accountability. New York should serve as a model to other public and private purchasers by scrutinizing its data and engaging in more proactive procurement strategies. Other possibilities include rate setting, global budgets, and all-payer models, which have been enacted elsewhere to rein in high hospital prices. While price transparency efforts are a key foundation, they cannot be the only solution pursued in lieu of these other efforts.

Nonprofit hospitals must also be held accountable to live up to their charitable status. For example, New York’s tax exempt hospitals ranked 49 out of 51 states and the District of Columbia on the Lown Institute Fair Share Index. This index compares each hospital’s spending on charity care and community investment to the value of its tax exemption and leads one to question why hospital prices continue to rise despite recurring abatements and other government subsidies.

Related: States with the highest and lowest health care spending

There is no “one size fits all” approach to this problem. But we believe that by partnering with union leaders, employers, elected officials and appointees, and the greater health care provider community we will be able to find equitable and sustainable solutions to the problem of high hospital prices.

Cora Opsahl is the director of the 32BJ Health Fund.