Friday, March 14, 2014

The High Cost of Hospital Care in America

Numerous studies have shown that health care costs, particularly costs related to hospitalization, in the United States are prohibitive and often lead to great financial hardships for American families.  A recent data release by National Nurses United, America's largest union and professional association of registered nurses, gives us a sense of just how hospitals charge for the services that they render and how that charge to-cost-ratio has changed over the years.  This is particularly pertinent given that hospital profits hit a record $53 billion in 2011.

Here is a graph showing how the charge-to-cost ratio has risen between fiscal 1996 - 1997 and fiscal 2011 - 2012:

A charge-to-cost ratio of 331 percent means that hospitals are charging $331 for every $100 of their total costs.  You will note that the charge-to-cost ratio has risen from 200 percent in fiscal 1999 - 2000 to its current level of 331 percent, an increase of 113 percentage points or 65.5 percent over 12 years. That works out to a compounded annual growth rate of 4.3 percent.  That said, the charge-to-cost ratios have not increased evenly over the 12 year period as shown here:

Note the big percentage point jump in charge-to-cost ratios just as Obamacare was set to be implemented?  Coincidence?

Here is a listing of the top five most expensive hospitals in the United States and the total charges to patients as a percentage of total costs to the hospital:

Meadowlands Hospital Medical Center, Secaucus, NJ - 1192 percent
Paul B. Hall Regional Medical Center, Painsville, KY - 1186 percent
Orange Park Medical Center, Orange Park, FL - 1139 percent
North Okaloosa Medical Center, Crestview, FL - 1137 percent
Gadsden Regional Medical Center, Gadsden, AL - 1128 percent

A total of 14 U.S. hospitals charge more than $1000 for every $100 of their costs, a charge-to-cost ratio of 1000 percent or more.  The 100 most expensive U.S. hospitals have a charge-to-cost ratio averaging 765 percent and higher, more than twice the national average.  Average for-profit hospitals have a charge to cost ratio of 503 percent and government-run hospitals have a far lower charge-to-cost ratio of only 235 percent.  Six of the nine most expensive hospitals are part of two big chains; Community Health Systems Inc. (trading symbol CYH) and Health Management Associates (trading symbol HMA).  Incidentally, CYH and HMA recently announced that they have reached an agreement with the Federal Trade Commission that will allow CYH to complete its acquisition of HMA.  Under the terms of the agreement, CYH is required to divest of two acute care facilities in Alabama and South Carolina that are currently owned by subsidiaries of HMA.  This is in an effort to end fears that the merger will lead to a less competitive market, however, keeping in mind that CYH operates 135 hospitals with 20,000 beds and HMA operates 71 hospitals with 11,000 beds, the mandatory divestiture of 2 hospitals with a total of 397 beds is but a tiny drop in the proverbial bucket and is highly unlikely to provide the market with any additional competitiveness.   The acquisition is expected to close at the end of January 2014.  Just in case you wondered, here is a chart showing what has happened to Community Health System's share price since 2000:

Notice the significant price increase from $16.70 in January 2012 to the peak of $49.85 in June 2013, once again, as the Affordable Care Act looked to become a certainty.  That's a shareholder return of 198.5 percent in 18 months!  The lesson?  If you're going to check into a hospital, make sure that you're a shareholder first.

As background information and to get an idea of the dollars involved in the for-profit hospital business, according to Becker's Hospital Review, here are the top five grossing for-profit hospitals in the United States:

Methodist Hospital, San Antonio, TX - $5.13 billion
CJW Medical Center, Richmond, VA - $3.54 billion
Doctors' Medical Center of Modesto, CA - $3.14 billion
Oklahoma University Medical Center, OK - $3.1 billion
Sunrise Hospital and Medical Center, Las Vegas, NV - $3.07 billion

Back to the National Nurses Union data, here is a table showing the average charge-to-cost ratio for each state in order from greatest to smallest:

With nearly 2 million Americans expected to declare bankruptcy in 2013 due to unpaid medical bills, it is increasingly obvious that the current corporate hospital system is untenable and the nation's hospital crisis is likely to get worse as competition decreases, at least from the patients' perspective.


  1. Healthcare is ridiculously expensive because many people have convinced themselves of three things: The answers for good health outcomes rest with pills and procedures rather than good diet and exercise. Death at late stages of life is some strange, recent development in human history which justifies and necessitates extreme, exorbitant payouts to delay it for every possible last second. And last but not least, thinking that mixing all the myriad of "health care" transactions that result from the just mentioned concepts with health insurance as originally conceived to protect a person from unforeseeable, catastrophic events like an accident is a good idea. More on this growing problem below.

  2. @Bruce Wilds I agree beyond the age of 80 nature should be allowed to take its course, allthough anything to make death as smooth and pain free should still be considered. Why healthcare is allowed to operate as a forprofit industry is beyond me.

    1. There is nothing wrong with a dignified death after a long life. With people living longer and technologies ability to extend a persons life well beyond where they feel it has any "real quality" the issue of euthanasia will not go away. For more on this subject see the following.

  3. A charge-to-cost ratio of 1000%? Wait. Is there any other industry making that kind of profit? Do I hear gouging? No wonder Americans are paying more for health care than any other country. Good lord. And to think that while Obamacare gets people insurance, it does not address the outrageous charges. Thank God I'm Canadian. I love our socialism. Ha, ha.