Everyone knows that consumer products get marked up from their actual cost. Car dealers price their vehicles about 5 to 10 percent higher than their costs. The typical supermarket prices its products about 15% over costs. Mattress makers mark up their products from 30 to 50 percent. Drug companies never reveal how much they mark up pharmaceuticals, but we can get a glimpse of how high price markups are from hospitals for a variety of medications. The numbers seem astonishing to most people.
Why Are There Such High Price Markups for Hospital Aspirin?
Q. I keep reading that aspirin is dangerous. But when I went to the ER thinking I might be having a heart attack, the first thing they did was give me four baby aspirin. I wasn’t having a heart attack after all, but they seemed to think it would be protective if I was.
The “retail” hospital price for those tablets was $44! Why is hospital aspirin so outrageously expensive?
I don’t take aspirin daily, but I do take it occasionally. It doesn’t seem to irritate my stomach, but I always make sure I’ve eaten before I take any.
A. Hospital prices are mysterious and frequently inflated. The “list” price for items like aspirin or bandages can be significantly higher than the actual cost. Aspirin, for example, should cost about a penny or so. But hospitals may charge $10 or more per pill. That’s a 1000 fold markup. Part of such high price markups cover labor and overhead expenses.
Hospitals and medical practices frequently charge a lot more than they expect to receive, though. That’s because insurers and government payers reimburse a fraction of the list price. If you have ever examined an Explanation of Benefits (EOB) insurance statement, you have some idea how extreme the markdown can be from what is charged to what is paid.
Your strategy to take aspirin with food is smart. You should also do that if you take another NSAID such as ibuprofen or naproxen.
High Price Markups for Hospital-Administered Cancer Treatments:
An article in JAMA Internal Medicine (June 22, 2022) revealed some interesting prices for cancer treatment. These were injectable or infusible cancer therapies.
The authors point out that cancer therapies went from $39 billion in 2015 to $67.5 billion by 2019:
“Manufacturers routinely price novel anticancer therapies at more than $100 000 per year, with subsequent price inflation by supply chain intermediaries (eg, wholesalers and group purchasing organizations) and the hospitals and physician offices where the drugs are administered.”
This leaves a lot of cancer patients in debt even if they have insurance. That’s because of co-pays and deductible costs. Many skip needed treatment because of the costs.
It’s not just that the cancer drugs are incredibly expensive. Hospitals often implement high price markups for these medications.
Here is what the researchers discovered:
“Median price markups for cancer therapies across centers ranged from 118.4% (sipuleucel-T) to 633.6% (leuprolide) in excess of estimated acquisition costs.”
Here’s a kicker for you. Although most National Cancer Institute (NCI) cancer centers are “required by federal regulation” to disclose prices for cancer therapies, many did not do so. Prices were highly variable even within similar NCI-cancer centers.
And even though the prices of these cancer drugs is outrageous, hospitals may add high price markups:
“Hospitals may earn greater revenue per unit from cancer therapies than the pharmaceutical companies that manufactured them.”
High Price Markups in Health Care:
Remember, car dealerships may mark up their cars 5% to 10%. A home builder often earns a gross profit of about 10% to 20%. The biggest price markups of all seem to be in healthcare. According to a study published in the journal Health Affairs (June, 2015), some hospitals mark their prices up more than 1,000 percent.
Insurance companies negotiate much lower payments, but people who have no insurance and those getting care out of network are billed based on the list price, which bears little or no relationship to the cost of providing care.
Big Spread in Charges
According to the researchers (Health Affairs, June, 2015), a blood test to determine cholesterol and other lipids could cost $10 in one hospital and over $1,000 in another. A procedure to open clogged coronary arteries was billed at $22,000 in one institution and over $165,000 in a different facility.
This analysis focused on 50 hospitals with the highest price markups. The other 4,400 hospitals in the country only marked their services up by an average 340 percent.
Private Equity Firms and Health Care:
There was a time when health care was considered an essential public service. There were a lot of nonprofit public hospitals. Some were owned by cities or counties.
Medical practices were often relatively modest organizations. These were frequently small groups of medical practitioners. Several internists, dermatologists or cardiologists got together and formed a practice together. They usually made a decent profit, but rarely became multi-millionaires with mansions and yachts.
These days, hospital systems have gobbled up lots of “small” medical practices. So have private equity firms.
An article in The Hill (Dec. 21, 2023) reports that:
“Over the last decade, private equity firms have spent nearly $1 trillion on close to 8,000 health care deals, snapping up practices that provide care from cradle to grave: fertility clinics, neonatal care, primary care, cardiology, hospices, and everything in between.”
“To deliver a high return to investors, private equity firms inflate charges and cut costs. One of our studies found that a few years after private equity invested in a practice, charges per patient were 50% higher than before.”
Private equity firms make investments in veterinary and medical practices, hospitals and clinics. The point of the exercise is to make a profit for the investors.
The Washington Center for Equitable Growth together with the Petris Center and the American Antitrust Institute issued a report on July 10, 2023 titled:
“Monetizing Medicine: Private Equity and Competitioni in Physician Markets”
The authors report that:
“We find that private equity (PE) firms have been increasingly acquiring physician practices across a number of physician specialties since 2012, increasing from 75 deals in 2012 to 484 deals in 2021, or more than six-fold increase in only 10 years.”
Private equity firms have acquired more than 30% of medical practices in roughly 1/3 of urban centers in the US. We are willing to bet that will lead to high price markups in coming years.
Final Words:
Whether its a $10 aspirin pill in the hospital, an expensive new chemotherapy infusion at a cancer institute or a joint replacement at an outpatient surgical practice, prices are going into the stratosphere. Add in what pharmaceutical manufacturers are charging for orphan drugs and you have a train wreck coming at high speed. What disappoints us is that no one seems to be paying attention.
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