By a unanimous vote, Illinois legislators have passed the Hospital Uninsured Discount Act, which requires that hospitals charge uninsured patients their lowest rates. The Illinois Hospital Association (which supported it) has a good summary of the bill.
Specifically, for patients in urban areas with household incomes up to 600% of the Federal Poverty Line ($127,200 for a family of four) or 300% of the FPL for rural residents, hospitals’ charges will be limited to a 35% mark-up over cost, and the total must be no more than 25% of household income.
Well, I suppose that’s well and good, but it ignores the fact that hospital prices are undeniably influenced by government action – specifically confusing Medicare rules that determine payment (as I’ve discussed previously, p. 9).
As well, it begs the question: what is the “cost” to which a hospital can add 35% to determine its fees? Hospitals are very complex institutions, and there are lots of ways to allocate overhead and depreciate assets. The law’s answer is that the federal government determines the cost! The hospital must inform the state of the costs that the federal Centers for Medicare & Medicaid Services uses to fix its prices. Specifically, it will have to submit Worksheet C, Part 1 of its Medicare Cost Report to the state Attorney-General every year.
So, instead of true competition and patient choice, we have different levels of government shuffling regulatory paperwork around. Illinois’ legislators’ hearts are in the right place. But instead of more price-fixing they would serve patients better if they repealed the state’s Certificate of Need (CON), which keeps hospital competition low and prices high. CON gives the state the power to prevent innovative competition in hospital services by requiring a new entrant to prove that its services will be required before receiving a license. Needless to say, incumbent hospitals are skilled at blocking such applications, preserving their oligopoly.
Illinois ranks 31st among the states in the Provider Burden of Regulation category in PRI’s Index of Health Ownership, and 31st in the specific measurement of facility Certificate of Need. Professor David Dranove of Northwestern University has described how Illinois CON has resulted in corruption: incumbent hospitals do not challenge each others’ expansions, but combine to block new entrants. This has resulted in old, overcapitalized hospitals, often situated far away from recent centers of population growth (Code Red, pp. 70-71). Furthermore, our SPN colleagues at the Illinois Policy Institute have been influential in demanding a stop to the CON job in Illinois.
So, the lesson for Illiois is clear: Stop the price-fixing; stop the CON!
Will Illinois’ Hospital Uninsured Discount Act Protect Patients?
John R. Graham
By a unanimous vote, Illinois legislators have passed the Hospital Uninsured Discount Act, which requires that hospitals charge uninsured patients their lowest rates. The Illinois Hospital Association (which supported it) has a good summary of the bill.
Specifically, for patients in urban areas with household incomes up to 600% of the Federal Poverty Line ($127,200 for a family of four) or 300% of the FPL for rural residents, hospitals’ charges will be limited to a 35% mark-up over cost, and the total must be no more than 25% of household income.
Well, I suppose that’s well and good, but it ignores the fact that hospital prices are undeniably influenced by government action – specifically confusing Medicare rules that determine payment (as I’ve discussed previously, p. 9).
As well, it begs the question: what is the “cost” to which a hospital can add 35% to determine its fees? Hospitals are very complex institutions, and there are lots of ways to allocate overhead and depreciate assets. The law’s answer is that the federal government determines the cost! The hospital must inform the state of the costs that the federal Centers for Medicare & Medicaid Services uses to fix its prices. Specifically, it will have to submit Worksheet C, Part 1 of its Medicare Cost Report to the state Attorney-General every year.
So, instead of true competition and patient choice, we have different levels of government shuffling regulatory paperwork around. Illinois’ legislators’ hearts are in the right place. But instead of more price-fixing they would serve patients better if they repealed the state’s Certificate of Need (CON), which keeps hospital competition low and prices high. CON gives the state the power to prevent innovative competition in hospital services by requiring a new entrant to prove that its services will be required before receiving a license. Needless to say, incumbent hospitals are skilled at blocking such applications, preserving their oligopoly.
Illinois ranks 31st among the states in the Provider Burden of Regulation category in PRI’s Index of Health Ownership, and 31st in the specific measurement of facility Certificate of Need. Professor David Dranove of Northwestern University has described how Illinois CON has resulted in corruption: incumbent hospitals do not challenge each others’ expansions, but combine to block new entrants. This has resulted in old, overcapitalized hospitals, often situated far away from recent centers of population growth (Code Red, pp. 70-71). Furthermore, our SPN colleagues at the Illinois Policy Institute have been influential in demanding a stop to the CON job in Illinois.
So, the lesson for Illiois is clear: Stop the price-fixing; stop the CON!
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.