Why California hospitals can charge so much

Andrew Van Dam

About Andrew Van Dam

Andrew Van Dam of The Wall Street Journal previously worked at the AHCJ offices while earning his master’s degree at the Missouri School of Journalism.

California hospitals, especially those in the Bay Area, seem to be able to set prices with impunity, a fact we know in part because the state requires an unusual level of hospital finance disclosure. This week, Kaiser Health News reporter Jordan Rau took advantage of the available records and dug through hospital spending databases and a long list of sources to figure out just what gave certain hospitals the leverage to charge so much more than competitors offering equivalent services. For a quick review of the data unleashed by this law, I recommend reviewing the map and charts that ran alongside the story.

As you might expect, the underlying explanation is complicated. When Rau asked the hospitals why prices were rising, he got a familiar refrain. They blamed it on the need to make up for low Medicare and Medicaid reimbursements, as well as charity care, and reminded him that technology is expensive and that their particular patient populations were unusual in ways that naturally obliged them to charge extra.

Those are certainly all part of the equation, but Rau investigation seems to point in another direction: Garden variety economic clout.

State laws have inadvertently given hospitals even more leverage. California requires health maintenance organizations to have “adequate networks” that offer all major specialties reasonably close to where patients live. Lisa Rubino, president of Molina Healthcare of California, an insurer, says the law makes it difficult for insurers to drop big hospitals from their networks.

“You have to work with them or make a strategic decision to get out of the area because they can dig in,” says Rubino.

Rau elaborates on this idea in a companion piece on NPR’s health blog, in which he points out how the industry has deftly squashed two different efforts to increase transparency in their pricing practices.

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