Hospital charges are not related to actual costs or other commonly suggested factors

Our Dollars, Our Health issue brief two in series of three.

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Colorado hospitals charge several times more than the estimated cost of providing quality care, according to analysis of recently released national data on hospital charges and Medicare payments. While the cost of hospital care is one of the major contributors to ballooning healthcare costs, very little detailed information is publicly available to consumers about hospital charges and actual costs.

This paper is second in a series of issue briefs examining hospital charges and costs. The first paper compared hospital charges across the state and found significant variation in charges for the same services, even among hospitals within the same city. Using Medicare payments as a proxy for cost, this paper compares what hospitals charge to the cost of services. CCLP found that Colorado hospitals on average charge four times more than Medicare pays to treat a given diagnosis. Furthermore, the discrepancy between what hospitals charge and Medicare pays and the variation in charges between hospitals cannot be explained by the frequently-cited drivers of hospital costs, such as regional labor costs, teaching status, and high volumes of low-income patients.