Hospital markup and operation outcomes in the United States

Background: Although the price hospitals charge for operations has broad financial implications, hospital pricing is not subject to regulation. We sought to characterize national variation in hospital price markup for major cardiothoracic and gastrointestinal operations and to evaluate perioperative outcomes of hospitals relative to hospital price markup. Methods: All hospitals in which a patient underwent a cardiothoracic or gastrointestinal procedure were identified using the Nationwide Inpatient Sample for 2012. Markup ratios (ratio of charges to costs) for the total cost of hospitalization were compared across hospitals. Risk-adjusted morbidity, failure-to-rescue, and mortality were calculated using multivariable, hierarchical logistic regression. Results: Among the 3,498 hospitals identified, markup ratios ranged from 0.5-12.2, with a median markup ratio of 2.8 (interquartile range 2.7-3.9). For the 888 hospitals with extreme markup (greatest markup ratio quartile: markup ratio >3.9), the median markup ratio was 4.9 (interquartile range 4.3-6.0), with 10% of these hospitals billing more than 7 times the Medicare-allowable costs (markup ratio ≥7.25). Extreme markup hospitals were more often large (46.3% vs 33.8%, P <.001), urban, nonteaching centers (57.0% vs 37.9%, P <.001), and located in the Southern (46.4% vs 32.8%, P <.001) or Western (27.8% vs 17.6%, P <.001) regions of the United States. Of the 639 investor-owned, for-profit hospitals, 401 hospitals (62.8%) had an extreme markup ratio compared with 19.3% (n = 452) and 6.8% (n = 35) of nonprofit and government hospitals, respectively. Perioperative morbidity (32.7% vs 26.4%, P <.001) was greater at extreme markup hospitals. Conclusion: There is wide variation in hospital markup for cardiothoracic and gastrointestinal procedures, with approximately a quarter of hospital charges being 4 times greater than the actual cost of hospitalization. Hospitals with an extreme markup had greater perioperative morbidity.