Friday, August 29, 2008

The Pricing Power of Nonprofit Hospitals

Yesterday's Wall Street Journal had an interesting front page story regarding the increasing pricing power of nonprofit hospitals.  The article lends evidence to the assertion that nonprofit hospitals are not using their tax subsidy to benefit the poor, much less "the community."

The power of nonprofit hospital systems like Carilion over their regional communities has increased in recent years as their incomes have surged. Critics charge this is creating untaxed local health-care monopolies that drive the costs of care higher for patients and businesses.  "It's a one-market town here in terms of health care," says Sam Lionberger, who owns a local construction firm. "Carilion has the leverage."

The Journal's Health Blog summarizes the story thusly:

Carilion is Roanoke’s dominant health-care player, and it charges high prices for some procedures — $4,727 for a colonoscopy, which is four to 10 times what a local endoscopy center charges, the article says. The area now has some of the highest health-insurance costs in the state.  Critics say big medical centers like Carilion use near-monopoly power to charge high prices; Carilion says it needs to charge more for some procedures to subsidize other parts of its business, such as care for the uninsured. And the hospital says an HCA-owned hospital in a nearby town offers competition.  Carilion has recently started buying up local medical practices in an effort to move to a multispecialty-clinic model. The hospital CEO says this arrangement will cut down on fragmentation and improve care.

It was perhaps only a coincidence that the story ran on the same day as that an Illinois appellate court reinstated the revocation of a hospital's state property tax exemption.  In any event, it seems clear by now that nonprofit hospitals are losing the perception battle, if not the legal battle, one nonprofit hospital at a time.


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