Hospital ownership changes and charge-to-cost shifts
Publication id: beniwal-2024-hospital-ownership-charge-cost
Status: verified
Citation: Beniwal, S., & Shakya, S. (2024). Hospital ownership changes and charge-to-cost shifts. Economics Letters. Download PDF
Facts¶
Policy hook¶
Hospitals are treated as having autonomy to set prices and negotiate reimbursement with insurance companies and patients. Charge-to-cost ratio (CCR)—the ratio of hospital charges to Medicare-allowable costs—varies substantially across hospitals and ownership types. The question is whether hospital ownership type influences pricing behavior, with particular concern about for-profit hospitals charging higher markups. CMS promulgated price transparency rules in 2021 requiring hospitals to disclose shoppable services.
Main finding¶
For-profit hospitals exhibit charge-to-cost ratios approximately 161% higher than governmental hospitals and 99.7% higher than non-profit hospitals on average. When hospitals transition from governmental to for-profit ownership, their CCR increases by 1 of cost. When transitioning from non-profit to for-profit, CCR increases by 1 of cost. For-profit to governmental or non-profit transitions show significant CCR decreases. Approximately 147 hospitals in the sample charge CCRs exceeding 1000% (more than 10 times cost).
Data and setting¶
National Academy for State Health Policy Hospital Cost Tool database, 2011–2022, analyzing short-term general and specialty hospitals from Medicare Cost Reports. Sample includes 349 governmental, 491 for-profit, and 1,585 non-profit hospitals. Hospitals tracked through one-time ownership transitions to estimate causal effects. Outcome is charge-to-cost ratio computed as total inpatient and outpatient charges divided by Medicare-allowable operating costs.
Research design (plain language)¶
Generalized difference-in-differences with hospital and year fixed effects comparing CCR before and after ownership changes. Treatment group: hospitals experiencing ownership transitions. Comparison group: hospitals maintaining constant ownership. Event study framework examines dynamic treatment effects over time, testing for parallel pre-trends. Analysis examines transitions between each ownership type pair (governmental-for-profit, governmental-non-profit, for-profit-non-profit, within-type moves).
One caveat¶
Higher CCR does not necessarily translate to higher profits or improved patient outcomes. CCR complexity includes uncompensated care, payer mix, charity contributions, and cost accounting practices. Pre-ownership-change trends in for-profit CCR temper causal interpretation; for-profit CCR increases may partially reflect mean reversion or selection of hospitals that were already moving toward for-profit status. Dataset has limitations such as lack of cost segregation between inpatient and outpatient, reliance on hospitals’ administrative records, and variations in cost structures across facilities.
PDF or DOI¶
Why it matters¶
Hospital pricing is a significant driver of healthcare costs and patient financial burden. CCR—the markup from cost to charge—varies dramatically across hospitals, with some charging over 10 times Medicare-allowable costs. This paper documents that for-profit hospitals maintain substantially higher markups than governmental or non-profit hospitals. Critically, these high charges directly affect uninsured patients, out-of-network patients, and workers’ compensation insurers who lack the bargaining power of major insurers. When hospitals transition to for-profit ownership, CCRs increase sharply, suggesting that ownership structure influences pricing behavior. For policymakers, the findings support continued price transparency rules to shine light on hospital pricing, particularly for for-profit operators. The large variation in CCR across hospitals also suggests opportunities for regulation (price caps, markup limits) or payment reform that ties reimbursement to value rather than volume. The work underscores how healthcare system ownership structures have direct financial consequences for patients without negotiating power and for public payers.