California's health insurance rates rise due to hospital costs

The Sacramento BeeApril 19, 2010 

Behind every public uproar are some hidden facts. Here's one about rising health insurance rates in California: Sharp jumps in hospital costs are a big part of the story.

A Bee analysis of financial data from 300 hospitals statewide shows they collected $25 billion from insurance companies between September 2008 and October 2009 — an increase of more than a third since 2005.

Hospitals are charging insurance companies, and by extension their customers, billions of dollars for expenses not directly related to care. These include new hospital wings, new technology and services for the uninsured.

Some providers, including Sutter Health in Sacramento, have negotiated reimbursement rates with "markups" more than double what it costs them to provide services.

"It's become en vogue to crucify the insurance companies. … It's the hospitals that hold insurance companies hostage," said Will Fox, a principal and consulting actuary for Milliman, a Seattle-based firm that has extensive experience studying hospital finances in California. Fox has done work for insurance companies, government agencies and business groups.

Hospitals say their charges to insurers are justified and necessary. But their byzantine pricing policies make it difficult to understand why costs are rising so quickly.

Under state law, hospitals have to report the total amount of money they spend to provide services to insured patients each year, how much they bill insurance companies and how much they wind up collecting.

Based on those numbers, The Bee found that California hospitals charged insurers an average of 53 percent more than what they told the state it cost them to provide services. In 2005, the gap was 40 percent.

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