Prices that insurers pay can help end hospital price gouging | TheHill

Last month the Texas Supreme Court decided In Re Cypress Medical Center, a case focused on whether the payments hospitals receive for insured patients are relevant to determining the price an uninsured or out-of-network patient must pay. The question of how to measure the reasonable and customary value of health care services is being raised frequently in courts across the country.

This is an important issue for everyone, not just uninsured and out-of-network patients. Why? Because high hospital prices are a key reason that health care in the United States is more expensive than any other developed country.

The Texas Supreme Court held that the prices paid by insurers are relevant to establishing the hospital’s reasonable and customary rates. The court did not say that the rate for uninsured patients is exactly the same as the rate charged to insured patients; it said only that the insured rates were relevant to determining the rates for uninsured patients.

The court is correct. Rates paid by commercial insurers are based on individual contracts knowingly and freely entered into by the hospital (this is not true of the rates paid by government insurers). These rates must cover hospital costs and provide a reasonable profit, or hospitals would not agree to them.

It would be unfair for a patient without health insurance or an out-of-network patient to pay the same price as an insured and in-network patient; that would be similar to requiring Sam’s Club to charge its discount prices to customers who did not pay the membership fee. However, it is also unfair to require these patients to pay exorbitant hospital list prices.

But, there are two important distinctions between Sam’s Clubs and hospitals. Sam’s Club’s discount is about 10 percent, while the discount given to insured patients is more than 300 percent. Also, patients don’t know the list price when they “purchase” health care services; this is not about denying hospitals freedom of contract. Hospitals are free to set their price, but patients are obligated to pay it only if they knowingly and freely agree to.

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Prices that insurers pay can help end hospital price gouging | TheHill.