Americans spend more on health care than people in other developed countries, and New Yorkers spend a whole lot more than other Americans. According to the non-profit Health Care Cost Institute, “per-person spending on health care services in New York, NY was $5,855, 20 percent above the national median in 2020.”

Why? To quote the title of a classic research article on health care costs, the findings of which were reconfirmed in 2019: “It’s still the prices, stupid.” And New York City’s private hospitals, which include three of the priciest systems in the nation, drive the high costs of care here.

For starters, look at the chart below. Based on figures compiled annually by the Rand Institute, it shows what big costly hospitals can negotiate from private insurers. On average, commercial health insurers pay New York City’s private hospitals two-and-a-half to more than three times what Medicare more realistically pays for the same care, and (noted in the bottom line) far more than they pay our public hospitals.

Private insurance payment allowances (allowed amount) compared to Medicare, 2021

Along with increased prices come higher health insurance rates. At least 85 percent of the health insurance premium is used to pay for medical care. From 2016-2020, all the increase in commercial health insurance costs in New York City were caused by price increases. Leading the parade: A whopping 31 percent jump in inpatient hospital prices – more than double the rise in outpatient costs and almost four times the rate of growth in doctors’ prices.

For good reason, then, regulating hospital charges is viewed as the essential precondition of affordable health care here. It’s why Service Employees International Union Local 32BJ’s recent collective bargaining agreement covering apartment house workers is premised on keeping health insurance costs well below the Consumer Price Index. Negotiations between City government and municipal unions are stalled over health benefit costs. And hospital price control is the centerpiece of a proposal by City government retirees opposed to being forced into a privatized Medicare Advantage plan.

It’s also why 15 New York City unions – led by 32BJ and including municipal workers, public school teachers, actors, carpenters, hotel workers, and nurses (and also the New York State Council of Churches) – have created the Coalition for Affordable Hospitals, advocating passage of a HEAL (Health Equity and Affordability Law) by the State Legislature. “The day of our members being held hostage by exorbitant hospital pricing must come to an end,” says former 32BJ President Kyle Bragg.

We’ll come back to HEAL and other price control proposals in a minute. First, let’s briefly consider how such controls might affect the finances of the city’s private hospitals.

Top administrators and lead clinicians certainly benefit handsomely from the status quo. In 2019, the CEO of New York-Presbyterian received $12.4 million; the Mount Sinai CEO received $3.6 million. Other large networks pay their leadership comparably. Even less posh “safety net” hospitals compensate CEOs generously, with the CEO of Interfaith earning $1.3 million and that of Bronxcare (formerly Bronx Lebanon) receiving $2.2 million.

Nevertheless, executive salaries are less than one percent of private hospital spending. Even more goes into buying smaller hospitals, doctor practices, formerly free-standing labs and radiology facilities, as well as data processing, technology companies, pharmaceutical and medical equipment manufacturers, and distributors. They call this activity “growth.” Northwell Health also owns a staffing company and supports two medical schools and a nursing school. Mount Sinai created and invested in The Center for Blockchain Technology.

On balance, including the cost of mergers and acquisitions, all the private systems and some non-networked private hospitals have money left at the end of the year. In good years, it totals well over $2 billion. The surplus for 2022 is expected to hit that mark. Higher wages and costs of supplies make projections for 2023 more dubious. No one, however, expects the private systems to tank.

The one thing most of these hospitals don’t spend much money on is caring for poor people. Mount Sinai’s 2021 financial statement reports a $45.5 million charity care expenditure on $3.4 billion in revenues – slightly below the US median expenditure of 1.4 percent.

All the city’s non-public hospitals are accorded non-profit status and exempted from federal, state, and local taxes to subsidize their mission. The Lown Institute, a nonpartisan health care think tank, was commissioned by 32BJ to evaluate how well 21 private hospitals here lived up to their charitable obligations.

Lown used a very expansive definition of community benefits. Added to conventional charitable care measures, they included health education and health fairs, interpreter services, community support and advocacy, and environmental initiatives. They compared community benefit expenditures with the value of tax breaks. Nine of the 21 hospitals fell short; New York-Presbyterian, for example, fell $350 million short of its various tax exemptions in 2019. Lown stated:

New York City’s [net] Fair Share deficit represents more than $700 million in valuable taxpayer funding that could have been used to improve New Yorkers’ social welfare and community health needs. For example, $727 million could triple what the city currently spends on school meals annually, create 3,500 new affordable housing units, or pay off the medical debt for every patient sued by a New York hospital over the past five years.

We might add that it could also “make health insurance more affordable for millions of New Yorkers.”

How should we put a brake on excessive prices? Market transparency is one possible route. The HEAL Act would prohibit hospital-insurer contracts that hide prices, giving public and private insurers more leverage in lowering prices. Transparency is also the objective of a program introduced by New York City Councilwoman Julie Menin and supported by many fellow Council members. It builds on the HEAL initiative as well as recently implemented federal hospital pricing transparency rules. It also would create a City Office of Healthcare Accountability to monitor compliance, publicize violations, and audit the more than $9 billion spent annually for City employee health insurance.

Then there’s price regulation. Maryland is currently the only state directly regulating hospital prices. It has successfully kept hospital costs well below national trends for many years. Eight other states (Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington) are implementing benchmarking commissions or agencies which establish statewide annual targets with varying degrees of enforcement capabilities. California just passed legislation to do the same.

New York State, once a leader in regulating hospital prices, opted for deregulation in 1996. Since then, it has left it to the service purchasers to do the dirty work of challenging the deeply entrenched, politically potent, private hospital industry. Without help, however, employers are caught between cutting benefits and raising insurance premiums for those least able to solve the problem: Their workers, and, in the case of New York City government, their retirees, too.

Barbara Caress has worked for many years in non-profit, union, and public agency health care and administration. She teaches health policy at Baruch College.

Photo by: Alabama Extension

Enough to Make You Sick: Curbing High Private Hospital Costs