For immediate release:
Tuesday, January 10, 2006
12:01 a.m. EDT


Christopher Fleming

Health Affairs January-February Issue
Surveys Challenges Facing Hospitals

BETHESDA, MD — “U.S. Hospitals: Mission vs. Market” is the title of the January-February 2006 issue of Health Affairs.

The first section of the volume describes the challenge posed to hospitals by the new millennium’s hypercompetitive environment and demand for price transparency. Empirical evidence suggests that hospitals have quietly cross-subsidized less profitable services with the revenues from more profitable services. But if payers on the more lucrative side of the equation realize what is going on, decide they don’t want to continue paying extra, and have options to avoid doing so, how will hospitals continue to pay for burn centers and emergency rooms, or for services to groups like the poor and uninsured?

The lead article in this section, by Stuart Altman, David Shactman, and Efrat Eilat, discusses how America’s traditionally dominant airlines entered bankruptcy, or simply ceased to exist, when deregulation and low-cost competitors prevented them from pursuing their own versions of cross-subsidization. Faced with similar pressures, “ U.S. hospitals could begin to resemble U.S. airlines: severely cutting costs, eliminating, services, and suffering financial instability,” the authors warn.

The next section of the volume describes the evolution and confusing operation of the hospital pricing system. In their “chargemasters,” hospitals list prices for tens of thousands of different services, with each hospital allocating various costs to different departments and services in its own unique and inscrutable way.

To top it all off, say Christopher Tompkins, Altman, and Eilat in their article on the precarious hospital pricing system, fewer and fewer payers actually pay the charges listed in the chargemaster. During the past quarter-century, the ratio of hospital charges to payments received has grown from 1.1 to 2.6, forcing hospitals to squeeze ever greater amounts out of ever fewer remaining charge-based customers, such as the uninsured.

The volume also deals with such topics as the issues surrounding specialty hospitals and the effect of consumer-driven health plans on hospitals. This includes the following:

— A look at 2004 health spending by actuaries at the Centers for Medicare and Medicaid Services

— An examination of how revisions in nurse staffing could improve patient outcomes

— A look at how the new Medicare drug benefit could affect vulnerable populations.

The issue was supported in part by grants from the Federation of American Hospitals; AdvaMed; America’s Health Insurance Plans; the Council on Health Care Economics and Policy; GE Healthcare; Johnson Controls; Johnson and Johnson; and MEDLINE.


Health Affairs, published by Project HOPE, is the leading journal of health policy. The peer-reviewed journal appears bimonthly in print with additional online-only papers published weekly as Health Affairs Web Exclusives at


©2006 Project HOPE–The People-to-People Health Foundation, Inc.