INFLATED HEALTH CARE COSTS: WHY HOSPITAL BILLING PRACTICES ARE PROBLEMATIC AND HOW FEDERAL PROCUREMENT CAN HELP.

Hospitals charge excessively high prices for their services. The government has combated this overcharging by paying hospitals far less than what hospitals normally charge and by requiring hospitals to be more transparent about their prices. However, more needs to be done because hospitals shift this lost opportunity for profit from Medicare onto private insurers and because hospitals are largely not complying with these price transparency requirements. To reduce hospital overcharging, the Office of Federal Contract Compliance Programs (OFCCP) should issue a federal directive stating that all hospitals participating in Medicare Advantage Health Maintenance Organization (HMO) plans are federal subcontractors. Next, the Department of Health and Human Services (HHS) should regulate private health insurance contractors and their hospital subcontractors by using a new contract clause aimed at reducing hospital overcharging. The new clause in all Medicare Advantage HMO contracts should require both the insurance prime contractors and the hospital subcontractors to make good-faith efforts to negotiate lower rates for health care services in their commercial, non-government contracts that create not more than a fifty percent gross profit margin for the hospital subcontractors. Additionally, if either the contractor or the subcontractor is unable to reach such an agreement, it must provide a written explanation why it cannot. This use of government contracts to regulate non-government contracts is likely appropriate because (1) the government already places requirements on federal subcontractors to further social policy; (2) the government already places requirements on Medicare participants; and (3) the government has a history of prohibiting discriminatory ratemaking. Further, hospital subcontractors are likely to comply, given the negative consequences of failing to comply with a government contract, such as termination for default. [ABSTRACT FROM AUTHOR]