HCI3 Update from the Field: Pittsburg Residents Pay Added Tax to Hospitals

Submitted by francois.debrantes@hci3.org on Friday, March 23, 2012 - 04:59

Newtown, CT – March 23, 2012

Close to $200 million. That's the added "tax" imposed on Pittsburgh residents by the city's too numerous hospitals (a.k.a. UPMC) – Pittsburgh, Cleveland, Cincinnati and St. Louis have about the same number of people living in and around each city, but the combination of lots of hospitals with lots of hospital beds and long lengths of stays puts Pittsburgh in a category of its own compared to the three others. In our Issue Brief, we estimate that supply sensitive care, caused by an oversupply of hospital beds, is creating an annual added health care cost burden in that city of $187 million compared to Cincinnati. That's a lot of money fattening the coffers of hospitals at the expense of employers. And a new resource launched by the Commonwealth Fund can help communities better understand where they stand on a number of domains of care, including cost. While employers can't necessarily move all employees from a high cost health care area to a lower cost one, they can certainly decide where they will build their next plant or office. Companies looking at our report or the Commonwealth Fund's resource would likely steer clear of Pittsburgh in favor of Cincinnati. Of course, state and local public employers, such as school systems and municipalities don't have a choice, so they need to be aware of the burden placed on them by health care systems that are imposing such a heavy tax, often resulting in layoffs of teachers or police officers. As Elliott Fisher notes in our Brief , there are solutions. This rising tide of costs can be beat if public and private sector employers take some important steps.

What this means to you – Competition for goods and services has worked wonders to control costs in other sectors of the economy. And competition can have the same effect in health care. The ingredients are simple: transparency in meaningful price and quality information, and consumer sensitivity to the value of providers. These are the ingredients that can power bundled payments or per-capita payments, and a new paper published in the NEJM this week by Cutler et al highlights how much Medicare could save through these types of payment reform activities. The same holds true for private sector employers. Of course, providers who have been imposing these excess taxes on a community will not let it go easily, and employers who want to put a stop to that tax will need to put up a fight. The rising tide of costs is not an inexorable certainty. It's often quite simply a result of market abuse. Those being abused have to stand up and fight, and we'll be fighting with them.


Francois de Brantes
Executive Director
Health Care Incentives Improvement Institute, Inc.
w: www.hci3.org