Hospital costs in the United States are largely unregulated and millions of Americans are affected … [+]
I woke up around 2am that morning with stomach pain, nausea and vomiting. Knowing I had to be at the hospital at 7am to work shifts and no one wanted to call, I put it down to recent stress. A few hours later, I went to the hospital to spend the next eight hours caring for patients with mild but increasing discomfort in my right lower quadrant. Towards the end of my shift it became clear that I had appendicitis, and I took a taxi to my health insurance hospital, where a knowledgeable surgeon with excellent bedside manners offered intravenous antibiotics or surgery. I chose the former because it was a mild case, and I was discharged after an uneventful three-day hospital stay.
A few months later I received the hospital bill. Although I was not responsible for the total amount because I was insured and had a reasonable co-pay, the full cost was $22,789. The emergency room fee, often called the “facility fee” and essentially an “entrance fee” when you enter an ER, is separate from the services you receive during your stay in the ER, such as diagnostic tests (e.g. . For me, the ER cost was $2,997, along with a separately billed ultrasound worth $1,165 and lab work worth $2,256. Pharmacy costs for the hospital stay (intravenous antibiotics, saline, and a few doses of ibuprofen) totaled $1,281. Because my treatment was probably the most bare-bones of all admissions and I did not undergo surgery, room and board made up the largest portion of the bill: over $15,000 for three nights – over $5,000 per night.
This hospital bill for appendicitis was almost $23,000, even without surgery.
This is probably one of the “cheaper” hospital bills you can get for any hospitalization, as I had previously shown that the average attack in California, the price for appendicitis in 2009 was $33,611. Our study also found that costs ranged from $1,529 to $182,955, a staggering 12,000% difference, especially considering that we limited the analysis to healthy adult men (who are less complicated to diagnose than women with a more extensive differential diagnosis ) with routine appendicitis who had an uncomplicated hospital stay of less than three days and were discharged home.
But why was the charge so high in the first place? These days it seems like we regularly read about $600 Band-Aids and $400 pregnancy tests, and compared to medical bills running into the hundreds of thousands, this seems almost benign.
But for anyone living outside the United States, and for anyone who does face the consequences of these sticker prices (and that includes all of us, in one form or another, which I’ll explain in a future article), these accusations astronomical. .
This article focuses on the cost, or “sticker price,” of healthcare: the amount hospitals or health care providers charge before insurance kicks in or discounts are applied. (More to come in another article about the differences between healthcare costs, charges and other difficult-to-understand terminology when looking at your hospital bill or insurance claim). We need to understand why costs are so high in the first place so that we can address these issues at the grassroots level instead of more symptomatic “Band-Aid” approaches like the No Surprises Act that bans out-of-network billing for emergencies. healthcare or legislation on price transparency for hospitals and insurance companies.
First, many people may be surprised to learn that there is little regulation of hospital costs. With a few exceptions, hospitals and healthcare providers may charge costs whatever they want for their services. When asked how hospitals determine their costs for their services, William McGowan, the CFO of the University of California, Davis, once said quoted saying, “There is no method to this madness. Over the years we had these cockamamie formulas. We multiplied our costs to establish our charges.”
Even in our theoretical “market-driven health care system,” hospitals have no incentive to charge lower prices because patients cannot behave like traditional “consumers” when seeking health care. For example, if a person has shortness of breath, he does not know what diagnostic tests the doctor will prescribe. Is it a chest x-ray? A CT of the chest? Will the doctor also order an electrocardiogram? What about laboratories? If so, which laboratories? It is simply impossible for someone to make healthcare decisions even when they see a “chargemaster,” or the price list of tens of thousands of hospital supplies, because they do not know what will be ordered.
Second, and perhaps more importantly, the very structure of how insurance companies pay hospitals creates an incentive for hospitals to charge more. While Medicare pays a flat amount per hospital case, many insurance companies pay a percentage of hospital costs. This encourages hospitals to increase the sticker price. Hospitals defend themselves by saying that the reimbursement rate from insurance companies is only a small percentage of costs, creating a vicious circle of higher hospital costs and a smaller percentage of health insurance reimbursement. Some insurance plans use a different method, such as paying a multiple of Medicare rates (rather than a percentage of the cost). With legislation mandating transparency in the amounts insurance plans reimburse to hospitals, there is a possibility that insurers will not pay excessive amounts to hospitals in the future. (But whether or not they pass these savings on to enrollees through lower premiums is highly debatable).
Monopolies or oligopolies cause distortions and inefficiencies, allowing both parties to charge what the market can bear. Hospital systems – especially those considered “must-have providers” – may charge higher prices due to their market share, unique services or access to a particular area. While hospital consolidation brings a theoretical benefit of greater operational efficiency, the actual effect has been increased prices, sometimes even exceeding 40%.
Even in the insurance market, the almost dominant position in areas where providers do not have much market power means that insurance companies refuse to contract with hospitals and pay only a fraction of the costs of care. With the implementation of the much-vaunted No Surprises Act, hospitals have been banned from charging patients for out-of-network emergency care, and some healthcare providers claim that insurance companies in specific regions are abusing this clause and deliberately underpaying hospitals. . This then increases pressure on hospitals to raise prices to collect revenue from other payers (including uninsured patients who face the sticker price of bills) to make up for these losses.
Finally, our system’s dependence on the insurance and healthcare markets leads to excessive administrative costs. “More players” in the “health insurance” space does little to increase competition in the traditional sense of lowering prices when there is so much uncertainty about what and how much is covered, even if you read all the fine print trying to read. It can even increase administrative costs, as each insurance company negotiates with each hospital separately. Imagine the administrative monstrosity that then emerged 1,176 health insurers are negotiating with 5,000 hospitals in the United States to create separate pricing structures with their own rules, paperwork, billing specialists and appeals processes. This administrative cost were calculated at $294.3 billion in 1999, which in today’s dollars would be $538.6 billion. And none of that pays for the actual care patients receive.
Simply put, our health care system is designed so that hospitals and insurers “charge what the market is willing to bear.” The result? Millions of bankrupt people. Exploitation of patients. And an international reputation for a health care system that leaves its citizens living in fear of financial ruin due to illness.
Proof of this last point came when a colleague emailed me while his college-aged son was studying abroad in Romania and randomly saw my friend’s appendectomy. account on the local news one day. Unfortunately, colossally high medical bills, almost unimaginable in the rest of the world, have become what millions of voiceless Americans no longer expect.