Why Hospital Charges Make No Sense

Hospital list prices soared the last two decades. They're to the point that they are meaningless, except to the handful of private pay patients hospitalized for care. The New York Times reported:

A patient in Illinois was charged $12,712 for cataract surgery. Medicare pays $675 for the same procedure. In California, a patient was charged $20,120 for a knee operation that Medicare pays $584 for. And a New Jersey patient was charged $72,000 for a spinal fusion procedure that Medicare covers for $1,629.

How did this happen? Hospitals have fixed price contracts with insurers like Medicare, Medicaid and private insurers. They pay based on DRG's, a per diem, discounted fee for service or a capitated amount. The only people getting bills with full charges are the uninsured and those wealthy enough to go bare (as in self insured). That's a relatively small percentage of hospital visits for non-safety net facilities.

Imagine riding a bicycle where only 10% of your pedaling goes into increased speed. Now, you have to keep up with Lance Armstrong. How fast do you have to spin? Your legs would be a blur.

Twenty years of health care cost increases are Lance Armstrong. Health care costs turned into a gazillion RPM's, as price increases only applied to a small percent of patients. Compound high percentage price raises over two decades and charges get ridiculous. However, it is a predictable result of America's non-healthcare system.

The situation is so irrational, said Uwe E. Reinhardt, a health economist at Princeton, that it simply cannot go on. “We will not emerge out of this decade with this lunacy,” Dr. Reinhardt said, adding, “You worry about credit card charges, you scream for consumer protection — why not scream for it here?”

A health care economist could explain how hospital payer mix and insurance payment systems contribute to nonsensical pricing. As usual, Uwe doesn't give the whole picture. Dr. Reinhardt consistently refuses to reveal his for-profit health care board slots and their contribution to his personal finances.

Insurers released the study to steer public outrage to hospitals. Uwe sits on the board of AmeriGroup, an insurance company. He took the party line.