Reply
 
Thread Tools Display Modes
  #1  
Old 10-09-2019, 07:39 PM
Wesley Clark is offline
2018 Midterm Prediction Winner
 
Join Date: Aug 2003
Posts: 22,367

WHy is health care so much more expensive in hospitals


This is meant to be a factual question rather than a debate, but if there is no factual answer I suppose it'll get moved which is fine.

Anyway, health care at a hospital is far more expensive than anywhere else. If you need bloodwork done, its far far cheaper to do it at an outpatient lab than a hospital lab. If you need scans like MRIs or CTs, its far cheaper to go to an outpatient lab from what I've seen. Prices are 5-10x higher at the hospital. Urgent care clinics are far cheaper than hospital emergency rooms.

Despite it all, I think a lot of hospitals barely break even financially. And the medical clinics that offer outpatient services manage to turn a profit (if they didn't, they wouldn't exist) so why is the same care 5-10x or more expensive at a hospital than anywhere else?

Also everyone has heard the endless stories about $20 for a tylenol pill when you can buy a generic pack of 500 for $5 at walmart.

People may say 'its because of all the uncompensated care', but thats a tiny fraction of hospital income.

Hospitals did 1.1 trillion in business in 2017. uncompensated care is around 30-40 billion a year. So barely 3% of total spending in uncompensated, that doesn't explain why prices are 5, 10, 50x higher at a hospital.

https://www.forbes.com/sites/ellieki.../#57c5ff112eea

Why are outpatient clinics able to offer the same care far cheaper than hospitals? Do hospitals have far larger inventory and labor costs?

Or are the prices really not that different, its just that hospitals post the before insurance discount prices while outpatient clinics post the cash prices?
__________________
Sometimes I doubt your commitment to sparkle motion

Last edited by Wesley Clark; 10-09-2019 at 07:43 PM.
  #2  
Old 10-09-2019, 07:46 PM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
Quote:
Originally Posted by Wesley Clark View Post
Why are outpatient clinics able to offer the same care far cheaper than hospitals?
Because outpatient clinics can treat only a fraction of the conditions that a hospital can. The outpatient clinic can give you a flu shot, remove a splinter or dress a minor wound. But a level-one trauma center can treat people who were in a major accident, can reattach an amputated limb or treat a stroke. Maintaining the staff and equipment to be ready for such things is expensive.
  #3  
Old 10-09-2019, 07:51 PM
Wesley Clark is offline
2018 Midterm Prediction Winner
 
Join Date: Aug 2003
Posts: 22,367
Quote:
Originally Posted by Dewey Finn View Post
Because outpatient clinics can treat only a fraction of the conditions that a hospital can. The outpatient clinic can give you a flu shot, remove a splinter or dress a minor wound. But a level-one trauma center can treat people who were in a major accident, can reattach an amputated limb or treat a stroke. Maintaining the staff and equipment to be ready for such things is expensive.
But there are different levels of hospitals and trauma care. A level 1 may do that, but a level 4 doesn't.
__________________
Sometimes I doubt your commitment to sparkle motion
  #4  
Old 10-09-2019, 07:53 PM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
No, but even a level-four trauma center is staffed and equipped to handle more issues than an outpatient clinic. (And of course few outpatient clinics are available 24x7.)
  #5  
Old 10-09-2019, 07:56 PM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
BTW, for those not familiar, the Wikipedia article describes what level of care is provided by each type of trauma center.
  #6  
Old 10-09-2019, 09:12 PM
PastTense is offline
Guest
 
Join Date: Jan 2013
Posts: 7,745
Hospitals have a large number of highly paid bureaucrats.
  #7  
Old 10-09-2019, 09:31 PM
Alpha Twit's Avatar
Alpha Twit is offline
Guest
 
Join Date: Jun 2009
Location: Somewhere south of normal
Posts: 2,404
Quote:
Originally Posted by PastTense View Post
Hospitals have a large number of highly paid bureaucrats.
..and lawyers
__________________
There's plenty few problems in this life that can't be helped by a good day's work, a good night's sleep and a few swift kicks in the right asses.
  #8  
Old 10-09-2019, 09:37 PM
Jackmannii's Avatar
Jackmannii is offline
Guest
 
Join Date: Oct 2000
Location: the extreme center
Posts: 32,183
Quote:
Originally Posted by PastTense View Post
Hospitals have a large number of highly paid bureaucrats.
True, upper echelon executives make a lot of money. But I suspect overall labor costs (the biggest area of expenditure for hospitals) including medical and non-medical staff dwarf the amount paid to "bureaucrats".

Full-service hospitals face pressure from specialty hospitals, urgent care centers, outpatient labs and related businesses that don't have hospitals' high overhead and regulatory expenses. This article also mentions expenses taken on when hospitals buy out physician practices, and loss of productivity related to electronic medical record documentation which eats up a lot of time.
  #9  
Old 10-09-2019, 09:44 PM
Kent Clark's Avatar
Kent Clark is offline
Charter Member
 
Join Date: Apr 1999
Posts: 26,782
Back in the prehistoric era (1970) when I worked in a hospital, my floor had three RN's, or two RN's and a clerk; a Licensed Practical Nurse; and about four aides, on both the day and evening shifts. The night shift sometimes got by with one RN, one LPN, and two aides. That's 26 people for a 24-hour period, 365 days per year.

(By the way, you always needed at least two nurses, because one had to cross-check the other on treatments and drugs.)

The average patient census on my floor was 28-30. Some days it went as high as the mid-30s, which was pretty much every bed on the floor. There were some days it dipped lower, but you couldn't exactly tell superfluous staff to go home. Essentially, we averaged roughly one person devoted to patient care for every patient, all the time.

There were also respiratory therapists, physical therapists, X-ray technicians, operating room technicians, a pharmacy, a social worker or two, and a 24/7 emergency room. Those were just the employees who directly cared for patients. Now add in the custodial workers, the managers, the people who worked in bookkeeping, etc., etc.

Granted technology has eliminated a lot of those jobs over the last 50 years. But even if half the jobs have disappeared, that still means one care person for every two patients, plus the non-patient staff.

Contrast that with an urgent care center. The last time I was at one, it was staffed by a nurse practitioner, an aide, and a clerk. It was open 16 hours, instead of 24. I don't believe they even had an X-ray, much less an MRI or CAT scan. They could stitch up that nasty cut I had, but if I'd come in with a high fever and persistent cough (aka, flu turning into pneumonia) that had lasted 24 hours, they would have sent me to the emergency room, anyway.

Last edited by Kent Clark; 10-09-2019 at 09:47 PM.
  #10  
Old 10-09-2019, 10:12 PM
nelliebly is offline
Member
 
Join Date: Jul 2017
Location: Washington
Posts: 1,781
Not to be obtuse, but are all the answers saying that the costs of labs, imaging, and meds are higher because of labor costs? I thought this was why patient room rates, ER rates, etc. are so high. Why is a hospital's pharmacy more expensive than the 24-hour pharmacy down the street?
  #11  
Old 10-09-2019, 10:34 PM
DSeid's Avatar
DSeid is online now
Guest
 
Join Date: Sep 2001
Location: Chicago, IL
Posts: 22,654
My best guess is “because they can”.

There are hospital business lines that are less profitable or even money losers, and they try to make that up wherever they can. They do not gain more volume by pricing labs or meds or imaging less so why not charge more?

Outpatient only facilities and urgent cares often have consumers who are more price sensitive and are not relying on excess profit margins in these service lines to offset other loss areas.
  #12  
Old 10-10-2019, 08:28 AM
Bill Door is offline
Charter Member
 
Join Date: Nov 2003
Posts: 5,091
Because hospitals get stiffed so often. Someone has to take up the slack, and most of the time it's going to be the patients that do pay.
  #13  
Old 10-10-2019, 09:27 AM
slash2k is offline
Guest
 
Join Date: Feb 2014
Posts: 2,436
Quote:
Originally Posted by nelliebly View Post
Not to be obtuse, but are all the answers saying that the costs of labs, imaging, and meds are higher because of labor costs? I thought this was why patient room rates, ER rates, etc. are so high. Why is a hospital's pharmacy more expensive than the 24-hour pharmacy down the street?
Even the 24-hour pharmacy generally doesn't stock all of the medications a semi-well-stocked hospital pharmacy has. Your local Walgreens or CVS may be out of your prescription and tell you to come back tomorrow or the day after when their order comes in; the hospital will have it or send somebody to get it right now. The 24-hour pharmacy probably closes for the pharmacist's lunch; the hospital pharmacy really will have somebody there 24 hours. That extra level of service isn't without costs.

Last edited by slash2k; 10-10-2019 at 09:27 AM.
  #14  
Old 10-10-2019, 09:29 AM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
Where do you think those IV bags containing medications come from? Someone in the hospital pharmacy is preparing them, presumably to precise measurements. The local Walgreens or CVS isn't equipped to do that sort of thing.
  #15  
Old 10-10-2019, 09:38 AM
Grim Render is offline
Guest
 
Join Date: Feb 2012
Posts: 1,307
Quote:
Originally Posted by Jackmannii View Post
True, upper echelon executives make a lot of money. But I suspect overall labor costs (the biggest area of expenditure for hospitals) including medical and non-medical staff dwarf the amount paid to "bureaucrats".
I am not sure this is true. US healthcare costs about 2x the average of other developed nations. And extra bureaucracy is generally considered a large contributor to that excess cost.

I've seen estimates of a third of the extra costs, but they seem low. Billing alone has been found to cost that much.
  #16  
Old 10-10-2019, 11:06 AM
Mdcastle is offline
Guest
 
Join Date: Oct 2004
Posts: 2,149
The next person that walks in to the hospital after you come might have psychiatric emergency, might have been shot with a gun, might have fallen on a bicycle and hit her head, might be age 1 or age 99, might come at 1:00 AM or 1:00 PM. Having all that technology and specialists on standby 24 hours a day costs an astronomical sum of money (and hospitals still don't tend to make money on their emergency departments, while cardiology where you can bill a lot of expensive scheduled procedures is a big money maker while psychiatry is a money loser. That's part of the reason for our shortage of psychiatric beds). Hospitals also lose money on Medicaid and uninsured patients who they're still obligated to treat, and don't make much, if anything, on Medicare further contributing to the overhead.

Since they can't add "Hospital overhead" as a billable charge on the bill they spread the overhead cost around arbitrarily, which leads to things that look ridiculous in isolation, like $20 aspirin. Basically you're not paying for the aspirin for your fever, you're paying for the capability to treat you if you come in as a trauma case. If you only want to pay a few cents for an aspirin go to CVS, not the hospital.

Last edited by Mdcastle; 10-10-2019 at 11:09 AM.
  #17  
Old 10-10-2019, 12:13 PM
nelliebly is offline
Member
 
Join Date: Jul 2017
Location: Washington
Posts: 1,781
According to the Pharmacy Times,

Quote:
The price insurers pay depends on whether the medication is dispensed in a hospital outpatient setting or through a pharmacy. Many hospitals purchase cancer drugs that are administered in the facility. The hospitals can place a steep mark-up on the drug and are reimbursed by insurers, according to the study.

The price a hospital charges and what they are reimbursed is largely based on the local hospital and insurers, according to the authors. When hospitals consolidate, they are able to request higher reimbursement due to a larger market share.
Hospitals therefore charge more because they CAN charge more.

Quote:
A recent report published by the Community Oncology Alliance (COA) found that the cost of chemotherapy for patients with cancer was nearly 60% more expensive at hospitals than at independent community oncology practices. The difference in treatment location could cost patients up to $90,144 per year for treatment, according to COA.
Bolding is mine.
  #18  
Old 10-10-2019, 12:40 PM
Anny Middon is online now
Guest
 
Join Date: Oct 2012
Posts: 1,207
An article that I believe should be required reading for anyone interested in health care costs is Time Magazine's "Why Medical Bills are Killing Us"

The article talks in some depth about the “chargemaster”:
Quote:
However, I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it. They even argued that it is irrelevant. I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills.
One example the article looks at is that of an uninsured woman who went to the emergency room for chest pains. As part of her treatment she received three troponin tests, billed to her at $199.50 each.

Quote:
Because she was 64, not 65, Janice S. was not on Medicare. But seeing what Medicare would have paid Stamford Hospital for the troponin test if she had been a year older shines a bright light on the role the chargemaster plays in our national medical crisis — and helps us understand the illegitimacy of that $199.50 charge. That's because Medicare collects troves of data on what every type of treatment, test and other service costs hospitals to deliver. Medicare takes seriously the notion that nonprofit hospitals should be paid for all their costs but actually be nonprofit after their calculation. Thus, under the law, Medicare is supposed to reimburse hospitals for any given service, factoring in not only direct costs but also allocated expenses such as overhead, capital expenses, executive salaries, insurance, differences in regional costs of living and even the education of medical students.

It turns out that Medicare would have paid Stamford $13.94 for each troponin test rather than the $199.50 Janice S. was charged.
Really, I urge you to read the whole article. It's 5 years old now, but still relevant.
  #19  
Old 10-10-2019, 01:24 PM
RealityChuck's Avatar
RealityChuck is offline
Charter Member
 
Join Date: Apr 1999
Location: Schenectady, NY, USA
Posts: 42,848
Hospitals have to be staffed 24/7. Clinics are not open overnight; labs close at 5:00 or so.
__________________
"If a person saying he was something was all there was to it, this country'd be full of rich men and good-looking women. Too bad it isn't that easy.... In short, when someone else says you're a writer, that's when you're a writer... not before."
Purveyor of fine science fiction since 1982.
  #20  
Old 10-10-2019, 01:33 PM
Really Not All That Bright is offline
Member
 
Join Date: May 2003
Location: Florida
Posts: 68,338
Quote:
Originally Posted by Grim Render View Post
I am not sure this is true. US healthcare costs about 2x the average of other developed nations. And extra bureaucracy is generally considered a large contributor to that excess cost.

I've seen estimates of a third of the extra costs, but they seem low. Billing alone has been found to cost that much.
I agree, but that's not really relevant to the question of why hospital care is much more expensive than outpatient care in the US. The correct answer is the one Bill Door gave: it's because they can only collect a fraction of their medical bills when they're paid at all.

To a lesser extent, it's also because they can charge more or less what they want. People receiving inpatient care are, generally speaking, a captive audience.
__________________
This can only end in tears.
  #21  
Old 10-10-2019, 02:31 PM
Northern Piper is online now
Charter Member
 
Join Date: Jun 1999
Location: The snow is back, dammit!
Posts: 29,743
Quote:
Originally Posted by DSeid View Post
My best guess is “because they can”.

There are hospital business lines that are less profitable or even money losers, and they try to make that up wherever they can. They do not gain more volume by pricing labs or meds or imaging less so why not charge more?

Outpatient only facilities and urgent cares often have consumers who are more price sensitive and are not relying on excess profit margins in these service lines to offset other loss areas.
Ah yes, the free market at work in health care. Suppliers with a dominant market position can charge more.
__________________
"I don't like to make plans for the day. If I do, that's when words like 'premeditated' start getting thrown around in the courtroom."
  #22  
Old 10-10-2019, 02:46 PM
md2000 is offline
Guest
 
Join Date: Feb 2009
Posts: 15,079
Quote:
Originally Posted by Really Not All That Bright View Post
I agree, but that's not really relevant to the question of why hospital care is much more expensive than outpatient care in the US. The correct answer is the one Bill Door gave: it's because they can only collect a fraction of their medical bills when they're paid at all.

To a lesser extent, it's also because they can charge more or less what they want. People receiving inpatient care are, generally speaking, a captive audience.
Not only that, but a lot of people aren't paying. Then the hospital charges what they charge, and have agreements with assorted insurance companies to charge (much) less. Also consider the complex billing system required to track every last bit of billable material or activity happening for someone.

Plus the average insured patient doesn't see this massive bill, so whether the hospital charges $1,000 or $20,000 over and above their co-pay is no big deal to them. The insurance company doesn't mind, they just up the rates to the employer, and the insurance company's take is proportional to the amount of money they get in premiums, minus whatever they pay once they can't talk the hospital down further. This disconnect between payer and beneficiary is the biggest problem. Someone who isn't paying out of pocket doesn't question procedures or their costs.
  #23  
Old 10-10-2019, 03:07 PM
Wesley Clark is offline
2018 Midterm Prediction Winner
 
Join Date: Aug 2003
Posts: 22,367
Quote:
Originally Posted by Really Not All That Bright View Post
I agree, but that's not really relevant to the question of why hospital care is much more expensive than outpatient care in the US. The correct answer is the one Bill Door gave: it's because they can only collect a fraction of their medical bills when they're paid at all.
But thats not really accurate as I mentioned in the OP.

Hospitals do about 1.1 trillion a year in business and do about 30-40 billion a year in uncompensated care. That is 3-4% of their total business.

Being stiffed by 3% of your customers shouldn't cause your prices to be 10x higher than the outpatient clinic down the road.

That'd be like if a McDonalds said that 3% of customers didn't pay, so they started charging $50 for a big mac.
__________________
Sometimes I doubt your commitment to sparkle motion
  #24  
Old 10-10-2019, 03:17 PM
Max S. is offline
Guest
 
Join Date: Aug 2017
Location: Florida, USA
Posts: 1,550
Quote:
Originally Posted by Wesley Clark View Post
Hospitals do about 1.1 trillion a year in business and do about 30-40 billion a year in uncompensated care. That is 3-4% of their total business.
Respectfully, where did you get these numbers?

~Max
  #25  
Old 10-10-2019, 03:39 PM
Wesley Clark is offline
2018 Midterm Prediction Winner
 
Join Date: Aug 2003
Posts: 22,367
Quote:
Originally Posted by Max S. View Post
Respectfully, where did you get these numbers?

~Max
https://www.forbes.com/sites/ellieki.../#7cc41d382eea

Quote:
Other top-line stats:

$1.1 trillion was spent on hospital care (33% of total 2017 spending, up 4.6%)
https://www.healthcaredive.com/news/...nsured/545309/

Quote:
U.S. hospitals provided $38.4 billion worth of uncompensated care in 2017, the American Hospital Association found in a survey out this week. Uncompensated care remained flat compared with the prior year, despite signs of an uptick in the rate of uninsured after years of decline.
__________________
Sometimes I doubt your commitment to sparkle motion

Last edited by Wesley Clark; 10-10-2019 at 03:40 PM.
  #26  
Old 10-10-2019, 03:40 PM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 3,711
Quote:
Originally Posted by Wesley Clark View Post
But thats not really accurate as I mentioned in the OP.

Hospitals do about 1.1 trillion a year in business and do about 30-40 billion a year in uncompensated care. That is 3-4% of their total business.

Being stiffed by 3% of your customers shouldn't cause your prices to be 10x higher than the outpatient clinic down the road.

That'd be like if a McDonalds said that 3% of customers didn't pay, so they started charging $50 for a big mac.
Here is the mistake in your argument. You can just see it if you pick up an insurance EOB. Yes, the hospital gets compensated for most care given. However, the price PAID (versus billed) is hugely different. Those 5-10x prices are mostly fictional. They are almost never paid. The actual amount paid is quite a bit closer to the real price, which is what a third party lab that only accepts direct payment would charge.

Last edited by SamuelA; 10-10-2019 at 03:40 PM.
  #27  
Old 10-10-2019, 04:20 PM
Dr_Paprika is offline
Member
 
Join Date: Oct 2000
Location: South of Toronto, Canada
Posts: 4,000
I have no experience with the American health care system. But have worked nearly twenty years in various sized Canadian hospitals.

Even a small hospital has an enormous number of expenses and requires a lot of employees to provide care and deal with bureaucracy. Hospitals have merely the first level of an extensive medical bureaucracy dealing with health regulations, funding, the community, government, insurance, unions, etc. Machinery to take images, store data, examine patients, do lab tests, and perform operations and procedures is expensive and need cleaning and maintenance. Three shifts of employees are needed to provide 24/7 care. Utility use is heavy. A large variety of medicines and equipment is required. Some of the medicines cost tens of thousands of dollars for one dose. Antidotes are costly, expire and may never be used. Much of the equipment is designed to be disposable, if not it may require sterilization or cleaning. Patients need to be fed and cared for, even cleaning standards are very high. Many jobs are unionized, regulated and have extensive standards.

This is not to justify passing exorbitant costs on to patients. Canadian hospitals don’t make a profit. But hospitals have more expensive staffs, much more expensive equipment and a lot of stuff they are legally required to do.
__________________
"A noble spirit embiggens the smallest man"
  #28  
Old 10-10-2019, 04:35 PM
md2000 is offline
Guest
 
Join Date: Feb 2009
Posts: 15,079
Yes. The $13 lab test is likely from a building that does lab tests, and only that, and the staff go home at 5PM. The hospital needs to be ready to do emergency tests around the clock. Plus most clinics, same - staff go home at quitting time. A hospital is more like a giant hotel as well as a clinic.

I don't know that much about my health care, but I suspect Canadian hospitals can bypass a lot of the triviata involved in American care... Tonsillectomy? Cataract surgery? Hip Replacement? It includes this and this and this and we bill Medicare $X for that procedure. If it includes this piece, bill $Y as well. In the US system, every individual item needs to be tracked and billed down to the last aspirin, because health insurers want justification for what they are being billed for (probably in order to nickel-and-dime down the cost).
  #29  
Old 10-10-2019, 07:37 PM
Dr_Paprika is offline
Member
 
Join Date: Oct 2000
Location: South of Toronto, Canada
Posts: 4,000
Canadian hospitals probably do a slightly smaller number of tests, images and operations per capita due to fewer litigation concerns. But a hospital is a hospital and the difference is probably modest.

Canadian hospitals are not for profit, nor are they in a meaningful competition with others.

A lot of the trivia, though, is required by law or guidelines. To reduce medication errors and diversion, most medicines are tracked pretty closely, even in Canada. An American who comes to a Canadian ER and is discharged would probably be charged a flat rate of, say, $500 Canadian plus the cost of any CT swans (though this may vary by place and province). This includes basic lab tests, ECGs and medicine - but no one is going to itemize and charge you thirty dollars for a basic pill.
__________________
"A noble spirit embiggens the smallest man"

Last edited by Dr_Paprika; 10-10-2019 at 07:38 PM.
  #30  
Old 10-10-2019, 10:03 PM
nelliebly is offline
Member
 
Join Date: Jul 2017
Location: Washington
Posts: 1,781
It interests me to see how many responses are defending hospitals as being forced to charge exorbitant amounts for drugs because the pharmacy has to be open 24/7 or they have so many customers--I mean patients (same thing, though)--who don't pay, or a lot of other speculation.

The article that Anny Middon referenced was later expanded into the excellent book, America's Bitter Pill. Before anyone else offers another line rationalizing hospital Rx costs, please read this excerpt from that book. The excerpt concerns a cancer patient named Sean Recchi, who was treated at MD Anderson, a nonprofit cancer hospital in Houston.

Quote:
On the second page of the bill, the markups got bolder. Recchi was charged "$13,702 for "1 rituximab inj 660 mg."...The average price paid by all hospitals for this dose is about $4,000. However, MD Anderson probably gets a volume discount that would make its cost $3000 to $3,500. That means the nonprofit's markup on Recchi's lifesaving shot would be 300-400%.

When I asked MD Anderson to comment on the charges on Recchi's bill, the cancer center released a written statement that said in part, "The issues related to health care finance are complex for patients, health care providers, payers and government entities alike...MD Anderson's clinical billing and collection practices are similar to those of other major hospitals and treatment centers."

The hospital's hard-nosed approach pays off. Although it is officially a nonprofit unit of the University of Texas, MD Anderson has revenue that exceeded the cost of the world-class care it provides by so much that its operating profit for the fiscal year 2010 was $531 million. That was a profit margin of 26 percent on revenue of $2.05 billion, an astounding result for such a service-intensive enterprise.
(Bolding mine.)

I'm sure major hospitals are thrilled to have so many of us defend their charges. But let's not speculate. This is, after all, GQ.
  #31  
Old 10-10-2019, 10:18 PM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
As I read the OP, the question was not why is health care in the US so expensive and so screwed up and the cost and billing structures of the hospitals so enigmatic. Instead, the question was why are hospitals more expensive than outpatient clinics and other non-hospital based health care providers. I think Dr_Paprika's response suggested that the cost differences are also present in Canada, and I'll bet if you investigated, would also be present elsewhere in the world.

Last edited by Dewey Finn; 10-10-2019 at 10:19 PM.
  #32  
Old 10-11-2019, 12:16 AM
md2000 is offline
Guest
 
Join Date: Feb 2009
Posts: 15,079
Quote:
Originally Posted by Dewey Finn View Post
As I read the OP, the question was not why is health care in the US so expensive and so screwed up and the cost and billing structures of the hospitals so enigmatic. Instead, the question was why are hospitals more expensive than outpatient clinics and other non-hospital based health care providers. I think Dr_Paprika's response suggested that the cost differences are also present in Canada, and I'll bet if you investigated, would also be present elsewhere in the world.
Far be it from me to defend hospitals, but the keyword is "outpatient". Providing 24-7 nursing care, having to bring a lot of medical care to the bed rather than have the patient go to an exam room, needing to keep an immense inventory of medical options on hand... There are plenty of reasons why hospitals are expensively different from simple clinics.
  #33  
Old 10-11-2019, 12:57 AM
nelliebly is offline
Member
 
Join Date: Jul 2017
Location: Washington
Posts: 1,781
The OP specifically mentioned medications, lab work, and tests, as well as outpatient care. I don't know if the OP means outpatient care in general or in those specific areas. I hope someone who believes hospital costs are reasonable given their expenses (and despite the eye-popping MD Anderson profits I mentioned earlier) will post data supporting that view, as well as some explanation by experts. I'd like to be persuaded.

In the meantime, there's this: from a Medscape Physician Business Academy course: [Bolding mine.]

Quote:
Despite their name, many not-for-profit hospitals rival and even excel for-profits in generating net income, or profit. According to a 2016 study, seven of the 10 most profitable US hospitals were not-for-profit, and each of these hospitals earned a net income of more than $163 million in patient care services. [14]

The study found that highly profitable not-for-profit hospitals tend to be part of a larger health system; be located in urban areas; not provide any teaching functions; and dominate the local market, thus having negotiating clout with commercial payers.
Even non-profit hospitals have huge profit margins. They're not charging you big bucks for your meds there because they have to. They're doing so because they can.
  #34  
Old 10-11-2019, 08:05 AM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 3,711
Quote:
Originally Posted by nelliebly View Post
Even non-profit hospitals have huge profit margins. They're not charging you big bucks for your meds there because they have to. They're doing so because they can.
Where do the profits go? I assume the CEO and board members can't pocket more than a few million and maintain the appearance of being nonprofit.

Last edited by SamuelA; 10-11-2019 at 08:06 AM.
  #35  
Old 10-11-2019, 08:57 AM
doreen is offline
Charter Member
 
Join Date: Dec 1999
Location: Woodhaven,Queens, NY
Posts: 6,600
Quote:
Originally Posted by SamuelA View Post
Where do the profits go? I assume the CEO and board members can't pocket more than a few million and maintain the appearance of being nonprofit.
Non-profit doesn't mean the organization doesn't take in more money than it spends - it means that the money is not distributed to owners or shareholders because the organization has no owners or shareholders They can pay the CEO multiple millions, they can pay the the celebrity surgeon multiple millions , they can pay the board members, they can install rooftop gardens, renovate, etc , etc.
  #36  
Old 10-11-2019, 11:00 AM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 3,711
Quote:
Originally Posted by doreen View Post
Non-profit doesn't mean the organization doesn't take in more money than it spends - it means that the money is not distributed to owners or shareholders because the organization has no owners or shareholders They can pay the CEO multiple millions, they can pay the the celebrity surgeon multiple millions , they can pay the board members, they can install rooftop gardens, renovate, etc , etc.
Shouldn't these be recorded as "cost of care"?

That celebrity surgeon "cost" 200,000 a month to have on staff. The CEO "costs" 500k a month or they won't provide their valuable "leadership services". (Scare quotes because the value proposition to the organization is obviously questionable).

It would appear like MD Anderson is managing to collect 26 percent AFTER paying such essential expenses.
  #37  
Old 10-11-2019, 11:03 AM
puddleglum's Avatar
puddleglum is offline
Guest
 
Join Date: Oct 2000
Location: a van down by the river
Posts: 6,666
Quote:
Originally Posted by nelliebly View Post
The OP specifically mentioned medications, lab work, and tests, as well as outpatient care. I don't know if the OP means outpatient care in general or in those specific areas. I hope someone who believes hospital costs are reasonable given their expenses (and despite the eye-popping MD Anderson profits I mentioned earlier) will post data supporting that view, as well as some explanation by experts. I'd like to be persuaded.

In the meantime, there's this: from a Medscape Physician Business Academy course: [Bolding mine.]



Even non-profit hospitals have huge profit margins. They're not charging you big bucks for your meds there because they have to. They're doing so because they can.
Most hospitals have very low margins, in 2017 the median operating margin was 1.6%. The median cashflow margin was 8.1%. Both of those were all time lows.
  #38  
Old 10-11-2019, 11:27 AM
Blue Blistering Barnacle is offline
Guest
 
Join Date: Dec 2011
Posts: 6,722
As pointed out by numerous people above, a major reason hospital care is more expensive than outpatient care is that it is more expensive to offer hospital care than outpatient care.

A second reason is payment. Hospitals are required to provide certain types of care regardless of a patient’s ability to pay. Outpatient providers can get their assurances up front.

Lastly, because of these factors, the “Powers That Be” permit hospitals to charge more for identical services. So those saying that hospitals charge more because they can are also correct.

For reasons opaque to me, but probably having to do with bureaucratic simplification and prevention of fraud/abuse, AFAICT hospitals can’t do a lot to distinguish between classes of patients in a way that would fairly distinguish between outpatients referred for tests to be done in the next week or two, those referred for a test today, and outpatients in the emergency room who need tests done STAT.
  #39  
Old 10-11-2019, 11:51 AM
md2000 is offline
Guest
 
Join Date: Feb 2009
Posts: 15,079
The problem too is people are not very often paying for their own care, so there's no incentive for the patient to seek cheaper alternatives or the hospital to offer. They don't offer "do you want the results tomorrow for $1,000 or wait up to a week and the lab will squeeze you in sometime for $200". They don't because it doesn't matter to you when you have insurance paying for it anyway, so there's no incentive for them to offer cost-cutting alternatives. Basically, the system is not incentivized to economy.
  #40  
Old 10-11-2019, 12:00 PM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 3,711
In fact it probably incentivizes a hospital to run every lab STAT because there is a higher charge code for that...
  #41  
Old 10-11-2019, 12:00 PM
doreen is offline
Charter Member
 
Join Date: Dec 1999
Location: Woodhaven,Queens, NY
Posts: 6,600
Quote:
Originally Posted by SamuelA View Post
Shouldn't these be recorded as "cost of care"?

That celebrity surgeon "cost" 200,000 a month to have on staff. The CEO "costs" 500k a month or they won't provide their valuable "leadership services". (Scare quotes because the value proposition to the organization is obviously questionable).

It would appear like MD Anderson is managing to collect 26 percent AFTER paying such essential expenses.
I don't know - I don't have access to the study referred to in Medscape quote ( or even to the Medscape article) and therefore don't know how that study defined profit or cost of care. I was responding to this
Quote:
I assume the CEO and board members can't pocket more than a few million and maintain the appearance of being nonprofit.
They can pay people as much as they want/as is necessary and still be a non-profit. They can spend it on employee benefits or building renovations or invest it or make grants to other non-profits and still be an non-profit. One of the few things they can't do is distribute profits to owners/shareholders because they don't have any. BTW until 2015, the NFL ( the league itself, not the teams) was a non-profit organization.

Last edited by doreen; 10-11-2019 at 12:03 PM.
  #42  
Old 10-11-2019, 12:21 PM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 3,711
Quote:
Originally Posted by doreen View Post
I don't know - I don't have access to the study referred to in Medscape quote ( or even to the Medscape article) and therefore don't know how that study defined profit or cost of care. I was responding to this
They can pay people as much as they want/as is necessary and still be a non-profit. They can spend it on employee benefits or building renovations or invest it or make grants to other non-profits and still be an non-profit. One of the few things they can't do is distribute profits to owners/shareholders because they don't have any. BTW until 2015, the NFL ( the league itself, not the teams) was a non-profit organization.
Don't they have to document or show somehow that their expenditures are "market rate"? No paying groundskeepers 200k a year in TC.
  #43  
Old 10-11-2019, 04:44 PM
nelliebly is offline
Member
 
Join Date: Jul 2017
Location: Washington
Posts: 1,781
Quote:
Originally Posted by puddleglum View Post
Most hospitals have very low margins, in 2017 the median operating margin was 1.6%. The median cashflow margin was 8.1%. Both of those were all time lows.
Thanks for providing data. It's important to note that operating margin is very different from total margin. Operating margin includes only operating revenue and not other forms of revenue, such as subsidies for indigent care write-offs. Nevertheless, while stand-alone hospitals, particularly those in rural area soften do struggle, it's not because the cost of providing care is so high. Occupancy rates have plummeted, due in part to competition from hospital networks in bigger cities.* A whopping 75% of hospitals now belong to such a network, and those numbers are growing.

And these "non-profit" mega-networks are in fact enormously profitable.

Quote:
Our auditors at OpenTheBooks.com looked at America’s healthcare system and found that so-called “non-profit” hospitals and their CEOs are getting richer while the American people are getting healthcare poorer.

We found that the assets, investments and bank accounts at these charitable hospitals increased by $39.1 billion last year – from $164.1 billion to $203.2 billion. That’s 23.6 percent growth, year-over-year, in net assets. Even deducting for the $5.2 billion in charitable gifts received from donors, these hospitals still registered an extraordinary 20.5 percent return on investment (ROI)
And the CEO's of these networks are getting rewarded handsomely.

Quote:
Based in Phoenix, Arizona, Banner Health paid out $34 million to just two executives. The president of Banner made $21.6 million and an executive vice-president made $12.4 million.

Consider other non-profit hospitals across America: the top paid “special advisor” and former CEO at Memorial Hermann* in Houston, Texas made $18.6 million. In St. Louis, Missouri, the chief at Ascension Health* made $13.6 million; the CEO at the Kaiser Foundation* in Oakland, California made $10.7 million; and $10.6 million went to the top paid executive of Northwestern Memorial HealthCare in Chicago, Illinois.
I sympathize with the smaller, independent hospitals that are truly struggling, but their struggles are not the reason you're paying exorbitant prices for labs and medicines.





*Case in point: the independent hospital in the small rural town where I used to live. Most people drove to The City 100 miles away for surgeries and planned hospital stays because few specialists practiced in our town. So my friend with diabetes that damaged his kidneys was admitted to the hospital in The City because there were endocrinologists and nephrologists there, and our town had none. Both major hospitals in The City belonged to mega-networks.
  #44  
Old 10-11-2019, 04:58 PM
Mdcastle is offline
Guest
 
Join Date: Oct 2004
Posts: 2,149
Generally CEOs get paid what they do because they're worth it to the organization. What if Banner Health found someone willing to lead the company $100,000 a year and because of inexperience they wound up making a mistake that cost the company $100 million?

Also, how many patients visits to spread that out? I couldn't find that information immediately but did find that they pay out $4 billion in salaries a year. $21.6 million isn't significant looking at it those ways.
  #45  
Old 10-11-2019, 07:50 PM
Dr_Paprika is offline
Member
 
Join Date: Oct 2000
Location: South of Toronto, Canada
Posts: 4,000
FWIW, the CEO of a Canadian hospital gets paid around $300-800k CDN. It’s a fair chunk of change but is more than an order of magnitude below The US. It’s a tough job, and in some bigger hospitals might have an MD and an MBA. Many of them seem competent enough, but one doesn’t have access to the data to really judge.
__________________
"A noble spirit embiggens the smallest man"

Last edited by Dr_Paprika; 10-11-2019 at 07:52 PM.
  #46  
Old 10-11-2019, 08:06 PM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
Companies like Banner Health or Kaiser Permanente operate multiple hospitals (sometimes dozens), along with primary care clinics, nursing homes, rehab clinics and so forth. Not really the same as being the CEO of one hospital.
  #47  
Old 10-12-2019, 02:19 AM
nelliebly is offline
Member
 
Join Date: Jul 2017
Location: Washington
Posts: 1,781
Quote:
Originally Posted by Mdcastle View Post
Generally CEOs get paid what they do because they're worth it to the organization. What if Banner Health found someone willing to lead the company $100,000 a year and because of inexperience they wound up making a mistake that cost the company $100 million?

Also, how many patients visits to spread that out? I couldn't find that information immediately but did find that they pay out $4 billion in salaries a year. $21.6 million isn't significant looking at it those ways.
The CEO's of many corporations make millions, too. And that's my point: hospitals--even non-profit hospitals: HAVE the money to pay those salaries. And where does that money come from? (Hint; it's not Medicare or Medicaid payments.) It won't be long until almost all hospitals belong to a network--essentially, a large corporation. Corporate health care is the future: it's profit-driven (even when non-profit, in which case the profit goes to yet more expansion, new building construction, etc.), cost-efficient, and very, very profitable.

Quote:
Originally Posted by Dewey Finn View Post
Companies like Banner Health or Kaiser Permanente operate multiple hospitals (sometimes dozens), along with primary care clinics, nursing homes, rehab clinics and so forth. Not really the same as being the CEO of one hospital.
That's true, but it's besides the point. Hospitals, as I said above, are increasingly part of networks, which essentially function as large corporations. Nobody bats an eye that the CEO of Citigroup earns $28 million a year. Citigroup makes a lot of money from its credit cards, banks, etc. Hospital networks make a lot of money, too--enough to shell out salaries like the Banner CEO's and still turn a very, very handsome profit.

Hey, if you feel good about the money your local hospital /network is charging because you think the money's going to a worthy cause, I won't crush your dream. Just recognize that insurance companies are also a business, and those cost increases ultimately make their way back to you.
  #48  
Old 10-12-2019, 12:04 PM
doreen is offline
Charter Member
 
Join Date: Dec 1999
Location: Woodhaven,Queens, NY
Posts: 6,600
I was just reminded of something that applies to hospitals but not outpatient services - hospitals generally cannot discharge people without appropriate aftercare arrangements. This article is from 2012, and although it either wasn't entirely clear about homeless shelters or things have changed*, it is still true that people remain in hospitals although they need a lower level of care because for whatever reason, the hospital has been unable to arrange for the needed care.






* I know of people who have been discharged to shelters- but they didn't need follow-up care beyond prescriptions and a follow-up appointment in a few weeks.
  #49  
Old 10-12-2019, 12:15 PM
Dewey Finn is offline
Charter Member
 
Join Date: Apr 2003
Posts: 28,956
Quote:
Originally Posted by nelliebly View Post
Quote:
Originally Posted by Dewey Finn View Post
Companies like Banner Health or Kaiser Permanente operate multiple hospitals (sometimes dozens), along with primary care clinics, nursing homes, rehab clinics and so forth. Not really the same as being the CEO of one hospital.
That's true, but it's besides the point. Hospitals, as I said above, are increasingly part of networks, which essentially function as large corporations. Nobody bats an eye that the CEO of Citigroup earns $28 million a year. Citigroup makes a lot of money from its credit cards, banks, etc. Hospital networks make a lot of money, too--enough to shell out salaries like the Banner CEO's and still turn a very, very handsome profit.
What I said may be beside the point you were attempting to make, but it was directly on point in response to Dr_Paprika's comment about what Canadian hospital CEOs are paid.
  #50  
Old 10-14-2019, 10:44 AM
puddleglum's Avatar
puddleglum is offline
Guest
 
Join Date: Oct 2000
Location: a van down by the river
Posts: 6,666
Quote:
Originally Posted by nelliebly View Post
Thanks for providing data. It's important to note that operating margin is very different from total margin. Operating margin includes only operating revenue and not other forms of revenue, such as subsidies for indigent care write-offs. Nevertheless, while stand-alone hospitals, particularly those in rural area soften do struggle, it's not because the cost of providing care is so high. Occupancy rates have plummeted, due in part to competition from hospital networks in bigger cities.* A whopping 75% of hospitals now belong to such a network, and those numbers are growing.

And these "non-profit" mega-networks are in fact enormously profitable.
Is the rise in value of assets because the networks are getting bigger or because the value of the assets are rising?
My understanding is that hospital networks have been getting much bigger recently because insurance companies were trying to play hardball by excluding hospitals from their networks who were too expensive.
Reply

Bookmarks

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is Off
HTML code is Off

Forum Jump


All times are GMT -5. The time now is 12:15 PM.

Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2019, vBulletin Solutions, Inc.

Send questions for Cecil Adams to: cecil@straightdope.com

Send comments about this website to: webmaster@straightdope.com

Terms of Use / Privacy Policy

Advertise on the Straight Dope!
(Your direct line to thousands of the smartest, hippest people on the planet, plus a few total dipsticks.)

Copyright © 2019 STM Reader, LLC.

 
Copyright © 2017