WHy is health care so much more expensive in hospitals

[Wesley_Clark]

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.

The Amount Americans Spend On Healthcare Is Still Growing, But More And More...

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?

[Dewey_Finn]

@Wesley_Clark

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.

[Wesley_Clark]

@Dewey_Finn

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.

[Dewey_Finn]

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.)

[Dewey_Finn]

BTW, for those not familiar, the Wikipedia article describes what level of care is provided by each type of trauma center.

[PastTense]

Hospitals have a large number of highly paid bureaucrats.

[Alpha_Twit]

@PastTense

Hospitals have a large number of highly paid bureaucrats.

…and lawyers

[Jackmannii]

@PastTense

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.

[Kent_Clark]

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.

[nelliebly]

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?

[DSeid]

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.

[Bill_Door]

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.

[slash2k]

@nelliebly

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.

[Dewey_Finn]

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.

[Grim_Render]

@Jackmannii

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.

[Mdcastle]

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.

[nelliebly]

According to the Pharmacy Times,

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.

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.

[Anny_Middon]

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”:

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.

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.

[RealityChuck]

Hospitals have to be staffed 24/7. Clinics are not open overnight; labs close at 5:00 or so.

[Really_Not_All_That_Bright]

@Grim_Render

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.