Ah yes, the free market at work in health care. Suppliers with a dominant market position can charge more.
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.
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.
Respectfully, where did you get these numbers?
~Max
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.
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.
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).
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.
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.
(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.
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.
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.
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.
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.
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.
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.
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.
In fact it probably incentivizes a hospital to run every lab STAT because there is a higher charge code for that…