Bumped into a neighbor who spent a post-op night in the ICU. The bill was $90,000. Not for the surgery, but for the ICU alone. Round the clock medical personnel and high-tech equipment cost a lot, I suppose. But what could possibly justify that cost?
Holy cow, that’s why we need healthcare reform.
Yeah, but I was hoping this question wouldn’t devolve into that arena. I know there are questions - and proposals - about who pays, but I just want to know why that high cost in the first place?
- Because they can.
- Because all that fancy equipment didn’t come cheap.
- Because rates are probably still set by a private committee of AMA members.
- Because they know the total won’t be paid, so a huge loss can be posted for tax purposes.
They need a lot of expensive equipment and stocks of stuff for every single room whether someone is using it or not. Since they plan on having enough rooms in ICU to handle the really busy times he was effectively subsidizing all the empty rooms around him to ensure that they had the stuff available to treat him.
Based on a friend who worked as a medical technician in an ICU. They are aggressive on replacing things like backup batteries in all the expensive equipment. I suspect the driver is fear of lawsuits that would be even more expensive. He might have burned through batteries that cost $100 before you even add in the labor costs of ordering, storing, taking inventory, etc.
Medicare, on average, pays less than the cost of treatment. That is not less than the price. That is less than the actual cost the hospital pays for stuff and labor. Again based on that friend, Medicare patients make up a larger share of ICU patients than they do the population. Older people, near the end of life, ending up in ICU at higher rates is probably to be expected. Your friend was subsidizing the care of a good chunk of the other patients in ICU.
Some patients can’t or won’t pay the full cost of ICU. That is another area where hospitals are losing money. Your neighbor was subsidizing their care as well even if they weren’t in a room near his.
Hospitals are all over the board regarding profitability too. Some are closing due to not being profitable, and some are doing great.
Overall the profit margin is something like 8%, which means about 92% of the money raised goes right back into maintaining the hospital.
We elders (Rio & Mrs) qualified for Medicare, into which we paid during our employed lives, and also carry supplemental medical, drug, and dental insurance, for which we do pay and pay. Can anyone here point to how many Medicare beneficiaries don’t carry supplemental plans and so depend entirely on government programs?
We receive most medical care in northern California’s largest hospital group. They’ve had legal woes over rates twice as high as SoCal providers. That’s the negative. The positive is, we get first-class treatment from stars in their fields. Do we mind paying more for the best? We ain’t broke yet, so no problem.
Because they have a machine that goes “ping.” 
Do you have a cite for that because I don’t think that is how taxes work. A business can certainly write off expenses like the salaries of the doctors and nurses and the depreciation on the equipment and such, but the failure of a customer to pay an inflated bill cannot be written off.
If it could then that is a way just to not pay any taxes. For a service that normally cost $100, I could bill a client $10,000 and then “write off” the $9,900 to reduce my tax bill. It doesn’t work that way.
Huh?
Losses (or profits) are calculated based the amount of money you lay out compared to the amount of money you take in. You don’t get to call something a loss just because you have attached an artificially high price tag to it and it didn’t get paid.
$90,000 for one night? I suspect more like $9000. Still expensive, but I think an extra zero was involved here.
Does that include drugs, x-rays, tests, therapy, doctors’ fees, etc?
But that is very likely the rack rate. This is a fictional amount the hospital bills in order to make sure they collect the maximum insurance reimbursement from all the thousands of insurance plans that they have to deal with. They don’t really expect to receive that much.
They will receive the contracted rate from the insurance company if they are in-network. The contracted rate has no actual relation to the billed rate. Looking back at some of my old bills, the contracted rate was about 25% of the billed rate for hospital charges (doctor, drug, x-ray, and other charges varied). The patient is not responsible for the amount above the contracted rate.
As for out-of-network care, the hospitals I was at sent counselors from the billing department to explain about the cash-pay discounts available. Fortunately, all my hospitals were in-network.
The whole medical payments system in the US is a mess. Don’t take anything at face value, nothing is what it seems.
This is a tiny part of a study into The economics of intensive care by The Manchester Centre for Health Economics.
https://www.ficm.ac.uk/sites/default/files/economics-of-critical-care.pdf
What I’ve gleaned so far - the bill was so high because,
- the rest of the hospital may be losing money so this helps balance the books, or,
- this way, they will be assured that the amount reimbursed from insurance will adequately cover their expenses.
Hard to believe that totally explains it, but it does help.
Also I believe that most hospitals in the US are not-for-profit or publicly owned. So the whole “they can write that off” argument makes no sense to me.
No insurance company will actually pay the amount the hospital bills.
The insurance company will pay the lesser of (1) the contracted rate (in-network) or approved rate (if out-of-network coverage is available) or (2) the amount billed.
The exorbitant amount billed is just to ensure that (2) is never less than (1), no matter what policy the patient is covered by.
OP, your friend was almost certainly not charged $90,000 for one night in the ICU. Maybe that was the total charges. According to this study:
bursable educational and preventive health programs, and to pay for costs disallowed by cost-based insurers
Was your friend in the ER first? Did he have imaging done? Lab work? Was he in a regular med/surgical room before or after the ICU stay? I don’t see how all those costs could amount to $90,000.
Hospitals are like Trivago - everyone pays a different rate, depending.
As mentioned, many patients who have no coverage and will never be able to pay their debts, end up staying almost for free. The hospital loses money. Often, it’s not even cost-effective to bother pursuing such. people. The saddest cases have to be the ones who actually have something to chase - a house, retirement savings, etc. One stat says 50% of all bankruptcies are from medical expenses. Not sure how true that is, but it is a thing. A hospital cannot refuse to help a patient in distress, but they are only obliged to stabilize the person so they don’t die in the next day or so, not provide a permanent fix. If that patient cannot pay, the payments from other patients help compensate for the loss. Apparently, underpaying uninsured patients is a fairly substantial portion of hospital clientele and they often need more treatment because they wait as late as possible to get help.
If you are uninsured but somewhat solvent, the hospital will probably pretend to be reluctant and reduce the amount to what you can pay, payment either immediately or in installments. But naturally they can’t give you their bottom line right off the hop, or else they’d be quoting the same to everyone.
Insurance companies typically have a rate that is the upper limit of what they will pay. I read a doctor’s comments once that he said his deal with some insurance companies was that he was legally obligated to give them the lowest rate he charged any other “customer”; so if he gave a poor patient a break, he would have to set that as his rate for all future billing to the insurance company for his services for that procedure. I assume hospital agreements will have similar language.
Medicare sets a low rate, as others mentioned. They like the uninsured poor patients, rely on overcharging the paying customers as how the hospital makes up the difference.
(A hijack here - this is how Canadian health care works. The province sets the fee schedule. A doctor pretty much has to take that rate, since there are almost no patients who can afford to pay out of pocket without reimbursement, and no employers offer health insurance to cover what is already covered by medicare. Hospitals have their budget set by the province. The difference is that Canadian hospital administration does not get $10M bonuses. They don’t advertise for patients. The rates are set. There are regular accusations of rationed health care, but emergency treatment is very good - and free. OTOH, 99% of the time, if you sue and lose you pay the other side’s legal bills - so a LOT less frivolous or “pay me to go away” lawsuits. Plus, if you sue a hospital, you’re suing the government. Not a lot of mulit-million dollar sympathy from a tax-paying jury for that demand)
But every $100 aspirin or $10 tongue depressor, not to mention all the other supplies and equipment, helps pay for hospital administration and overhead. Not just to pay for the big boss, but an accounting department, the nurses’ time to fill in forms for what you consumed to the nearest tongue depressor, the systems to line all that up and create bills, send them, chase for payment, ensure forms are filled out for insurance companies, argue with dozens of insurance companies, etc. (Again, huge overhead for billing that is not present in Canadian hospitals where the treatment is a single line item, i.e. “hip replacement”.) When my dad was in a NJ nursing home, for example, they charged $200/night for an air bed to alleviate bed sores. (It didn’t). I don’t know what one of those cost, but I have trouble imagining it wasn’t paid for in a month or two - except medical supply companies gouge as much or more than hospitals.
As md2000 said, hospitals consistently lose money in some departments (especially the ER and OB) and have to make it up in others. For small hospitals,medicare & medicaid covers around 80% of the cost of treatment. To stay afloat, these hospitals overcharge in other departments (Radiology and Surgery). If I remember correctly Acute care and ICU is pretty much a wash.
I don’t think you understand how tax accounting works.