Hospital charges are largely a fiction (see: Comparing the Details of Hospital Charges in the State of Oregon; Why the Prices Charged by Hospital for Inpatient Care Are Irrelevant). They are set at exorbitantly high levels because the actual reimbursement received by the hospitals from Medicare and private insurance companies is a much smaller and negotiated percentage of hospital charges. The hospitals keep increasing these charges so that the amount actually received from payers covers their costs. Below is a guest blog written by a reader of this blog, Joe Plandowski, about his recent experience with a bill for a routine colonoscopy. He has authored a number of previous guest blog notes (see, for example: Major Increases in Pathology RVUs for 2011) ---BAF
The economics of medicine always amaze me! Here is a good example of how it worked for me to have a recent colonoscopy and how it would have worked for the uninsured. Not counting the previous day for prepping, my colonoscopy day started about 7 a.m. when I entered the hospital and ended about 10 a.m. when I was carted out in a wheelchair to a waiting car, a total time of about three hours. The first hour was tied up with signing forms which stated things could go badly during the procedure if my colon was punctured. The next hour was involved with the procedure, truly painless, and the final hour involved recovery. Overall, not bad.
The shock came when I got the bill: $7,535.27. The hospital (Northwestern Lake Forest) wanted $5,387, the pathologists wanted $740 to look at some polyps, the gastroenterologist wanted $1,350 for probing, and the drug store (Walgreen’s) wanted about $58 for the prep solution. Just think, I wasn’t even sick. I requested the procedure as part of a preventive screening program to assure I wouldn’t become a colon cancer victim. While the bill was a whopper, the financial pain to me was minimal -- a total of only $391.54 out of my pocket. If I did not have health insurance I might have been back in the hospital with a serious health problem after seeing the bill.
Who paid the rest of the bill? Medicare paid $929.54. Okay, those two payments, Medicare’s and mine, totaled $1,321.08. Who else paid? Well, nobody. The rest of the bill was simply written off. Yes, all of the $6,214.19 just vanished into thin air. The bottom line is the procedure actually costs $1,321.08 because it’s what the parties will accept to perform the procedure. If you are uninsured, there’s a special rate for you: $7,535.27. Those who are uninsured are so for probably one good reason --- they can’t afford insurance. I’m far from being labeled a flaming liberal, but why should the uninsured get hit with almost six times (5.7x) the going rate?