Medical Robbery

The medical robbery we have been talking about starts with something called the "charge master." This is the price list that hospitals come up with for every service and procedure that they perform. Each one of these has a code number and a price is attached to that code number. How they come up with those prices--such as $2,000 just for walking into an emergency room as they did my son, only hospitals seem to know. Different hospitals come up with starkly different prices for the same codes, even in the same city. And different patients also get very different prices, especially if they are Medicare patients. What this tells me is that the actual cost of delivering the service has little to do with the charge for the service. Since hospitals do little to explain their prices, my guiding principle is that they will charge whatever they think they can get away with.

The lack of transparency doesn't end here though. Hospitals rarely collect all the fees that appear on the charge master. That's because there are usually "preferred provider networks" or PPO's between the hospital and whoever pays the bill. The rationale is that these networks, because they have many members, can squeeze out discounts from the hospitals. They get volume pricing, so to speak. These PPO's make a fine living two ways. One is that they charge whoever wants to join their network. But most importantly, they get to share in the "savings" they negotiate with the hospital. But what that share is only the hospital and PPO knows.

If we applied medical rules to buying a car, here is how it works. You need basic transportation, so you buy a Chevy. You sign a bunch of paperwork (basically agreeing to be financially responsible for all services rendered) and you get to take it home, but you don't get to find out what the cost is until later. A few weeks following you find out that the dealer charged $100,000 for the car (according to their list price). But because you were smart enough to be in a buyer's club that gets discounts from the dealer, you get to pay "only" $80,000. You don't get to find out the dealer "only" gets $75,000 of that. The difference of $5,000 goes to the PPO who got you that nice "discount." Meantime, the very same day you were at the very same dealership a government office bought the very same type car. But it only had to pay $20,000. Meantime, you can't know that another Chevy dealership down the road had the car for a list price of $60,000.

Clearly, if the car market worked like this, you would say it's broken. But it is precisely how the medical market works, and some folks are doing fabulously well from it. Some even make money from getting "discounts" from fantasy prices that have no basis on costs or the paying ability of the people using the services.

In a future installment we'll get into doctors' fees, prescription drugs, and testing.