I recently had a patient travel to Virginia Beach from out of state for a "Ream and Run" Shoulder Replacement. He recieved a nasty surprise while back home recovering......THE HOSPITAL BILL. My patient received his explanation of benefits (EOB) which is a detailed list of hospital charges. He was surprised to see that the hospital listed it's charges at $40,000 for his shoulder replacement. The really amazing part of the story is that the patient never even spent a single night in the hospital. He had an outpatient surgery. He arrived for his shoulder replacement in the morning and walked out of the hospital around 3pm.
The good news is that he was not responsible for paying that amount. The insurance company had a negotiated rate with the hospital, so even though they charged forty thousand the insurance company paid a much lower rate and no additional bill was passed on to my patient. However, this example demonstrates several dysfunctional aspects of our healthcare billing system and hospitals in particular.
First, nobody knows how much healthcare really costs and this is partly because hospitals list charges that are absurd and in no way correspond to how much they get paid or expect to get paid. It would be much better for everyone if the hospital presented charges that more closely reflect what they will get paid. So, "why do hospital list these high charges?" In some situations hospitals use these high charges as a way to beef up their "charity care". I'm sure you have heard the various claims that your local hospital provided hundreds of millions of dollars in charity care. How do they arrive at that number? In most situations that "charity care" is the result of uninsured patients who can not pay their bill. So if a hospital charges 20k for an emergency department visit to an uninsured patient and then writes off the 20k when the patient can not pay the bill, they claim that as charity care. Listing inflated prices allows the hospital to claim that they are providing much more charity care than they truly are. This is widespread, and widely known. The hospitals then use these claims of charity care to lobby local and national government for preferential treatment.
Second, this example illustrates that hospital are not price competitive for outpatient orthopaedic surgery. This same surgery performed in a surgery center would have cost one fourth of the amount charged by the hospital. How can we have a health care system where the same exact operation can cost four times more just because it was done in a hospital. Well, the answer to that is complex. Basically, hospitals are allowed to charge more than other facilities for the care they provide. This is called a site of service differential. It costs more to get an MRI at the hospital, surgery at the hospital, etc. This system is in place largely to protect the financial health of the hospitals. The logic to this argument is that hospitals provide lots of non reimbursed care to uninsured and medicaid patients and they loose money on this, therefore they need to recoup that money by charging more for other services such as shoulder replacements. If you have been paying attention you probably recognize the irony which is that hospitals make us believe that they are loosing more money than they really are by inflating their charges.
Our healthcare system is phenomenal in many regards, and totally ridiculous in others. This example falls in the ridiculous category.