3 Ways Hospitals Overcharge You (And What Can Be Done About It) – Forbes

Photographer: Chris Ratcliffe/Bloomberg

Imagine waking up in the middle of the night with chest pain. You don’t know if it’s serious but you certainly don’t want to wait until morning to find out.

You, like 7 million other Americans with chest pains each year, go to the emergency room at the nearest hospital. It’s a frightening experience, but at least you’re comfortable knowing your health insurance will cover most of the cost. Then a bill arrives in the mail. Suddenly, you experience a different kind of pain.

As hospital billing practices become increasingly complicated, patients rarely know in advance what they’ll have to pay. That’s because, as Elisabeth Rosenthal points out in her eye-opening 2017 book “An American Sickness,” today’s healthcare system is badly lacking transparency. More and more, she says, patients “receive bills in code, from entrepreneurial doctors they never even saw,” often for far more than anticipated.

Although most hospitals try to bill fairly for their services, others use the opacity of billing systems to maximize profits. In either case, patients feel left in the dark. Let’s explore three of the most common reasons for surprise hospital bills.

1. The Impenetrable “Chargemaster.” The billing process begins with the chargemaster, a computerized database containing the fully allocated price for every service rendered in a hospital and emergency department. Think of it as healthcare’s version of the manufacturer’s suggested retail price (MSRP), except the public never gets to see these prices, which are often grossly inflated up to 10 times the actual cost to the hospital, as reported by Steven Brill in his 2013 TIME exposé, “Bitter Pill.”

To keep costs in check, insurance companies negotiate discounted rates with each hospital in their network. These discounts are also kept confidential and vary widely based on the purchaser’s clout.

In 2008, for example, one of the largest purchasers, the Pacific Business Group on Health (PBGH), reviewed outcome data for a typical total-joint replacement surgery. PBGH found that the operation’s quality and results had very little to do with how much hospitals charged. In fact, surgeries priced at $30,000 were, on average, just as successful as those costing upward of $120,000. So, the powerful purchaser told providers it wouldn’t pay more than $30,000, billed as a single bundled payment. And just like that, many of the hospitals once charging three to four times that much agreed to the new discounted rate.

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