Unlike most other industries, health care utilizes an opaque, highly fluid pricing system that often puts consumers at a disadvantage. The majority of these costs are covered by insurance which is why there is relatively little public outcry about these inequities. That is beginning to change, however, as more hospitals and medical organizations are starting to offer significant discounts to patients willing to pay in cash.
Just a few years ago, hospitals reserved their highest prices for patients without insurance coverage. This is no longer the case due to federal and state laws that forbid hospitals from charging patients more than Medicare would. In order to make up these losses, medical organizations are now charging insurers much higher rates. In turn, insurers pass costs on to policyholders by raising out-of-pocket expenses.
In some cases, the out-of-pocket costs through an insurer can be considerably more than the cost of a procedure without insurance. A consumer advocacy group ClearHealthCosts found that a foot MRI in Flint, MI cost $445 with insurance, while only $379 with self-pay; a tonsillectomy in Mesa, AZ costs $5,442 with coverage or $2,858 with cash; or knee MRI in Boulder, CO was $1,100 with insurance and $600 without.
Hospitals are offering these discounts for some compelling reasons. Obtaining reimbursement from a private insurer can be an expensive process. It is estimated that almost 25.3 percent of hospital expenses is administrative costs, so it is in their best interest to avoid insurance billing if possible. Furthermore, many hospitals are offering lower rates to attract more patients while complying with new price transparency standards.
Many hospitals are also concerned that high deductibles may contribute to more defaults by patients, leaving hospitals with bad debts. The cash payment option not only provides a steady revenue stream, but it also diminishes the risk of financial liability.
While hospitals clearly see the benefits of this pricing model, some consumers and insurers are less enthusiastic. Although many insurers are accepting of these discounts—primarily because they still receive their premiums—others are fighting hospitals. According to the contracts between providers and insurers, these cheaper rates may constitute a breach of fiduciary duty. In response, some of these insurers demand that hospitals lower the price of their insured procedures to that of self-pay procedures.
This tactic may appear to be unfair for health care providers, but it may be a measured response to consumer outrage. Many insurance policyholders feel that it is unfair that they are paying MORE with insurance than they would without. These consumers feel that insurers should be negotiating more diligently for lower prices.
This places additional burdens on many consumers. They must often guess when a cash payment is worth it, since most insurers won’t count a cash payment towards a deductible. While health consumers are likely to pay in cash, unhealthier consumers may wish to use insurance, pay the higher out-of-pocket amount (which is applied towards an annual deductible amount), and qualify for full insurance payout on a major procedure down the road. However, for many consumers, this type of calculus may be difficult to determine and lead to frustration.
In some instances consumer outrage has led to legal action. One California member of Blue Shield filed a lawsuit for unfair business practices when she discovered that a CT scan which cost her $2,336 through her carrier would have cost $1,054 in cash. Blue Shield has responded that the organization does its best to negotiate the lowest prices for its member.
Disclaimer: The views expressed in this article are the personal views of Robert Moghim, M.D. and do not necessarily represent and are not intended to represent the views of the company or its employees.