How Much Are Hospitals Paid for Services?

A while back when I wrote about how much my healthcare costs my insurer, I mentioned that people with different insurance plans pay wildly different amounts for the same services.

Here’s an example from an an outpatient department from a real hospital* providing more or less the same billable health education service for each patient. The hospital dealt with 25 different insurers. The average payment for each of the roughly 2000 cases was $88.50. One private insurer paid as little as $46 per case, while another paid $146. Medicare provided $89** per case, and Medicaid reimbursed $183. Payments for all of the other cases were somewhere in between, mostly below the average cost . . . except for the smallest payors, who had an average payment of over $278. That’s more than three times the average cost!

Certainly the Medicaid patients aren’t getting $94 more service per case than Medicare patients. And it’s definitely not fair to the patients paying $278 per visit for a half-hour of medical education. Furthermore, I doubt that the hospital would let the department continue to provide its excellent service if it were only getting $46 per patient.

Why is there such a disparity in reimbursement? For one thing, insurance companies can’t collude with each other or with hospitals to say, “We’ve all decided to give you $88.50 per half hour of this kind of medical education.” (But all of the insurers know how much Medicare will pay, so there’s some kind of sharing anyway.)

Beyond regulations to encourage competition, I actually don’t know why there’s such a large difference. I hope that if you know you can tell me. Honestly, I’d love to know more about this. Leave a comment.

* — I haven’t been given permission to say which hospital or which department.

** — Medicare was only about 1/7 of the cases, so it’s not artificially affecting the average payment.

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