Special Report: Why a Hospital Bill Costs What It Costs

Special Report: Why a Hospital Bill Costs What It CostsAnn Elliott Cutting

While the value of a house is based on an assessment, and the cost for an antique is determined by an appraisal, a full explanation of medical costs is hard to come by. After we asked 18 health-industry sources, we learned that no one seems to know the whole story. But one point was clear: Paying attention to the billing process may save you money.

Here, four eye-opening facts about medical bills—and how to use that knowledge to save money on your health care.

1. Hospital prices are shockingly complex.

Considering that industry analysts claim that hospital price calculations are arbitrary, we asked hospitals nationwide a simple question: How do you calculate your sticker prices? Five declined to comment or didn’t provide an answer, leaving Murray Askinazi, senior vice president and CFO of Lawrence Hospital Center in Bronxville, New York, to offer this explanation: For an outpatient MRI, as an example, his hospital calculates its charge based on such factors as the cost of buying or leasing the machinery, the wear and tear on that machine, staff salaries, the climate control and electric bill, cleaning costs, local competitive pricing, and other costs related to the hospital’s overhead, like malpractice insurance.

Surprisingly, medical services can vary wildly from one hospital to the next. The median charge for acute appendicitis admissions at 289 medical centers and hospitals throughout California, for example, ranged from $1,529 to almost $183,000, an Archives of Internal Medicine
study reported in April. Within San Francisco alone, the range between the lowest and highest charge was nearly $172,000.

But hospital sticker prices matter only to a limited extent because they typically get trumped by a higher power: the amounts that insurance companies are willing to pay for those services. The figures are determined by a negotiated contract that dictates the rate at which the companies will reimburse the hospital on the patient’s behalf. (In addition, the rates paid by Medicare and Medicaid, Askinazi adds, often fail to cover the hospital’s cost of providing the service in the first place, which means some of those costs are often shifted to commercially insured patients.)

Now, all those factors affect the math for one simple outpatient test. For an inpatient hospital stay, those computations sprout into an intricate vine in which every service (from radiology to pathology) generates its own charges. The hospital also has facility charges, covering room and board, certain room-use fees (such as the operating room), and nursing services, all of which get consolidated into the bill sent to you and your insurance company.

As technology advances, those charges rise. Palmer had a client from Louisville, Kentucky, who was astonished to receive a charge of $45,330 for a prostate surgery and an overnight stay (insurance would cover only $4,845). The billing department told Palmer that the steep price was not only because it was a robotic procedure but also because patients who receive the high-tech surgery shortly after the hospital starts offering it are helping to recoup the facility’s equipment costs.

To save money: Shop around. Compare prices in advance. “When you schedule your procedure, say ‘This is my insurance. How much will this cost me?’” advises Healthcare Blue Book’s Jeffrey Rice. “If the hospital can’t tell you, that’s a warning sign they might not be a good deal; once you make two or three calls, you can usually find a good-value facility.” To learn what a reasonable price should be, check out the free, online cost-comparison tool from Healthcare Blue Book (healthcarebluebook.com), which lists “fair” rates in your zip code based on the average insurance reimbursement fee. Also try FAIR Health (fairhealthconsumer.org), a nonprofit that lists estimates of providers’ charges for services in your area plus how much of that charge insurance should cover if you go out of network. Research your own resources. For a more precise prediction of a procedure’s cost with your insurance policy, check your insurance company’s website, which may provide a members-only cost-comparison tool, says Nancy Metcalf, Consumer Reports senior program editor and health insurance expert. Some hospitals post procedure charges on their sites as well.

Want to stay smart and healthy?

Get our weekly Health Reads newsletter

how we use your e-mail
We will use your email address to send you the newsletter each week, and we may also send you occasional special offers from Reader's Digest. For more information please read our privacy policy.

14 thoughts on “Special Report: Why a Hospital Bill Costs What It Costs

  1. Its so expensive here. I had my heart surgery done in one of the finest hospitals in india for just under $10, 000 . Thats including my travel , stay, hospital fees and a vacation:)

    1. Try buying a prescription drug made by the top global companies like Merc and Bayer on the global free market – you will be branded a criminal. You have to buy at the inflated USA prices, and if you ask for these policies to be changed, you are branded an anti-American, anti-free-market Communist. What total BS!

  2. It’s cute how the australian thinks he paid nothing for his medical care. Everything is magically FREE! NO ONE pays ANYTHING. Cute. 

    1. So, his taxes are slightly higher, but he lives in a country with a fibrant economy, and he never has to worry that he will lose his life savings just because a doctor requires him to sign an industry-wide boiler-plate contract, lies about being in-network, tags out with an out-of-network buddy of his mid-surgery, or doesn’t tell the patient that he considers his office an out-of-network facility that can balance bill $1 million just because he feels his services are worth it.
      At the Australian tax rate most middle class Americans would pay less in total than what they have to pay here in premiums. If the insurance-medical complex in the USA would actually guarantee that I only had to pay premiums to access all the healthcare my family requires (and state laws mandates that I MUST provide such medical care to them), with nothing more to pay out of pocket, then I might consider our system somewhat acceptable. Of course, at the current rate of healthcare and insurance inflation, those premiums could become inaccessible without the Obamacare subsidy.

  3. Isn’t it about time you people had universal health care? Just looking at some of those figures quoted in your article makes me feel sick. My last four operations I paid the grand sum of zilch, and the very last operation I was in hospital for four days. Where do I live ? Australia

  4. Kimberly Hiss should get some kind of statue erected in her honor in the Hospital Consumers Hall of Fame.  (If there isn’t such a place, there should be).
    Her article was extremely well researched and, frankly, hair-raising.
    Great investigative reporting.

  5. This sounds all well and good and there is some good advice, BUT I have tried multiple times to get price quotes without success. When I called the hospital where I was to have surgery to ask about the room rate I was told, ‘It depends on so many factors’;  I argued with, ‘There must be a baseline you work from’  and without exception  was told that it ‘just depends’.  So I had no way of knowing if it was $500/day or $5,000/day. 
    I know there are variables, but surely there must be a baseline to work from. When I did get a price quote on my actual surgery it was a whopping $55,000 short of what I was billed!!!  And what the hospital accepted as payment in full from insurance was about 20% of what was billed.

    I am one of those rare patients who  asked for (and received)  an itemized bill as well as a complete copy of my chart. I scrutinized the bill and compared it with my chart finding thousands of dollars in error. And those are just the ones I found!  It has been nearly a year of phone calls and certified letters (to make sure they couldn’t say they never got them) and not only have they not corrected the bill, but in a few instances, made it even worse. Plus they have yet to answer my questions about  what  particular items are.
    I have learned you must be vigilant with ALL medical bills, not just those from the hospital. I refused a particular lab test at the clinic and told the staff I would not pay if they chose to do it. They ignored me, did the test and billed my insurance. I called my insurance company  and was told that if a bill comes in, they pay. Period.  It mattered not to them that I refused and that it should not have been done in the first place. It took months of phone calls both to the clinic and insurance to get the charges reversed and the insurance reimbursed.

    Use out patient stand-alone surgery centers Ms. Hiss advises. Again, sounds good, but you have to ask very specific questions with very specific parameters with very specific details and make sure you and the billing office are talking apples and apples rather than apples and oranges. Case in point: my husband broke 3 toes on one foot. Goes to the hospital to have pins placed. They charged by the minute for the operating room and recovery as expected. For the removal, the doctor suggests his clinic’s stand-alone surgery center. They say, “Not a problem, we charge a flat fee.”  Great. NOT! They charged for 3 separate visits to the operating room!!! Their rational? It was 3 separate procedures because it involved 3 toes!  He was in the operating room from start to finish a total of 10 minutes and was charged over $5,000! In a cost per minute comparison, the stand-alone was nearly twice  as expensive as the hospital.

    Out patient surgery: ask to leave ASAP. My husband was not monitored in any way, was not checked on once, we were not told it was okay to leave – charged nearly $1000 to lay on their uncomfortable gurney.You are charged by the minute to lay on their gurney when you could just as easily be sleeping in your own bed at home at no cost.Shopping around sounds good, but even if you are lucky enough to get price quotes, it may do you no good as your physician most likely does not have privileges at multiple facilities or if so, not at the one of your choosing. 

  6. What I don’t understand is when I didn’t have insurance, I was charged the full amount minus 10%.  That amount was far more than my insurance company pays them now.  If my bill was $7000.00 and insurance can pay $500.00 why did I have to pay $6300.00?  Why not just charge me the same amount they get from the insurance company and I wouldn’t have to take years to pay it off. 

    1. I’ve been saying this for years.  Why is it the un-insured have to pay more than is accepted from insurance for the same thing?! It makes no sense.

    2. There is a  ridiculous law that insists that private paying patients (usually low income) have to pay the full rate book price because otherwise the billing is considered fraud. In the meantime insurance companies can negotiate prices at approximate 30% the ratebook prices which much better reflect the actual hospital costs. When Bill Gates goes to the supermarket or the little lady down the corner living on Social Security, they both pay the same price for a loaf of bread and a pound of beef.  Healthcare reform will never be fair untill everyone (Medicare, private insurance and private payers) pays the same amount for the same procedure. What we need is a class action suit on behalf of private payers. Any  bigtime lawyers listening here?

Leave a Reply

Your email address will not be published. Required fields are marked *

Funny Jokes

Some people like to travel by train because 
it combines the slowness of a car with the cramped public exposure of 
an airplane.

Dennis Miller

Funny Jokes

I think my pilot was a little inexperienced. We were sitting on the runway, and he said, “OK, folks, we’re gonna be taking off in a just few—whoa! Here we go.”

Kevin Nealon

Funny Jokes

“I can’t wait until your vacation is over.” 
—Everyone following you on Instagram


Funny Jokes

A man knocked on my door and asked for a donation toward the local swimming pool. So I gave him a glass of water.

Comedian Greg Davies

Funny Jokes

Just found the worst page in the entire dictionary. What I saw was disgraceful, disgusting, dishonest, and disingenuous.


Funny Jokes

Client: We need you to log in to the YouTube and make all our company videos viral.

From clientsfromhell.net

Funny Jokes

My cat just walked up to the paper shredder and said, “Teach me 
everything you know.”


Funny Jokes

“Just because you can’t dance doesn’t mean you shouldn’t dance.” 

@yoyoha (Josh Hara)

Funny Jokes

My parents didn’t want to move to Florida, but they turned 60 and that’s the law.

—Jerry Seinfeld

Funny Jokes

Q: What do you call an Amish guy with his hand in a horse’s mouth?

A: A mechanic.

Fields marked with an * are required
Foods That Harm Foods That HealWant a Free eBook?
FOODS THAT HARM, FOODS THAT HEAL offers important information about the role diet plays in the struggle against heart disease, cancer, diabetes and other serious illnesses. Answer the question below to receive your FREE digital eBook.

Someone in my household experiences the following conditions:

Send me a link to download FOODS THAT HARM, FOODS THAT HEAL:
By clicking below, I agree to the Trusted Media Brands Privacy Policy