What's with these hospital charges?

RISKING OLD AGE IN AMERICA

My wife recently had an MRI of her pancreas due to something that was picked up on a scan for something else. So much the way of medicine these days: the more you look, the more you see. Fortunately, what they found was benign.

(Thank you for asking.)

But the bill was not. Beth Israel Deaconess Hospital in Boston charged $5,068.73 for the MRI. Fortunately, we didn't have to pay that much. Medicare authorized payment of $418.57. The Medigap insurer paid $62.34, and my wife was responsible for $77.76. That seems like a pretty good deal and we're not objecting. But what is it about our crazy health care financing system that a medical provider charges $5,068.73 and accepts payment of $558.67 in total, just 11 percent of its list price?

Is the hospital overcharging by almost 10 times what it should? Or is it being significantly underpaid?

To find out, I asked an expert, Robert A. Berenson, MD, a Fellow at the Urban Institute. He characterized the hospital charge as "a complete fiction." "No one pays the charges quoted by hospitals," he explained, "except for rare wealthy patients from other countries or the unlucky few Americans with no health insurance."

According to Berenson, the Medicare reimbursement rate more or less reflects the hospital's costs. The Medicare Payment Advisory Commission (MedPAC), an independent congressional agency, studied Medicare payments and hospital costs and concluded that Medicare pays a bit more than the costs of efficient hospitals and a bit less than those of inefficient ones.

Commercial insurance companies, on the other hand, pay rates essentially two and half times hospital costs, which Berenson said is one of the key reasons health care costs are so high. Some hospitals are making a lot of money.

A study comparing hip replacements in the United States and Germany, not a low-cost country, found that in Germany, patents typically stay in the hospital eight days and get an additional two weeks in a spa all expenses paid, while in the United States most hip replacements are done on an outpatient basis and patients are sent home with some visiting nurse visits. Despite that difference in care, the costs are twice as much in the United States. Though we should say that Germany is an outlier in terms of the lengthy hospital with five other countries in the study reporting post-surgery hospital stays of zero to five days.

Yet the hospitals cry poor, Berenson said, even though MedPAC calculates their average operating margins at almost 7 percent in 2019 prior to the COVID-19 pandemic and as high as 8.9 percent during the COVID-19 pandemic, dropping to 2.7 percent in 2022 and rebounding to 5.2 percent in 2023.

But there's wide variation in how hospitals are doing. Many of the large nonprofit medical centers have huge endowments, some in the billions of dollars, that earn large investments returns, dwarfing their operating income.

A study by Paula Chatterjee at the University of Pennsylvania found that that the asset value of nonprofit hospitals more than doubled between 2000 and 2019, from $750 billion to $1.6 trillion, most of this attributable to large hospital systems.

Not wanting to pick on our hospital, Beth Israel Deacon-ess, which provides excellent care, it had net assets of $1.6 billion at the end of 2024, up from $900 million in 2014, according to ProPublica "Hospitals are viewed as good guys but some of these not-for-profit good guys are making huge profits and salaries," Berenson said.

At the same time many inner city and rural hospitals that don't have large endowments are struggling, with some closing. Data from the Center for Healthcare Quality & Payment Reform shows that more than 700 rural hospitals are facing the risk of closure, including more than 300 that may be forced to close within the next three years.

As usual, the rich are getting richer and the poor are struggling.

But what does this have to do with my wife's $5,000 charge for an MRI? Just that our whole health care financing system is out-of-whack.

Harry S. Margolis, an elder law attorney in Massachusetts, writes the Substack, Risking Old Age in America.