For many patients, the relationship between insurance companies and healthcare providers is murky. They are either unaware of the system hospitals and insurance use to negotiate healthcare costs, or they misunderstand the process.
People often believe that hospitals charge a standard rate for procedures and medications. They think that, following their treatment, insurance companies provide coverage for treatment and any remaining charges become the responsibility of the patient. In truth, the connection between insurance companies and healthcare providers is much more complex.
The cost of care is far from uniform. In an NPR article, Dr. Ezekial Emanuel said that there are more than six different costs for a hospital stay. These discrepancies are the result of price negotiations between insurance companies and healthcare providers. While each hospital has a standard price for treatment (found in their master list of charges), this figure is relatively arbitrary. When it comes time to pay for your treatment, insurance companies use the hospital’s master list amount as a baseline before negotiating a lower price with the healthcare provider.
How it affects you
While the current system sounds good at first, a MarketWatch article claims that it does not necessarily serve the patient’s best interest. Believe it or not, insurance companies actually benefit from the initial, outlandish treatment fees. After insurance groups and healthcare providers agree on a new, lower price, patients only get to see the end result of these negotiations.
When patients compare the original treatment price and the discount, insurance companies seem like superheroes. J.B. Silvers, a former CEO and author of the MarketWatch article, explains that this large discount is what insurance companies and providers want patients to focus on. Although, it is important to note that the initial provider charge and even the negotiated discount are largely arbitrary, as prices vary from year to year and depend heavily on data from insurance claims. This makes it difficult for patients to determine the actual cost of care.
According to Healthcare Consultants Incorporated, the true cost is nearly impossible to deduce because data is often missing from the negotiated rate. Without these missing links, how can patients determine their actual price of care? The healthcare billing system is imperfect to say the least, but you can take certain steps to ensure that your medical bills are accurate and that you are not overpaying for treatment.