IE 11 is not supported. For an optimal experience visit our site on another browser.

Q&A: Why don't hospitals display rates?

Health care experts answer questions submitted by readers.
Why don't hospitals display their rates? Our expert says it's because there is no connection between what a procedure costs and what they bill.
Why don't hospitals display their rates? Our expert says it's because there is no connection between what a procedure costs and what they bill.Getty Images stock
/ Source:

Q: Why aren't hospitals and doctors made to display their rates for each specific procedure and service they perform? This would allow people to compare prices and give them more information when trying to determine where they wish to have a procedure performed.

— James Cole, Canton, Ga.

Answered by internist and health policy expert :

A: The simple answer is that they don’t have to.

But there’s more to it than that.

The question assumes that hospitals and doctors use a rational system to come up with prices for procedures and services. They don't.

The fact is, we usually don't know what the prices are for most things. And, I don't think most hospitals even know. I think they make educated guesses when they negotiate with insurance companies.

The system we have right now is crazy. There are charges and there are costs and no logical connection between them.

The prices charged don't depend on costs or on the market.

Let's take a hypothetical example of a hip surgery that would cost the hospital $3,000. They'll bill for $10,000 but take $3,500 from one patient’s insurance company as full payment and $4,000 from another patient’s insurer as full payment, depending on what they've negotiated.   

The good news is that this may be changing. The biggest purchaser of health care services, Medicare, is increasingly asking doctors and hospitals to make price and quality data available to everyone online and in other places so that the average person will know what things cost. I think that's terrific. The surest way to add more rationality and transparency to our system is if consumers demand more information to make informed, rational choices about their health care.


Q: In the U.K., the government spends about $3,400 per year per person on health care. In the U.S., state, local, and federal outlays for health care were 44 percent of total health care expenses. At a per capita expenditure of $6,000-plus in the U.S., that means the U.S. government pays at least $2,600 per person already for health care. Why is it that the health services we receive from the government are so dramatically less for health care compared to countries with universal heal care when we are already paying such a large part of the health care cost in taxes?

— Tom, Boston

Answered by economist , president of The Commonwealth Fund:

A: The U.S. spends more than twice as much per capita on health care than the average of other industrialized countries.  So why shouldn’t we expect to have the best, highest-performing health care system in the world?

One important reason we fall short is our fragmented health care system, which contributes to uncoordinated care, waste, and inefficiency. More than one quarter (26%) of U.S. adults and more than one-third (36%) of uninsured U.S. adults went to an emergency room for a condition that could have been treated by a regular doctor in 2005. This is two and three times the rate reported by British respondents (12%) and four and six times the rate reported by Germans (6%).

This is not surprising, as the U.K. has been a leader in health information systems to enhance the ability of physicians to monitor chronic conditions and medication use. The U.S. spends far less on health information technology—just 43 cents per capita, compared with about $192 per capita in the U.K.

Another important reason for our poor showing on many measures is that payment systems for health care in the U.S. reward providers for giving more care — not better quality or more efficient care. We need to realign our payment systems to reward efficient, high-quality, well-coordinated, and patient-centered care.

The U.S. is the only country that does not provide universal coverage. This makes our health system much more inefficient, and creates barriers to care because of cost. Countries that do well tend to have strong primary care systems, universal health insurance coverage with comprehensive benefits, and increasingly the better countries have good health information technology systems—and both the U.S. and Canada lag way behind on health IT.

Q: Why is our health care system really the costliest? Are our pharmaceutical companies so driven by profits, or is there such a significant impact by illegal users of our health care system that we are unable to curtail rising cost?What is really driving our high cost as opposed to systems elsewhere?

— Wade M. Hunt, Albuquerque, N.M.

Answered by internist and health policy expert :  

A: The answer is not simple. There are many factors that lead to the fact that our health care system is the most expensive in the world.

First, we pay more for many things, such as physicians’ salaries and drugs, than most people in the world. So even if we used the same amount of services, our health care system will cost more.

But we also do a lot more here – more tests, more surgeries, more procedures – than nearly anywhere else in the world. You might ask if this is good or bad. In many ways it’s a good thing. Just ask anyone with chronic hip pain from osteoarthritis whether it was good to get a hip replacement.

We also, unfortunately, have a lot of unnecessary care, such as surgeries and tests that are not likely to benefit patients. While this is something that we would all like to eliminate, it would be hard to do so without rationing care.

This extra testing can result from doctors practicing defensive medicine to avoid malpractice suits. Studies have shown that this accounts for no more than 2 percent or 3 percent of health care costs, which amounts to about $40 billion to $60 billion. That is a lot of money, but it still doesn’t justify the notion that malpractice reform would have a dramatic effect on health care costs.

Another factor that drives up the price of health care is the fragmented payer system. The average doctor might be dealing with 15 different insurance companies, so he needs to hire people to take care of billing.

I’ve seen varying estimates on what these administrative costs are – some as high as 25 percent of the total health care costs. Probably a more realistic estimate is 7 percent to 10 percent. This is not trivial and it’s a place we might be able to save a lot of money.

As to your point about the high cost of drugs, drugs account for about 10 percent of all health care costs. Is this too much? Well, we live in a capitalist economy, and although it is tempting to try to reduce pharmaceutical companies’ profits, you might also reduce their incentives to develop new drugs.

The same thing applies to the salaries of doctors and nurses. If we aggressively cut them back, the best and the brightest of the next generation may not choose to go into medicine. Training takes many years and there is a lot of debt accumulated in the process.

As for the impact of illegal aliens on the cost of health care – this is a red herring. The amount of services used by them is trivial. If they were blocked from using services, you wouldn’t see any change.

Q: What part of the American health care system focuses in on prevention and health education as opposed to cures? It is said that 80 percent of our health care costs come from preventable or lifestyle-related diseases, so why not focus in on prevention instead of cures?

— Jim Freedom, Santa Cruz, Calif.

Answered by health care researcher :

A: We spend only about 2 percent of the health care budget on prevention, even though nearly everyone agrees we should spend more.

In a sense, this is a choice we’re all making.

And it’s because everyone takes a very short-term perspective on health care decisions. The government doesn’t spend very much on prevention, even in programs like Medicare and Medicaid.

There’s no incentive for insurance companies to spend money on prevention because most of us change health care providers every two or three years. As a result of that, any investment in prevention is going to have a limited payoff for your insurance company while benefiting its competitors.

Even on the individual level, many Americans choose to skip preventive care. The situation might be different if insurance companies encouraged routine checkups by offering to cut out co-payments for preventive-care visits. The co-pay is a strong disincentive for many people. Many of us choose to go to the doctor only if we know we’re sick.


Q: Why is it that my insurance company doesn't give me a financial break when I schedule a doctor's appointment and I am assigned to a nurse practitioner? They give me a financial break when I choose a generic drug over a name-brand drug. Nurse practitioners may have some qualified medical skills, but they are not doctors. Doctors are improving their financial position in their practices by utilizing nurse practitioners at the expense of their patients.

— Larry Sbragia, Phoenix

Answered by attorney and psychologist :

A: This is an understandable question. The answer is that the nurse practitioner or physician’s assistant is not practicing independently, but rather can only work by assisting a physician.  When you visit a physician, you receive a bundle of services, including those of an assistant trained to perform limited medical procedures not requiring the specialized expertise of the doctor.   The use of these assistants, or “physician extenders,” allows the doctor to focus more time on patients rather than engaging in routine types of tasks that the extenders can perform and perform well.

The use of physician extenders is not analogous to the use of generic drugs.  Generic drugs are distinct pharmaceuticals and are purchased as separate entities, not as part of something else.  The reason consumers pay less for generic drugs is not because the drugs are less effective, but because they do not possess the brand name and the cost associated with that name.  Drug companies spend considerable amounts of money advertising a brand-name drug and the difference in price between the brand name and generic drug reflects the investment by the pharmaceutical company.

The distinction between physician extenders and physicians is also not analogous to the comparison of psychiatrists, psychologists and social workers and the difference in rates that insurance companies provide to these mental health practitioners.  The differences in rates of reimbursement simply reflect the different status of these professionals in society and not the quality of the care they provide.

The important issue is that these mental health practitioners have reached the level of independent practice in their field and, unlike physician extenders, can provide services without the assistance of any other professional.   Physician extenders cannot practice on their own and insurance companies cannot pay them for medical services, since physician extenders cannot provide these without the assistance of a physician.  Indeed, if these physician extenders could work independently, then insurers would likely establish different reimbursement rates for them in comparison to physicians.

Q: How accurate or inaccurate is Michael Moore's assertion that the Canadian, French and British health care systems are better than the U.S. system?

— Melvin Pitts, San Antonio, Texas

Answered by economist Karen Davis, president of The Commonwealth Fund

A: International health system comparisons by The Commonwealth Fund, the Organization for Economic Cooperation and Development (OECD), and the World Health Organization (WHO), do support the assertion that the U.S. health system does not perform well compared to other industrialized nations in many areas.

While research shows there is room for improvement in every country, in Commonwealth Fund surveys the U.S. comes in last overall in five key areas of health care — access, quality, equity, efficiency, healthy lives — compared with five other countries (Australia, Canada, Germany, New Zealand, and the U.K.). 

And the Fund’s National Scorecard on U.S. Health System Performance shows that the U.S. falls short in several areas:

  • The U.S. ranks 15th out of 19 countries on mortality from conditions “amenable to health care” — that is, deaths that could have been prevented with timely and effective care.
  • Out of 23 countries, the U.S. ranked last on infant mortality, with a rate of 7 infant deaths per 1,000 births, more than double the rates of the top three countries.
  • Forty percent of U.S. adults and 57 percent of adults with below-average incomes reported in 2004 that they went without care during the year because of the cost — four times higher than in the U.K.
  • The U.S. spends the most on administrative costs:  7.3 percent of national health expenditures, compared with 1 percent in France, 2.6 percent in Canada, and 3.3 percent in the U.K.

The news is not all bad, however — in our surveys the U.S. did do best on preventive care and waiting times for surgery and specialized care. And improvement is possible, with national leadership and commitment to a high performance health system.

The bottom line is, considering that the U.S. spends far more than any country on health care, we do not get good value for our health care dollar.


Q: What are people who are refused health insurance because of age and pre-existing health concerns but do not qualify for disability supposed to do? Is it legal for companies to refuse to sell someone health insurance?

— Liz Woodland, Las Vegas

Q: I'd be interested in knowing how insurance companies are legally able to discriminate on who they choose to insure on the basis of age. I thought discrimination in this country was illegal. However, insurance companies do this all the time.

—  Jean Stolsmark, Gold Canyon, Ariz.

Related questions answered by attorney and psychologist David L. Trueman:

A: These are two interlocking questions. The answers to both questions relate to the fact that health insurance in the United States is provided by private companies that consider profit in what they provide to the public. Although companies cannot discriminate against people based on certain characteristics such as race, gender and national origin, insurance companies can — and do — discriminate based on medical condition. As a matter of fact, that is the very basis for how health insurance is provided.

Insurance is the passing of risk from one person or entity to another. The idea behind all insurance — health care or other insurance — is that a person who is not willing to accept the risk of a large loss is willing to pay a small premium periodically to a company that is willing to assume that risk. Insurance companies are willing to make the trade because if they have a have a high enough volume of customers, they can predict how much it will cost to pay claims, and then charge high enough premiums that allow them to make a profit. The bigger the group, the more easily an insurance company can determine the risk of paying claims. 

However, an insurance company will have a more difficult time determining how much it will have to pay for an individual’s health care.  When one person with a pre-existing condition seeks insurance, the company will likely have to pay a considerable amount of money in health expenses.  If the person is part of the group, then the cost can easily be lumped with the rest of the group’s payments for health expenses, and the overall premium will ensure a profit.  However, for an individual, the insurer may well be paying far more than the premiums it is receiving.  Thus, insurers are reluctant to provide individual health care policies.

In some states, insurers are allowed to refuse health coverage for people with pre-existing conditions. In others, governments have mandated that insurers will have to offer coverage to those with pre-existing conditions within a certain period of time.  However, there is no guarantee that the coverage will be affordable. 

If you think that you are being discriminated against, you should go to your state’s insurance commission to check to see whether what the company is doing is legal. If it is, you may not be able to get insurance. That is one of the consequences of living in a country that doesn’t require universal health insurance.

There are limited subsidies for people who cannot afford health care insurance.  Although we provide health care coverage for the very poor through programs like Medicaid and the Children’s Health Insurance Program, almost 20 percent of the population lack health insurance and remain uninsured.

Q: If an individual has a high-deductible plan or no insurance at all, the cost of a visit or procedure is astronomical. Health plans (Blue Cross, etc) receive huge discounts, but the poor individual pays perhaps three times as much. Costs like that frequently cause bankruptcy or impoverishment. Why can't an individual receive the same price as the lowest contracted rate?

— James Hering, Fresno, Calif.

Q: I received a bill for an emergency-room stay of about four hours. I walked in and asked for a CT scan of my abdomen. No broken bones, no stitches, no surgery. The bill was for over $9,000. When my COBRA became available, the revised bill came and it showed that my insurance paid about $519, my share was $100 and over $8,000 was written off! How can so much be "written off"? Why would I have been charged the whole $9,000, but the insurance company able to pay the $519?

— Deborah Watson, Lake Forest

Related questions answered by health care researcher Gerard Anderson

A: Essentially, if you’re an individual who is uninsured and going to the hospital or to a doctor, you’ve got nobody negotiating on your behalf. So, you’re going to be billed at the highest rate. There is no federal or state law – with the exception of Maryland – that regulates the prices a hospital or physician can charge a person who has no existing contract with the provider.

The typical markup for U.S. hospital services is three to one. That means for every $1 a procedure costs, the hospital may bill you about $3. Because insurers are able to use their buying power to negotiate much lower rates, the markup on the bills that go to insurance companies is typically 10 cents to 30 cents on the dollar. In other words, while hospitals seek to make a profit of about 200 percent from individual payers, they accept 10 percent to 30 percent profit from insurers.

Most of the 44 million uninsured individuals who end up going to the hospital and running up big bills don’t end up paying the full charge. They just don’t have the income to pay for a $40,000 hospital stay, for example, and hospitals often wind up reducing the bill.