To meet the clinical (read “market”) demands of patients, who are typically disinclined to wait for diagnosis or treatment, UVA Health already owns seven CT scanners (that I know of) and three PET scanners, which are used to detect small deposits of known cancer. It also has enough “pembro” to treat all patients who will or might benefit from it. Guess how much of their costs are billable to insurance?
Zero.
For Some Drugs, Medicare Doesn’t Pay Everything
Here’s why. Hospitals and physician practices have a single source of revenue: payment for patient care services rendered. To buy the PET scanner, CT scanner, or pembro, the university health care system collects money from our patients, largely through the insurer. In turn, our clinics, operating rooms, and emergency departments treat the patient.Simply put, the money collected from patients is used to buy everything the hospital uses to provide health care. Sometimes, the health system borrows money from banks or the public, but even that debt is almost entirely serviced through payment for services rendered. Consumers bear the brunt; as in any business, those costs are passed on to the customer.
The Difference Between Price and Cost
Here’s an analogy: There’s the sticker price of the car you want to buy, and then there’s the price you pay. Those numbers are almost always different, and no two buyers necessarily pay the same. Instead, a negotiation between buyer and seller (the dealership, in this example) takes place. Ultimately a price is agreed upon. But whatever that number is, it’s never the actual cost of producing the car.The carmaker knows, down to the penny, the production cost of that car; the consumer doesn’t. The dealership doesn’t know, either; the dealer is privy only to the acquisition cost (price per vehicle) it pays. The automaker aggregates the costs of the aluminum and steel, the electronics, the glass, the tires, etc., and incorporates it all to derive a unit price per vehicle. The manufacturer knows all the costs of each component before the company starts to build a single vehicle, including labor and overhead.
Think of hospitals and physicians as the dealership. They don’t know the actual cost of things either, partly because there’s not just one “maker.” Instead, many “makers” are in the supply chain—all the companies providing hospitals and doctors with thousands of medical products and services. Just imagine all the suppliers involved in making sure a patient receives a chemo treatment.
These costs are different for every facility, because they are by-and-large derived, not calculated, numbers. No payer—that is, the insurance company for the patient—ever asks about how much it actually costs to provide health care. Here’s why: No one knows. Health care prices are made-up numbers.
Our country has never even had the corresponding conversation in health care, writ large.
How much time does the technician take to perform a task? How much is she paid per hour? How much fringe benefit does she receive? How much time does the patient transporter take? How much does he earn per hour plus fringe? What is the purchase price of the MRI machine?
To calculate the true cost of care per care unit, a hospital must add up all the costs of all the component parts of the procedure or process. This allows hospitals to apply some rigor to their pricing schema. Some are doing this already with good results. Seeing how much care costs and the prices all hospitals charge would allow market forces to actually inform consumerism in health care.
From that starting point, a national dialogue concerning prices in health care might have meaning. So would public policymaking. “Out-of-network bills” and “price transparency” would have real-world relevance. Finally, our country could have the long-overdue dialogue about health care costs as a profession, an industry, and a nation.