Cash Prices Often Beat Commercial Negotiated Prices for Hospital Services
The cash price that a hospital charges a cash-paying patient for a procedure is often lower than the negotiated price that a commercial insurance plan would pay, a new study "The Relationships Among Cash Prices, Negotiated Rates, And Chargemaster Prices For Shoppable Hospital Services" in Health Affairs has revealed. This finding, which is based on pricing information that hospitals have been compelled to provide under the national Hospital Price Transparency Rule, contradicts the conventional wisdom that insurers use their bargaining power to drive prices down.
The study (co-authored by Ge Bai) examined common hospital services that patients can shop around for, including examination, lab work, imaging and routine surgeries that can be scheduled in advance. In almost half of such occasions, hospitals, especially large ones with market power, set their cash prices lower than their median negotiated prices for insurers. The findings corroborate a previous study that discovered about one-sixth of hospitals set their cash prices lower than any of their negotiated prices.
Hospitals are willing to set competitive cash prices because cash-paying patients are typically more price sensitive. And hospitals can avoid the administrative costs associated with processing insurance claims.
In many hospitals included in the earlier study, the median negotiated price for a colonoscopy often exceeded $5,000, more than three times as much as the national median cash price of $1,635. These prices can be particularly punishing for patients enrolled in high-deductible plans. Before reaching the deductible, they must pay dollar for dollar out of pocket.
Well-insured patients, who have low out-of-pocket costs, might not care about their insurers’ limited ability to negotiate low hospital prices. Ultimately, though, all beneficiaries and plan sponsors (often employers) cover the high negotiated prices through elevated premiums.
Many employers are uninformed about the variation in hospital prices. And health insurance companies, which can earn more by covering higher-priced care, often prioritize their own financial interests over their fiduciary duty toward clients and beneficiaries—that is, to protect the money paid for medical care from employee wages and savings and employer earnings.
Theoretically, insurance creates value by pooling risk. But when patients and employers pay more for common shoppable services, their gain from risk-pooling might not be enough to offset the financial loss from high prices.
Many health care providers are now challenging the role of health insurance. Some ambulatory surgery centers, for instance, serve only cash-paying patients, and many physicians offer direct primary care, bypassing health insurance middleman altogether. The rise of generic drug platforms like GoodRx and Mark Cuban’s Cost Plug Drug Company has enabled insured patients to fill their prescriptions at lower cost without insurance. These innovative models are bringing even more price competition and benefiting patients.
Any patient should have the right to pay cash prices that are lower than negotiated prices. Employers should contractually demand that insurers reimburse patients’ cash payments, and when applicable, let them count toward patients’ deductibles.
By dictating which benefits are available and at what price, commercial insurers limit patients’ opportunities to save money through comparison shopping. A more efficient approach would be to define employers’ contributions, such as those to health savings accounts, and give workers control over how they spend their money.
Health-care prices rise because most Americans have insurance. If everyone had grocery insurance, food prices would skyrocket, too. Health insurance coverage of everything has led to high costs and suboptimal health outcomes. Remove the middlemen for routine services, and prices will fall.
In many hospitals included in the earlier study, the median negotiated price for a colonoscopy often exceeded $5,000, more than three times as much as the national median cash price of $1,635. These prices can be particularly punishing for patients enrolled in high-deductible plans. Before reaching the deductible, they must pay dollar for dollar out of pocket.
Well-insured patients, who have low out-of-pocket costs, might not care about their insurers’ limited ability to negotiate low hospital prices. Ultimately, though, all beneficiaries and plan sponsors (often employers) cover the high negotiated prices through elevated premiums.
Many employers are uninformed about the variation in hospital prices. And health insurance companies, which can earn more by covering higher-priced care, often prioritize their own financial interests over their fiduciary duty toward clients and beneficiaries—that is, to protect the money paid for medical care from employee wages and savings and employer earnings.
Theoretically, insurance creates value by pooling risk. But when patients and employers pay more for common shoppable services, their gain from risk-pooling might not be enough to offset the financial loss from high prices.
Many health care providers are now challenging the role of health insurance. Some ambulatory surgery centers, for instance, serve only cash-paying patients, and many physicians offer direct primary care, bypassing health insurance middleman altogether. The rise of generic drug platforms like GoodRx and Mark Cuban’s Cost Plug Drug Company has enabled insured patients to fill their prescriptions at lower cost without insurance. These innovative models are bringing even more price competition and benefiting patients.
Any patient should have the right to pay cash prices that are lower than negotiated prices. Employers should contractually demand that insurers reimburse patients’ cash payments, and when applicable, let them count toward patients’ deductibles.
By dictating which benefits are available and at what price, commercial insurers limit patients’ opportunities to save money through comparison shopping. A more efficient approach would be to define employers’ contributions, such as those to health savings accounts, and give workers control over how they spend their money.
Health-care prices rise because most Americans have insurance. If everyone had grocery insurance, food prices would skyrocket, too. Health insurance coverage of everything has led to high costs and suboptimal health outcomes. Remove the middlemen for routine services, and prices will fall.