Since insurance rates are different than pay out-of-pocket rates who is setting the price for medical procedures?
In: Economics
The business sets their own prices like with everything. There are standards and guidelines and such, but ultimately the hospital (or whatever entity owns the hospital) sets their prices.
Hospitals, doctors offices, and other providers set their rates. What those rates are is totally up to them. They are sometimes, but not always, based on their costs. E.g. the electric bills, materials costs, administrative overhead, etc, divided by all the procedures/services they provide. This list of prices can be found on a document called a Charge Master.
Then, they negotiate with different groups that actually pay them for those services, since most of the time or isn’t the consumer. For example, if a hospital is engaged in negotiations with a national health insurer like CIGNA, the insurer may say “Procedure X on your charge master is listed at $1000. But the average hospital in this county charges only $500. Since we represent so many potential patients for you, how about we settle on $600 each?”.
If the hospital agrees, then for any CIGNA patients they will give a -$400 discount vs the $1000 price on the Charge Master. That $600 will either come directly from the insurer, or some of it will come from the patient, depending on their plan. For example, someone on a high deductible plan at the start of the year may have to pay the whole $600, whereas someone else may be on a plan that says they split it 80/20 with CIGNA.
That’s generally how it goes. Though in the real world there’s thousands of procedures to negotiate over, thousands of different providers, hundreds of insurance companies, so as a result those negotiations can take up a lot of time and have very different results hospital-to-hospital, insurer-to-insurer, and so on. It’s hard, mathy guess work figuring out how much is the right amount for each procedure so that insurers or hospitals don’t go bankrupt. A brain surgeon probably could keep a practice going if every 8-hour procedure only got $100 in payment.
As a result, many provider as insurer negotiations often take a shortcut, and piggy back off of the price setting someone else has already done. Medicare, the US health insurer for the elderly, is the elephant in the room, who have vast bureaucracy and legal resources to set target prices for all the procedures they pay for. And all of their work is public. So CIGNA may go to a hospital and say “We know Medicare pays you $1000 for procedure Y, and you basically break even on it. How about for our patients, we’ll pay you the Medicare rate + 30%?” And they’ll negotiate from there.
Essentially, the insurance companies.
If you take insurance — and it’s very hard not to, in the US — then the insurance companies have the right to investigate your accounts to be sure you’re not charging cash-pay patients less than insurance companies pay.
Note, that’s not *less than billed to insurance*, that’s *less than the allowable amount under the contract with the insurance company*. This is the amount the doctor actually gets paid total: patient out-of pocket amounts (copay, co-insurance, or unmet deductible OOP) plus the amount (if any) that the insurance company pays.
If the insurance company finds you are regularly charging cash-pay patients less than that, then they get to declare that that is your “usual and customary” rates based on the evidence, and under contract they get to pay you less than that going forward. They need to be able to promise their customers that they get a better deal at the doctor, after all!
Even more painfully, they also may “claw back” a part of the payments they’ve already made to you over the last x months — or years — to match that rate you were fraudulently giving other patients. And then throw you off their insurance panel entirely, and there go a big chunk of your patients.
This also counts if you write off too many uncollected/uncollectable/unfair bills, don’t collect copays, etc.
So any medical practice is very careful to charge cashpay patients more than insurance, and *enough* more to not invite insurance audits. “You set your own prices” so it’s not collusion… but everyone knows what the driving force is.
A rule of thumb I’ve been given is to charge 1.3x the Medicare allowable (remember, the allowable is “what the doctor actually gets paid total for doing the procedure after all the discounts and policies and fuss”).
Health providers. It’s a market economy. Certain insurance systems will only pay X but that doesn’t stop providers from setting the price wherever they think they can get the business. The ones who sort of want the business coming from insured patients set the rates in line with what insurers will reimburse more or less; and professional bodies can set guidelines but I know dentists who accept no insurance specifically so they can charge what they want to charge.
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