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April 12, 2023
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David Burda
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Economics Policy System Dynamics
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No One Pays Retail, Even in Healthcare

I grew up just west of Chicago where if someone asked you to pay cash, it meant one of three things. The person was not going to report the cash payment as income on their tax return. The person was connected to an unnamed organization that doesn’t file tax returns. Or both.

If that someone asked you to pay cash, you didn’t have a choice to pay by check or, later, by credit card. Yes, there was a time before credit cards. Like there was a time before mobile pay apps. What a time to be alive, right?

Anyway, I just read a new study in Health Affairs that puts a healthcare spin on that cash dynamic from my memories of the 1960s and 1970s.

Five health services researchers from Johns Hopkins University wanted to know if there were any price differences for hospital care depending on whether the patient was insured or uninsured and how any price differences compared with a hospital’s chargemaster for the same services.

The researchers’ study pool consisted of prices charged by 2,379 hospitals for 70 services deemed shoppable by CMS, meaning patients have the opportunity to comparison shop for a service before it happens. The data in the pool came from a variety of sources, including chargemaster prices posted by the hospitals as required by the hospital price transparency rules that took effect in 2021.

Here’s what they found:

  • On average, cash prices were 64 percent lower than the chargemaster prices.
  • On average, prices negotiated with commercial insurers were 58 percent lower than the chargemaster prices.
  • Cash discounts were bigger in highly concentrated hospital markets where hospitals with more market power could offer steeper discounts to self-pay patients because the hospitals could get that money back and more by leveraging their market power with insurers.

There’s a lot to unpack here.

First, and again, hospitals are businesses just like businesses in any other industry. No one pays retail.

Second, offering big discounts to cash-paying customers is a premeditated strategy. It’s better to get a little something than a whole lot of nothing if nothing is the likely result of an unaffordable medical bill. Or, as the researchers said politely: “Offering lower cash prices might be a way that hospitals respond to the greater price sensitivity from uninsured and underinsured patients.”

(I wrote about this in “When Knowing About the Healthcare Revenue Cycle Gets You Another Donut.” My mom got a 67 percent cash discount when her hospital mistakenly classified her as self-pay when she’s enrolled in a Medicare Advantage plan. Hmmm. That hospital is just west of Chicago, too.)

Third, hospitals and hospital systems merge with each other and join other health systems to increase their economic strength. There is no other reason. They can charge the poor less because they know they can charge health insurers and their members more.

Look at all the fun things we’re learning about how hospitals do business because of the new price transparency rules. Now you know why hospitals fought the rules and why most hospitals still aren’t following them.

Cash is good.

Thanks for reading.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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