How the Healthcare Industry Rips You Off

| Tue Apr. 24, 2012 9:28 AM EDT

Today brings us a pair of infuriating stories about the cost of healthcare. In the first, Sarah Kliff reports the results of a study of appendectomy costs in California hospitals:

The price of appendectomy ranged from as little as $1,529 to as much as $182,955 depending on where it was performed, according to results published in the Archives of Internal Medicine. These results came after the researchers focused their data on 18- to 59-year-olds whose hospitalization lasted fewer than four days, to make sure they culled out any complications.

....“Price shopping is improbable, if not impossible, because the services are complex, urgently needed, and no definitive diagnosis has yet been made,” the authors conclude. “In our study, even if patients did have the luxury of time and clinical knowledge to ‘shop around,’ we found that California hospitals charge patients inconsistently for what should be similar services as defined by our relatively strict definition of uncomplicated appendicitis.”

Next up is a New York Times piece about a suit against insurers in New York state for consistently understating "usual and customary" rates, which allowed them to make unfairly low reimbursements for out-of-network care. The companies settled the suit by agreeing to set up a new, more reliable database of actual procedure costs:

Though the settlement required the companies to underwrite the new database with $95 million, it did not obligate them to use it. So by the time the database was finally up and running last year, the same companies, across the country, were rapidly shifting to another calculation method, based on Medicare rates, that usually reduces reimbursement substantially.

....Few dispute that [...] the new realpolitik of reimbursement is leaving millions of insured families more vulnerable to catastrophic medical bills, even though they are paying higher premiums, co-payments and deductibles.

“They’re not getting what they think they’re paying for,” said Benjamin M. Lawsky, the superintendent of the Department of Financial Services, whose investigators recently found that under the switch, 4.7 million New York State residents — 76 percent of those with out-of-network coverage — are facing reimbursement reductions of 50 percent or more. The switch “certainly creates the appearance that insurers are trying to end-run the settlement and keep out-of-network payments low,” Mr. Lawsky said.

These two stories highlight one of the biggest problems with American healthcare. Sure, it costs more than it does anywhere else, but that's not all. Thanks to weak price regulation, it's also far more variable than anywhere else, with hospitals and insurance companies constantly looking for ways to gain an edge over those with the least leverage. In the first story, they're taking advantage of people with sudden health problems who really don't have the opportunity to shop around. In the second story, they're taking advantage of people who, for one reason or another, have to seek care outside of their network.

Whose fault is this? Insurance companies for playing coverage games? Hospitals for playing cost games? Medicare for having a lousy and inconsistent payment system? Probably all of the above. And the net economic benefit of all this game playing is zero (at best). But one thing we know for sure is who pays the price for this. All of us.