Gummy Bears and Gall Bladders

Focus Area:
Sustainable Health Care Costs

It was a posh hotel room. In addition to the floor-to-ceiling electric window shades, there was an espresso maker and soft, motion-activated lights around the base of the bed to assist restless sleepers.

But the minibar was the crowning achievement. It held an array of liquid refreshments attractively displayed in one refrigerated drawer and snacks in another, like little regiments of temptation.

Alas, to indulge one had to overcome the pricelist helpfully available in a faux leather folder. There was a $15 chocolate bar and $14 bag of gummy bears. And while I took a pass on the snacks, I was struck by some parallels — and differences — with how hospitals price their services.

Hospital pricing has come under increasing scrutiny in the last decade. Pity the person without insurance who is hospitalized, or the insured person who receives hospital services not covered by their insurance contract. While those with private insurance who receive out-of-network services have gained some federal protection from the No Surprises Act of 2020, both groups are sure to get a firsthand education in hospital billing and the inscrutable chargemaster, which itemizes list prices for every possible service.

Like the hotel’s pricelist for goodies, chargemasters are hopelessly inflated. National Public Radio’s Bill of the Month series showcases examples of unsuspecting patients’ unfortunate —and damaging — encounters with the chargemaster, and the costs that ensue.

And like the hotel’s pricelist for nonessential add-ons, hospital chargemasters are fundamentally exercises in the maximization of marginal revenues. A more colloquial articulation of this strategy is “Let’s see what we can get.” In both cases, the enterprises figure that nothing is gained if nothing is ventured. (This same strategy is employed in more downmarket settings like garage sales until the end-of-day markdowns or the wares are lugged to the street.)

But the analogy only goes so far. First, hospitals do not print their price lists for all to see. Only under federal edict have they put them online, with sporadic compliance and no less inscrutability.

Likewise, at hotel chains, somewhere in the bowels of the purchasing department, there is a known cost for those gummy bears and chocolate bars to which accountants apply a consistent, if outrageous, mark-up. The same cannot be said for a hospital chargemaster. There is no known cost for all the services associated with a gall bladder removal, for example. Instead, inflation factors and mark-ups are applied to prices for as many services as can be fractionated, based on historical precedent and what is known about what others charge. The one quality control check is to make sure the resulting prices are significantly above what the hospital has agreed to accept from the third-party payer.

More fundamentally, with will power, I can forego my chocolate bar and not be subject to outrageous prices. The same cannot be said for health care services. The ingestion of a gummy bear is not the same as the removal of a gall bladder. This is indeed the whole point of public and private health care financing: to ensure access to essential services and protect people from bankruptcy due to unforeseen events. In a more equitable health care system, patient cost sharing for these essential services would be limited, and patients would have more protection from revenue-maximizing institutions. But they don’t.

Which leads to a final question. In their ceaseless quest for revenues — through chargemaster maximization, corporate consolidation to gain negotiating leverage, and lobbying for political favor — have the leadership of hospitals let health care become, like hospitality, just another business?

If the answer is no — that the purposes of health systems to deliver care, train clinicians, and conduct research have a higher societal value than mere commerce — then health system boards and senior executives need to demonstrate this with a higher standard of leadership. This includes not only organizational leadership that manages costs as well as revenues, but also public leadership. Responsible civic engagement must recognize that the organization’s revenues are someone else’s costs, and that the health of communities must be measured in more than the growth of an institution’s assets.