Profit/Cost
Each hospital participating with Medicare files a report annually that shows, on average, how much cost is included in the prices the hospital charges – called the cost-to-charge ratio. For example, a hospital with a cost-to-charge ratio of .25 averages $25 in cost for every $100 it charges. Put another way, the hospital bills 4 times (400%) its costs.
The amount by which a charge or price level exceeds a hospital’s cost is its profit. The cost-to-charge ratio can be applied not only to a hospital’s billed charges, but to any payment amount, such as an insurance plan network price or a discounted price offered by the provider.
On average, hospitals charge about 4 times their actual costs. However, there is significant variation in cost-to-charge ratios between hospitals. It is not uncommon for hospitals to charge 10 times or more than their costs.
Cost and profit estimates are available only for hospitals.
Medical Bill Prices Compared
The Medical Bill Price Review evaluates different price points under the Medical Bill, including with any applicable insurance payments and discounts.
Medical Bill Charges: These are the Provider’s full charges on the Medical Bill, before any discounts, including insurance and patient discounts, are applied.
Medicare Price: The amount the Provider would be paid for the Medical Bill under the Medicare program.
Patient Price: For self-pay or uninsured patients only, this is the Provider’s charges on the Medical Bill, after any discounts the Provider is giving the Patient are applied.
Insurance Price (after discounts): For patients using insurance only, this is the total payment to the Provider for the Medical Bill based on insurance benefits and discounts. Insurance Price is the sum of the insurance payment to the provider and the patient responsibility (coinsurance, deductible, copayment).
Insurance Payment Only: For patients using insurance only, this is the price for the Medical Bill applying only the amount the insurance plan paid to the Provider. Insurance Payment Only does not include any patient responsibility (coinsurance, deductible, copayment) amounts. Insurance Payment Only reflects the price the Provider would receive under the Medical Bill if it collected from the insurance plan but did not collect from the Patient.
Maximum Affordable Amount: This assumes the Provider is paid the Maximum Affordable Amount you set, plus any other payments previously made by the insurance plan, Patient, or other parties.
Maximum Settlement Amount: This assumes the Provider is paid the Maximum Settlement Amount you set, plus any other payments previously made by the insurance plan, Patient, or other parties.
What Should I Look for in the MBPR and What is Fair?
Prices are reviewed in the MBPR relative to the Medicare Price and a hospital’s cost and profit.
Medicare Price Evaluation
The Medicare Price is likely the most common payment rate schedule a provider accepts. Price equivalencies to Medicare allow one to evaluate how much more or less the Provider is requesting or receiving under the Medical Bill than it receives for treating its largest group of patients.
There is no right or wrong answer for what percent of a Medicare Price you should -consider is fair and reasonable. For example, if a provider accepts $1,000 under the Medicare Price, and is billing $4,000 for the same services under a Medical Bill you are disputing, it is your judgement whether expecting you to pay 4 times the Medicare Price is fair or not. Later, if you evaluate an offer to settle the dispute, you also will judge what price equivalency to Medicare you do think is fair.
Hospital Profit/Cost Evaluation
The estimated profit (or loss) a hospital will make at different price points can greatly influence a patient’s opinion on what a fair price may be. The Medical Bill Price Review also gives profit and cost as percentages of the total price.
A $50,000 Medical Bill may seem reasonable if the Medical Bill Price Review indicates that provider’s profit and cost are $1,000 and $49,000, respectively. One may find it reasonable that the provider is adding $1,000 profit to its $49,000 cost to render the services. Alternatively, a $50,000 Medical Bill may seem unreasonable if the Medical Bill Price Review indicates that provider’s profit and cost are $40,000 and $10,000, respectively. The provider is adding $40,000 profit to its $10,000 cost to render the services.
As with the percent of a Medicare Price, there is no right or wrong answer for what profit and cost should be.
Using the MBPR
The initial Medical Bill Price Review for a case gives a customer perspective on the Medical Bill’s prices. Combined with the nature of your dispute issues, understanding the Medical Bill’s price levels influences your opinions on when, how, and under what price you are willing to settle the dispute.
You don’t need to remember everything in your case’s Medical Bill Price Review. The metrics of the MBPR support Patient Fairness’s tools to help you to evaluate and create proposals to settle your Medical Bill dispute, so those key insights will be presented again with further explanation and guidance.
