Why is Price Gouging Allowed in Health Care?

What should be done about price gouging? What constitutes price gouging? There is no official definition, but we all know it when we see it. I have often said that during my lifetime medicine has turned into a gold rush. By that I mean some medical providers test the limits of how much they can charge with little regard for ethics or fairness. These may be isolated incidents, but if left unchecked others will copy. In my youth we thought medical prices were high. Yet, you could easily see a doctor, visit an ER or get minor surgery without fear of a bill that required a second mortgage. People without health insurance routinely paid cash to have babies in hospitals. Something changed in the intervening 50 years. Even minor procedures that were easily affordable when I was young are now break-the-bank unaffordable, with wide variation from one hospital to the next. Kaiser Family Foundation even has a web series on outrageous medical bill of the month.

Why is so little done about the game playing, price gouging, surprise medical bills and upcoding that plagues health care? Public officials seemingly tolerate it, only occasionally tinkering around the edges. It took years to stop the balance billing scam. That’s when a small subset of providers, mostly those who worked in hospitals, eschewed network affiliation knowing their patients could not decline their services. That business model allowed them to charge fees far higher than what health plans would reimburse. Patients got stuck with the unpaid balance. The No Surprises Act (2020) banned most balance billing of patients but has not eliminated surprise medical bills entirely.  

Earlier I wrote about a few doctors freezing warts and tweezing out splinters and billing the task as surgeries costing nearly $500. The providers who do this argue it meets the definition of surgery because the skin is slightly ablated. However, most reasonable people would agree that removing a splinter does not require the skills of a surgeon. In another example of surprise charges, a private equity-owned gastroenterology group practice billed patients $600 for surgical trays used during colonoscopies. You can buy the reusable stainless-steel trays on Amazon for around $30. 

These amounts are trivial as far as egregious price gouging goes. In another example, a hospital billed a colonoscopy with polyp removal as two colonoscopies, charging $19,206. I can get the same service for 90% less. The health plan likely got a significant discount but that raises the question of why do health care providers have such variation in list and net price? One cause of surprise medical bills is the difference between outrageous list prices and the much lower prices negotiated with third party payers. 

In another case of price gouging a Texas woman’s urine sample was sent to a lab to test for opioids after back surgery. Her surgeon, for reasons that were never explained, sent the urine sample to a small lab owned by a fellow physician rather than to Labcorp or Quest Diagnostics. Stranger still, the small lab ran every drug test imaginable on the urine sample and billed each test at inflated prices. An opioid screen would have cost less than $100 at Labcorp or Quest but instead cost $17,850. Why sent her urine to a small lab charged more than 180 times the amount Labcorp or Quest would have charged? The lab ultimately agreed to accept $5,000, about 50 times what it should have cost.

While most forms of birth control are not subject to cost-sharing, one woman discovered her IUD was not covered, due to her health plan being an actual grandfathered plan that did not cover contraceptives. Without a negotiated discount, her ($1,000) IUD was billed at $14,685. She finally agreed to pay $5,236, three to four times the normal cost.

Sometimes an ambush is enough to drive people into bankruptcy. When a Colorado woman went in for back surgery, the hospital admissions mistakenly quoted an out-of-pocket cost of $1,337, not realizing the hospital was out of network. (Huge red flag: how do you calculate cost-sharing without a network contract?) The chargemaster (list) price for the surgery was $303,709.49. Her health insurer paid nearly $75,000, a reasonable amount for her surgery. The hospital fought tooth and nail to collect an additional $230k surprise medical bill from their customer even though it had already been paid the fees most health plans reimburse. The hospital then sued their patient for the additional balance. The jury sided with the patient, but as often happens an appeals court reversed the jury decision saying she had signed financial responsibility forms agreeing to pay all charges (no matter how unreasonable). The Colorado Supreme Court ultimately struck down the $230,000 surprise medical bill saying their financial responsibility forms were ambiguous. 

The same year the Colorado woman was having surgery a man in New York State was to. He received a $117,000 surprise medical bill from a doctor he had never met. He had met his surgeon, who had called in an assistant surgeon, a second pair of hands. A hospital surgical assistant could have done the job for no extra charge, but the hospital said none were available. Medicare would only have paid $850 for the simple service, but calling in an out-of-network assistant surgeon meant the surgeon was free to name his price after-the-fact. The insurer ultimately agreed to pay the additional fee, although it was under no obligation to do so. Only in health care do providers have so little regard for their customers that a $117,000 additional charge is tacked on with no transparency, no regard for the cost, or shame.

The question remains: why is price gouging tolerated, often from hospitals that are nonprofit organizations receiving tax breaks for the charity care they supposedly provide? A heavy dose of transparency could remedy some of this. Requiring mutual assent would help.