The Costs vs. Charges of Health Care, Part 1
Almost every day we hear about the rising “costs” of health care. And yet, it isn’t true. It’s not the costs of health care that keep going up; it’s the charges.
Let’s define some terms:
COSTS = How much money it takes to develop, produce, distribute, and market a product or service.
CHARGES = The money needed to purchase a product or service.
They aren’t the same. Not at all. As can be seen from the graphic, an MRI doesn’t cost $12,000. Hell, it doesn’t even cost anywhere near $300 (but that’s a story for another post). But $300 seems like a pretty good charge for an MRI though, at least compared to $12,000.
How could a hospital or imaging center charge thousands of dollars for an MRI that’s really only worth a few hundred bucks? To make a long story very short, for now I’ll just say “because they can.” Because under a third party payer model they can pretty much charge whatever they want – and the more they charge, the more they will get paid by health insurance.
So it’s not about the costs of health care, it’s about the charges. And those are simply a result of a gigantic markup:
CHARGES = COSTS + MARKUP
The problem with all this nonsense is that when we hear about the “rising costs of healthcare” we think that healthcare must be costly. Expensive.
But it isn’t, and it doesn’t have to be. The reason healthcare is so expensive is just because it’s overpriced – it’s all about the markup.
And to prove my point, next we’ll take a look at some crazy markups, er, um, charges….
It’s not the COSTS of health care that are outrageous…it’s the CHARGES.