> Hospitals have an operating margin of 2-5%
Very curious where this comes from and how accurate it is. For example the $37 a provider charges for an Aspirin seems like more than 2-5% margin.
> Hospitals have an operating margin of 2-5%
Very curious where this comes from and how accurate it is. For example the $37 a provider charges for an Aspirin seems like more than 2-5% margin.
You can search for more reports, because they do vary based on methodology. But the median hospital in the US makes between -1% (yes, negative, they lose money, because a huge percentage are non profits) and 4% depending on the source.
When the hospital charges you $37 for an aspirin, that singular pill might have a crazy profit margin in isolation. But your entire treatment could very well be losing the hospital money.
In my own anecdotal experience, the one hospital I know enough details about to comment on specifically, had something like 85% of patients costing the hospital more money than the hospital made. It was entirely funded by the relatively small number of people who had the “right” insurance and had the “right” procedures done.
Eg Kaufman: https://www.vizient.com/insights/reports/national-hospital-f...
It is a system where all prices and costs are so far detached from reality for multiple reasons, that looking at any current profit margins is not going to be very realistic either.
Really need to step back and start from first principles.
When I go to urgent care I get 15 minutes with a doctor who on average makes about $300K and maybe another 15 minutes with a nurse assistant who might be making $100K (or less). So that is less than $50 in doctor+nurse salary. Of course there are then all the overhead of rent, utilities, etc, etc but those are not so different from any other business in the same strip mall. So let's say total cost for my visit is maybe $100. But I'm charged $500-$600 for the visit. Someone is pocketing a lot of money and it is not the doctor nor the nurse.
We could do the same exercise for surgery, the costs for surgeons and anestethicians is much higher, but you'll be hard pressed to find any realistic scenario where the cost of a two hour surgery is more than $100K.
How much does insurance, legal representation, a department to argue with insurers, etc cost the hospital?
About 8.5% of revenue. This is not a poorly-studied number.
The old saw about the engineer who says that the $100,000 bill was $1 for the bolt, and $99,999 for knowing which bolt it was... that's just funny AND true!
But if it's a team of nurses, doctors, and other healthcare specialists rushing around doing checklist work to make sure you get that aspirin, that's just evil.
The principle is only applicable to our industry and closely adjacent industries.
fyi: Your link returns a 404 for me.
Oops! We can't find the page you're looking for
It's the salaries. That's where all the money is going. So that 37$ asperin, the profits... most of it is going to pay salaries. Not just of the doctors but administrators and all that.
Not buying any of this when the world is now full of dark patterns¹ and the ultimate result is that people in charge keep getting richer, faster.
¹ https://en.wikipedia.org/wiki/Hollywood_accounting
This is immediately what came to mind to me. You can be extremely profitable but paying out tens of billions in dividends, or a million other things.
Dividends aren't a Loss.
many hospitals are run by non-profits or the government (e.g. universities)
How do the salaries of administrators at such hospitals compare to for profit hospitals? How do they compare to non-medical institutions of similar size? Without a lot more information, your statement doesn't mean anything.
My point was that if it is all Hollywood accounting to scam consumers, then the nonprofits and government hospitals are doing the same thing.
Administrator pay scale is completely irrelevant to the point
Audited financial statements of all kinds of hospitals, both non-profit and for-profit. Here’s data from Moodey’s a credit rating agency: https://www.chartis.com/insights/hospital-margins-trend-high... (“This month, Moody’s credit rating agency released its annual not-for-profit and public healthcare median financial report for 2024, showing that overall hospital performance continues to improve. The median operating margin increased from 0.5% in 2023 to 1.5% in 2024.”).
The $37 for an aspirin offsets huge costs elsewhere for (non-NP) nurses, receptionists, janitors, orderlies, etc., who can’t bill directly to medicare.
Insurance pays the higher of their negotiated rate or the billed charge. Medical facilities set their billed rates so high that they’re guaranteed to be higher than all negotiated rates, ensuring that they get paid.
When you see $37 aspirin on the line, nobody actually pays $37 for it. The billed amount is replaced with whatever insurance rate is allowed for that. If someone is cash paying they get a large discount.
The billed items also have to cover everything. It’s not directly $37 for the aspirin, or the $5 or whatever allowed coverage it ultimately gets billed it. That had to cover the facilities, the salaries of the pharmacy staff who reviewed the request and dispensed it, the staff who inventory and order the medications, and the cost of billing insurance.
The only part that nationalized health care would change are the allowable billed rate and maybe the administrative overhead of billing different insurances. Even nationalized health care systems have admin overhead though.
You can think of it like when you have to pay $11 for a single glass of wine from a bottle that the restaurant paid $10 for. You’re not just paying for the liquid, you are paying into a big bucket of charges that all need to add up to more than the cost of the supplies, staff, building, and everything that goes into running it. The margin on individual products doesn’t make the entire operation profitable.
It almost seems like obscurity is the goal with the current system. Basically, job security (for admin, insurance) via obfuscation.
All healthcare systems have administrative overhead, including completely nationalized systems. The US discourse on health care overestimates the administrative overhead by a large amount. We could remove all insurance company profits and adjust our administrative overhead to be in line with countries with nationalized systems and it wouldn't change health care costs by an appreciable amount.
The discourse also underestimates how much of our health care costs go to our significantly higher salaries throughout the medical system. No politician wants to propose reducing the salaries of doctors, surgeons, or even researchers making new medications. The only acceptable villains are the administrators and insurance companies, but even in this inefficient system that's a much smaller slice of the pie chart than most people imagine.
One of the reasons hospitals operate in this convoluted way and still barely clear a profit is that we require them to treat everyone and attempt to collect payment later. A lot of what you and I pay for health care goes to cover people who can't or won't pay.
> The discourse also underestimates how much of our health care costs go to our significantly higher salaries throughout the medical system.
Well, the salaries of medical personnel only account for about 20% of total healthcare spending. So even cutting those by half wouldn't change much.
> One of the reasons hospitals operate in this convoluted way and still barely clear a profit is that we require them to treat everyone and attempt to collect payment later. A lot of what you and I pay for health care goes to cover people who can't or won't pay.
If that was a major reason, then those who don't pay would balance out those who pay and the grand total of all healthcare spending in the US would be pretty average despite individual premiums and out of pocket costs being sky high. But in reality, the total healthcare spending is just as sky high (several times more per capita then median OECD country).
That number might be true across all health spending, which includes hospital plant, home health care, all public health work (including animal control), and medical equipment. But if you zoom in on clinical and specialist practice, the parts of the health care equation where payer-structure actually enters the picture, compensation for practitioner shoots up; it's the dominant cost of running a health provider.
It’s more like a politically palatable Rube Goldberg machine for transferring costs to those (well-insured through their jobs, the Federal government, rich supporting institutions and donors) able to pay.
Nice comment, and true enough, but $37 aspirin and similar is a criminal fraud, and so are the laws not treating it for the coercive robbery it is.
The laws that define criminal fraud are themselves fraudulent?
Stop asking so many questions and buy the aspirin.
> The billed items also have to cover everything. It’s not directly $37 for the aspirin, or the $5 or whatever allowed coverage it ultimately gets billed it. That had to cover the facilities, the salaries of the pharmacy staff who reviewed the request and dispensed it, the staff who inventory and order the medications, and the cost of billing insurance.
That's the same as any? CVS charging $5 for aspirin has to cover their staff who stocked and checked out the item, the shelf space, the marketing, and the looting.
The comparison you make between a bottle of wine vs a glass is not the right one. It's two different stores selling the same product. What's different about hospitals?
The nursing staff to give the patient aspirin costs a lot more than someone stocking boxes on shelves.
This is like that thing about about $15,000 toilets at DoD. What's actually happening is a cost allocation function where an agreed-on list price for a whole project is getting distributed pro-rata over as many different line-items as possible.
That seems like a way to disincentivize cost optimizations in the project (for the client).
Oh, sure, it's bad! It's just a particular kind of bad.
Sure, it's more expensive, but is it thousands of times more expensive? That $5 bottle probably has 50-100 pills in it. A single dose for $37 is 740X more expensive. And its not just that the apsrin is expensive to cover salaries, EVERYTHING is similarly inflated.
On the occasions that I’ve watched a hospital go through the actual process of selling a small amount of inexpensive medication for a large amount of money, there is a ridiculous amount of ceremony involved. I can easily imagine that it costs that hospital 2 cents for the pill, $5 in amortized capital plus operating expense for the facility that stores that pill, plus $25 in labor and IT expenses to get that pill to the patient.
My wifes a doctor and i can assure you they are gouging you. What it is is that the insurance companys are really in the purchase processing business. So what they do is institute fees on every possible charge and the hospitals in our area mark everything up as a result. Thats part of the problem.
I, too, can invent numbers from nothing.
Yes, but can you personally allocate four people, two computers, a wristband, a HIPAA-compliant database, a HIPAA-compliant data entry system, and at least two barcode scanners to get an aspirin out of the bottle?
I’m making a serious point here: medical overspending is not just gobs of money ending up in a single pocket. The US medical system really is incredibly complex, and the money is moving all over the place and being spent on many things. Most of those cost centers may all zero or even negative value to the patient, but that doesn’t mean they don’t exist.
Hospital billing practices are often terrible or even fraudulent, but stories about the $37 aspirin are generally misleading. Most hospital claims and bills are actually coded around day rates and DRGs, so even if the aspirin shows up as a line item it doesn't actually impact the patient's financial responsibility or the amount allowed by their health plan. (I'm not trying to defend such a confusing system, just explaining how it works.)
To be clear, they are billing for all the coded line items at the listed prices, it is just that the agreements with the insurance company will disallow many of the line items in favor of other ones. They bill everything, because they may accept some insurance that has not negotiated a day rate, and in that case, the day rate code would be disallowed and some of the other line items will be paid at relevant negotiated rates instead (with others still likely disallowed). It needs to be the same bill in both cases, so they need to include everything, and the list prices need to be greater than or equal to what any insurance would pay, or they might lose out on the difference.
This is one of the areas where more standardization would certainly help. If there were more standardization of which codes disallow which other ones (which can currently vary wildly by plan even with the same insurer, must less across insurers), then a lot of line items could actually get removed as truly redundant, vastly simplifying the bill.
I have the best health plan available (as a lifelong heart patient) from my provider, which owns the hospital. I've been charged 250$ for a covid vaccine, which was administered when I was recovering from a surgery to stop Sepsis. My hospital bill was itemized and I called to verify it.
I would be able to dispute a double room billing, but I was sedated and dying so I took whatever they offered, assuming good faith.
>Most hospital claims and bills are actually coded around day rates and DRGs, so even if the aspirin shows up as a line item it doesn't actually impact the patient's financial responsibility or the amount allowed by their health plan. (I'm not trying to defend such a confusing system, just explaining how it works.)
Yep. Hospital "bills" are a fiction. On one occasion I was presented with an "Explanation of Benefits" for a hospital stay where I was "charged" for being in two hospital rooms at the same time. As if that weren't enough I was also "charged" with having a "Pap smear"[0], even though I don't have a cervix.
I complained bitterly and after making a big stink was informed by the hospital my insurer that the items weren't actually "billed". Rather, the insurance company paid $1500/day regardless of the treatment provided.
It's disgusting!
Just in case anyone didn't get the reference (I forgot to include the link -- mea culpa).
A Pap smear[0] is a diagnostic test to detect (pre)cancerous cells on one's cervix[1].
[0] https://en.wikipedia.org/wiki/Pap_test
[1] https://en.wikipedia.org/wiki/Cervix
It comes from the fact that lots of the charges they bill (both of the patient share billed to insured patients and of all costs billed to uninsured patients) end up written down or off because they are uncollectable.
The margin built into the prices bulled is not the actual margin the hospital ends up with.
Medicare has been playing a shell game with reimbursements for decades. They cut the base rate for an office visit or hospital stay to below the cost of the actual service, but allow for separate charges for various things that make up the difference so that doctors don't just stop accepting Medicare in mass. That's why you get billed $37 dollars for aspirin, $15 for drug administration, $50 for IV placement, $10/bag for saline drips, $75 for vitals checks, etc. That way the hospital can make up the money lost from the actual visit charge, this also requires more administration overhead, to both keep track of all the additional charges, and to make changes as the rules change.
You understand that hospitals have more costs than just aspirin, right? Depreciation, amortization, utilities, rent, taxes, maintenance, salaries, etc...
Its all coming out of revenue.
Ever hear of loss leaders? Some parts of a typical hospital make money while others lose it hand over fist. The overall margin isn’t across the board, it’s after everything hopefully balances out.
ER’s for example are money pits, but society really needs them.
https://www.definitivehc.com/resources/healthcare-insights/h...
Exactly this. They need to offset the areas where they lose money. And we have federal laws (justifiably so, IMHO) that ERs must provide stabilizing services regardless of insurance and ability to pay.
And while that law is obviously humane and reasonable, my only gripe is that the rest of our system is so backwards that it increasingly forces people to leverage that. There was a story about a woman who needed dialysis but had no insurance. So basically, she had to wait every couple weeks until she started breaking down, go to the ER, get emergency dialysis, get sent home. Rinse, repeat.
I don't blame her but really just the system that made this her best possible option.
https://kdvr.com/news/local/every-week-this-woman-nearly-die...
There was a story about a woman who needed dialysis but had no insurance.
And who was in the country illegally so she couldn't use Medicare or Medicaid. Still a terrible situation, but not representative of the typical American.
But wouldn't nationalized healthcare help with this? The amount of uninsured individuals would drop drastically.
Nationalized healthcare might help with certain things but it can't create capacity out of thin air. Just because the government theoretically covers everyone doesn't mean that services are actually available when needed. In general the countries with the highest levels of nationalization also have the most problems with shortages. When everything comes straight out of the government budget there's always a political tendency to cut costs by reducing provider payrolls, imposing waiting lists for expensive treatments, or refusing to cover certain treatments at all.
> In general the countries with the highest levels of nationalization also have the most problems with shortages.
Do you have any citations for this? I've heard this rhetoric before, but every time I look into it, searching around for studies on google scholar or the web, I can only find studies and reports indicating that health outcomes trend better in countries with more universal coverage. There are think pieces with anecdata of course, but no actual peer reviewed publications I can find.
One way to begin is look for studies on wait times or procedures of a given type per capita.
Like this one: https://jamanetwork.com/journals/jamasurgery/article-abstrac...
> Among patients undergoing cancer surgery, waiting times to initiation of first-course therapy have steadily increased since 2012, particularly at high-volume academic centers and among patients referred for definitive care. With continued consolidation and expansion of health systems, system-level strategies are urgently needed to monitor and mitigate delays in the delivery of surgical care for cancer.
> Delays were more pronounced at academic compared with community hospitals and among patients referred for care. Predictors of longer waiting time included Medicaid insurance (5 of 6 cancers), lowest-quartile income (6 of 6 cancers), Black race (5 of 6 cancers), increased travel distance (4 of 6 cancers), care in the West region (6 of 6 cancers), and treatment at academic institutions (6 of 6 cancers). Receipt of robotic operations was linked with longer waiting times for nonbreast malignancies (5 of 5 cancers).
How does that compare to other countries? Also seems like government insurance was the worst risk factor.
Why would I want to trade my top tier private insurance for that?
Those studies have all, to my knowledge of them, shown no system mode that is better or worse than any other. The USA for many categories of care has often in those studies had worse wait times compared to nations with fully nationalized healthcare.
Heck when I went to college in Ohio's capital, the recommendation on how to get psychiatry or therapy as a new patient was to call the suicide helpline and claim that you were suicidal. That would get you a new patient appointment within 72 hours versus over 3 months on average for patients looking to get into care through normal channels.
Interesting you weren't able to find any examples. Here are some quick ones for CT scans in US Canada and UK.
The US maintains the highest hardware capacity of the three nations with roughly 43 scanners per million people and performs around 245 to 290 scans per 1,000 residents per year. non-emergency wait times are 1 to 7 days. The UK has 10 scanners per million people and ~100 scans per 1,000 residents, using centralized triage to keep non-emergency wait times between 1 and 6 weeks for NHS targets. Canada does 160 scans per 1,000 residents and 14 to 15 scanners per million, with wait times of 5 to 9 weeks.
When you consider that the US population is not fully covered by insurance, the number of scans is even higher
Okay, but that again seems to just be a few selected data points, rather than an actual trend, backed by peer reviewed study? Japan, Australia, and Iceland all have CT units per capita that exceed the US (~ 112, 70, and 50 /MM respectively), and all of three have universal care, two are full on single payer.
That's true, but obscuring the true costs through hidden cross-subsidies isn't helping anyone in the long run. We would probably be better off with state and local governments setting requirements for ER capacity in each region, and then running an annual reverse auction system where hospitals can bid on maintaining that capacity in exchange for cash payments.
This is because a whole swath of people are getting the aspirin for free (uninsured) so they need to gouge the payers for the aspirin.
Also, then, of course, we need to cover the United Healthcare guy's salary, which decreases margins.
Hospitals, now that private equity is involved, do this weird cost shifting accounting BS with shell companies etc, as such their books aren’t straight forward and the 2-5% thing is likely greatly underestimated given the amount of understaffing PE has driven in that space and how much gouging there is from PBM etc.
Hand-waving numerous details, but - That $37 isn't the price in the hospital's gift shop. It's n=1 pricing, hand delivered to your bedside by a nurse with a whole hierarchy of higher-level medical & admin staff behind her, and documented out the wazoo. Aspirin could be free & unlimited at the hospital pharmacy's receiving dock, and it wouldn't affect the @bedside price.
... and in other countries, medical administrative costs are far lower because they don't need to build entire divisions around correctly coding the same condition and procedure 11 different times before insurance approves it, because the insurance is universal and self-consistent by comparison to our private fractured mess.
It ain't just the insurance crap that drives up medical overhead costs in the US. Our health care system is treated as a money farm by plenty of other industries and interests.
All of which are willing to fight tooth and nail to preserve "their" fat slices of the obscenely bloated pie.
And on top of that you've got synergies like the horrific cost of housing in the US - which drives up the cost of every employee, no matter how essential they might be to providing actual medical care.