Why Are Hospital Bills So Expensive?

bankEarlier this week one of my clients shared a Time magazine article with me, “Bitter Pill: Why Medical Bills Are Killing Us.”

I tried to explain, as I understand things, why this is happening.  As I see it, there are 2 reasons why the medical costs for this person are as high as they are.


The hospital that is mentioned in this article is not a typical hospital.  It is a specialty hospital.

I live in the Houston area.  There are several hospitals servicing the medical needs of Houstonians.  For example, the last time I had to have surgery for kidney stones, it was performed in the operating rooms of Southwest Methodist Hospital.  If it were a car it would be a Ford.

Soutwest Methodist Hospital is available for treatment of the entire spectrum of health care needs.  The very client who shared this article with me had a baby born in the same hospital just a few months ago.

The hospital mentioned in the Time article is M.D. Anderson.  It is one of top 10 cancer hospital in the world.   If it were a car it would be a Ferrarri.

It never ceases to amaze me that people understand that they will pay more for a Ferrarri than a Ford but they expect a premium hospital to charge the same as a general hospital.


I also tried to explain to him that the reason hospitals charge so much is called, “Cost Shifting.”

Most states have laws that require hospitals to treat patients, regardless of their ability to pay.  That is why many people wait and get medical treatment through hospital Emergency Rooms rather than go to a doctors office where they are expected to pay.

In order to get anything from Medicare, hospitals must sign a contract with the government that legally requires them to accept what Medicare approves as full payment for their services.

Since hospitals are not able to pay the huge salaries for the executives and also pay for staff salaries with what Medicare pays, they shift the burden of supplying them with revenue to those who can pay.

“Cost shifting” is the term that is used when the hospital charges more than reasponable for an aspirin or other health care.   When your insurance company pays $1.49 for a Tylenol, it is not only paying for your Tylenol.  It is paying for the Tylenol for 99 other patients who are not able to pay their hospital bill.

At least that is the justification that hospitals make for charge excessive fees.  In other professions cost shifting has another term.  It is called, “Padding the bill.”


In theory, the PPACA takes steps to eliminate cost shifting.  By making eliminating medical underwriting and making health insurance mandatory, the phenomenon of people showing up at the hospital and wanting “Free” health care, will be eliminated.

The PPACA also limits the amount of “Cost Sharing” that the individual will have to pay out of his pocket.

Unfortunately, Obamacare makes 2 mistakes.

  1. Obamacare saddles the insurance industry with new fees, taxes and  benefits.  The politicians assumed that since all of these new mandates are directed at large companies, they would have no effect on American citizens.  That is only correct if the large insurance companies do not pass the cost of those new fees, taxes and benefits on to those who are insured.
  2. There are no limits placed on doctors or hospital executives on how much they are allowed to charge non-Medicare patients.  As long as there are no pricing restrictions, hospitals and doctors are free to charge what they want.  The insurance companies are required by state laws to collect enough money to pay for all of their fees.  The end result is that your health insurance company has no choice but to raise your premium rate in order to pay the bills that hospitals are charging.

There is a fairly inexpensive solution to the problem in the TIME article.  Unfortunately, not many people think about it.  A Critical Illness policy is normally very inexpensive and would have paid cash to the patient once a diagnosis of cancer was made.

Click the banner below to shop for Critical Illness insurance.  Although it is a sound addition to anybody’s health insurance portfolio, I especially encourage those people who have had a parent or sibling suffer from cancer, heart attack or stroke to consider it.

The option for Critical Illness insurance is the last option available. Depending on the device you are using, you may have to scroll down.

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