View Full Version : interesting article about price gouging

07-30-12, 11:13 AM

07-31-12, 11:31 AM
I actually think it's a little unfair that the manufacturers and service providers get penalized for doing something that is, in the end, a defense they often have to use just to cover costs because of insurance company demands.

In general, the insurance companies set "reasonable and customary" charges that are far below what is actually reasonable and customary, and reimburse only a portion of that above whatever deductible is paid by the consumer. In many cases, the cost to provide the product or service is higher than the copay plus the insurance reimbursement, which means that the providers are actually paying for their goods and services.

In order to cover their expenses and make enough profit to stay in business, they have limited options. . .

They can inflate the amount charged to the point that the copay plus the reimbursement covers at least actual costs. This can be done by expanding itemization, so that each item can be claimed and bring the charges closer to the established "reasonable and customary" amount, or by simply submitting a charge approximately three times the "reasonable and customary" charge in order to receive the 30% reimbursement that actually covers costs.

They can limit the types of insurance they accept, but only direct providers can do this. A doctor, a pharmacy, a medical supply company, etc. This leaves consumers with the job of tracking down a place that accepts their coverage. A pharmaceutical company needs to control costs by limiting the distributors that carry their products and charging a higher amount on all their products to offset the losses they take on sales covered by prescription plans. This also sends consumers on a treasure hunt, not only for pharmacies that take their insurance, but for the subset within that which carries their brand. Companies that manufacture generics are not allowed to tell consumers where to find them or what distributors carry them, and both distributors and pharmacies can switch generic brands without warning and refuse to order preferred generics for consumers.

They can refuse to take insurance entirely. This limits their practice to consumers who can pay cash, but lowers their price by eliminating the overhead costs incurred by the insurance companies with their vast array of different plans with different coverage and elaborate requirements for obtaining reimbursement. Some providers still elect to give consumers the option of paying cash and discounting the service to the actual cost, but this is becoming more difficult because insurance companies are beginning to demand that providers who take their patients charge the same rate they submit for reimbursement to cash paying clients. This means that if they have to charge the insurance company three times what it costs in order to get back what actually covers costs, then they need to charge the consumer three times what it costs, as well. Not all insurers do this, and some providers are working on finding clever ways of circumventing this, but it's changing. With new laws in place, there's no way of knowing how this will end up.

In any case, any investigation of price gouging or overcharging or increased costs of medical services can be traced back in large part or even entirely back to the prevalence and practices of the health insurance industry. I wouldn't completely exonerate any particular medical manufacturer or provider, but if you've been forcing them to add clerical staff and fabricate itemized codes and lie about charges just in order to stay in business, it shouldn't be surprising that the number-fudging escalated into a first line of defense over the years.