Why don’t hospitals want you to pay cash?
Paying cash for hospital services allows you to take out the middleman, in this case, health insurers. By taking out the middleman, you generally pay less. How much less? That's a question that we'll try to tackle in this blog post.
The conventional wisdom is that cash payers pay more for hospital services. Historically, this was true when cash payers were forced to pay the hospital conflated list prices. However with increased regulations and the ease of cash payers being able to shop around, prices have come down when you pay cash for hospital services.
How do you pay cash for hospital services? You can call up a hospital in California and ask what the self-pay rate or discount is at a given hospital. Then, you can go to the hospital and pay that rate on the day that you receive service.
Now, let's target the second half of this question. How much less do hospital services cost if you pay cash? Cash discounts vary by hospital, but are generally large. For instance, some hospital systems, which have seen litigation in recent years for high prices and monopolistic practices, have average cash discounts larger or equivalent to the average insurer discount.
From estimating cash rates for about 80% of hospitals across the state, I found that the average self-pay discount is greater than 50% off the hospital list price or Chargemaster price for a procedure. Let’s compare this with the average insurer negotiated discount of 30% according to FAIR Health.
Generally, the average self-pay discount is at least 20% greater than the average insurer discount. This result was shocking for me. One would think for the privilege of paying a monthly premium to an insurer that you would pay lower prices for hospital services. This is decidedly not true in the State of California on average.
Some hospitals will even allow you pay the medicare reimbursement rate or (Medicare reimbursement rates plus 5 or 10%). This is a great deal, since Medicare reimbursement rates are 80-95% off most list prices at hospitals.
Pro-Tip 1: To estimate Medicare Reimbursement rates for a procedure, come to Clinic Price Check and select a procedure. For instance, a CT scan of the brain (https://www.clinicpricecheck.com/services/prices/6422). On the page with prices, there is a box “Are you a Medicare Patient?” with average Medicare reimbursement for physician’s fees and facility fees.
Pro-Tip 2: If you are looking to pay cash for a procedure, you should look for facilities that will offer you as close to Medicare reimbursement as possible. Some hospitals will tell you they offer a percentage of the list price, like 70% off the list prices. However do not be fooled, this is usually not as good of a deal as the Medicare reimbursement rates.
Suppose we want to get a metabolic panel. If a metabolic panel costs $1000 dollar at a hospital, then 70% off, while a huge discount would still means it costs $300 dollars, while Medicare is only reimbursing $11.74.
Another hospital might offer you Medicare rate plus 10%. This is a much better deal in that you’ll only pay about $13 for the same service.