One Absurd Chart Captures Everything Wrong With America's Health Care System


The news: Welcome to America, where health care spending is so screwed up a blood test could run you $10 at one California hospital and $10,000 at another.

A research team led by University of California, San Francisco researcher Renee Hsia recently published a cross-sectional analysis of 10 common blood tests' prices at all of the state's non-federal hospitals. The results were staggering, and it became clear that medical prices are affected by arbitrary and opaque hospital billing practices. While some of the services varied less than others, the actual cost of administering the exams clearly can't explain all — or even most — of the difference:

Image Credit: BMJ Open

The researchers' models found that just 21% of the price variation could be attributed to known factors, including market predictors. While things like heavy investment in high-quality facilities or demographics could explain some of the variation, the authors conclude that the majority of the differences occur because of billing practices and reimbursement arrangements with third-party services.

Why is this so expensive? TIME Magazine's Steven Brill, in a sweeping piece on medical costs, wrote that American health care providers and "the bills they churn out dominate the nation's economy and put demands on taxpayers to a degree unequaled anywhere else on earth." Hospitals keep internal price lists — called chargemasters — thousands of items long, which are unique to each institution. Third-party insurers are often at a disadvantage negotiating with monopolistic providers, leading to absurd situations like the $10,000 bill a New Jersey man received for some Band-Aids and disinfectant.

The Washington Post reports that U.S. health care combines the "worst of both approaches: Prices aren't set by the market, but they also aren't set by the government." The result is that your bill is actually set by ridiculous arguments between insurers and hospitals and drug companies. All the while, they're making money and there's one clear loser: us.

This doesn't look good for us: Obamacare is expected to provide millions more Americans with insurance, implement new transparency rules, modify hospital billing practices and implement penalties for hospitals with high rates of adverse events, potentially saving hundreds of billions in dollars.

But a universal health care system would do away with the b.s. entirely and implement a fair price structure. Harvard health economist William Hsiao, for example, projects that the administrative savings of Vermont's new universal health care system will save 7% on health care over the next 10 years alone. Single payer doesn't look so crazy now, does it?