From MR commentator Sure:

Generally such figures do not reside within the physicians’ office. On our side of the table we do some procedure with multiple specifications and generate some CPT code(s) (e.g. a lap cholycystectomy is 47562, add on a common bile duct exploration and it becomes a 47564, and if you just do cholangiography it becomes a 47563). Generally, we couple that with an ICD-10 code that specifies your exact disease (K80 for simple stones, K81 for cholecystitis, etc.). We then dump those codes into a computer.

Can either of those change? Absolutely, we find a bunch of friable neovasculature around the gallbladder, congrats you likely have cancer which means this surgery is now both a different CPT code and a different ICD-10 set. Maybe only one does – we find the gallbladder lacks an obstructing stone, but does have transmural inflammation then you get a new ICD-10 code. If we find that you actually have multiple obstructing stones and we need to go deeper into the biliary tree, then those are different CPTs.

Regardless, we do what is medically indicated, document the codes used.

At this point, unless your physician keeps billing fully in house, those get handled by a processer. Often, bills from multiple providers get handled by one processor who in turn gives insurance companies bills to their specifications. Often this involves a bunch things – where was the surgery done (through very complicated rules, critical access hospitals, for example, can charge more for the same surgery because the government wants to keep them solvent lest a bunch of people lose their local emergency room and OR), who was doing it (e.g. there is a different rate if you have medical trainees involved), and of course stuff about you (e.g. complex patients get reimbursed at higher rates with the expectation that, on average, the higher rates cover higher complication rates and insurance doesn’t incentvize surgeons to make all their complex patients drive for hours and hours). Then we get to the big buys – buyers. For Medicare, there are some committees that appear to be overwhelmingly ignorant of actual medical practice but they set baseline reimbursements for these CPT/ICD-10 combos. Those then get adjusted to account for regional costs, equity concerns, and only God knows what all else. These are normally set near the break even point on national average. Medicaid, typically, uses those rates as a baseline and then cuts them (hence why many physicians won’t take new Medicaid patients, the reimbursement rates often leave folks at a net loss). Private insurers add another layer of negotiation where they use their monopsony power to extract lower rates while, allegedly, assuring physicians of volume. The range of these negotiations can be exceedingly wide – insurers can have modifiers for quality of care (e.g. how many folks come back in the perioperative period), timeliness of care, and so on and so forth.

Okay, so somebody has haggled set a rate and we just assume that get the bog standard lap chole we have a price?

Of course not.

See that is just what has agreed, in theory, these medical services will be reimbursed at. Actual reimbursement involves a non-negligable risk on non-payment (e.g. insurance denies and the patient cannot or will not pay), delayed payment (and having to utilize credit lines to cover payroll when a large insurer has an IT glitch and doesn’t pay for two weeks is quite expensive), and of course variable legal and compliance costs. You might also be hit with clawbacks, partial payments, and a host of other payment uncertainty.

Okay, but’s lest assume a single CPT/ICD-10 setup, a prenegotiated rate that is paid on time without further processing costs, and everything is chill there. We got a price yet?

Of course not.

See all of the above is for just the surgeon’s professional fees – i.e. what is being paid for use of his hands. The OR itself? That’s a completely different bucket of money that has its own set of billing and negotiations. Facility fees make the professional fees look straight forward and simple.

But we are done now? Right?

Of course not.

See those were the professional fees for your surgeon. You also need an anesthesiologist (and/or his minions). And guess what, yep completely different bucket of money and price negotiation.

But we are done now?

Well, no. There may be different negotiations for lab fees (e.g. where does the CBC get billed), for tissue pathology, for any post-operative hospital services, and of course medications (which are billed completely differently if outpatient or inpatient) to name a few of the more common options.

There isn’t “a” price for a surgery. There are, potentially, a dozen diferent prices that can be combined in a multitude of ways with some buckets covered by one payer and other parts covered by another (and things get crazy fun when you have overlapping payers).

But aren’t there cash only surgical places with listed prices? Yes. And they have an extremely limited set of procedures with everything owned in house – i.e. a setup that is pretty much illegal to set up de novo post Obamacare.

Why does everyone have all these bizarre negotations. Why don’t you just pay the surgeon everything and then he pays the hospital, the anesthesiologist, the pathologist, etc. from that cut? Because that is an invitation for your surgeon to be charged with a crime. It is federal crime to underbill or to underbill when it comes to government monies (and in many states, private insurance monies). We are required not just to I Pencil up a price, but to make that price transparent to regulators. If a hospital wants to grant me cheaper OR time because I have reliable stream of patients, keep the OR cleaner (reducing turnaround time enough to fit another case per day in), and don’t create ancillary malpractice risk at the going rate … the hospital risks being tagged with inducement. If I negotiate a cheaper rate with the lab for my patients’ tests, it is considered prima facie evidence for kickbacks and I then have a positive burden to prove that I am not getting clandestine remuneration from the lab.

Separate, disjointed, billing through bureaucratic negotiation is legible. It is legible to the courts, to regulators, and to malpractice insurers.

But doesn’t all this massive change efficiency of care delivery?
Not that I can easily see. I have personal experience with IHS, TriCare, Kaiser, the VA, and for-profit, non-profit, and even prison care; full Beveridge like IHS is often the least efficient.

So where do cash prices come from? Outside of cash only practices, those are overwhelmingly fictions that somebody pulled out of their nether regions in a likely futile attempt to BS the counterparty to an insurance negotiation.

Why is this all so complicated:
1. Principle agent. The patient has a wildly different incentive structure than the collective payer (insurance or government) and American healthcare is insanely deferential to the patient compared to alternatives. The folks with the most direct control feel at most a small fraction of the price pain have near zero incentive to economize for anything big.
2. Taxes. The original sin of American healthcare was making insurance, rather than medical procedures themselves, tax deductible. This creates very strong incentives for people to bundle non-healthcare into insurance premiums in hard to define manners (e.g. is a health insurer offering a rebate for gym membership incentivizing exercise, allowing folks who would already have gym memberships to pay pre-tax, or just selecting for healthier patients).
3. People are terrified of physician abuse. Most folks, even other physicians, have a very hard time knowing if their physician is taking them for a ride. So they turn to something powerful to regulate physicians. But, not knowing what actually matters, these folks find it extremely hard to navigate market transactions. Healthcare would far rather have 100 unattributable deaths and 2x costs than to have 1 attributable death that regulation could avoid.
4. A complete disconnect between what folks experience for prices (e.g. my tape easily costs 10x more than department store specials, my EMR internal word processor is an order of magnitude more expensive than MSWord let alone Emacs or the like) and how medical expenses run.
5. A failure to appreciate the costs of having things on standby. We have folks ready incase a simple IR procedure perfs the vessel walls. We have countless folks handy in case your infusion leads to anaphylaxis. Or your blood transfusion moves on to TRALI. Just opening the doors typically means that we need to have a few dozen physicians and their support staff available at all times. I’ve seen a simple gallbladder turn into a massive transfusion with staging, SICU, and the whole works. I have seen STD treatment turn into a catastrophic emergency of the sort that gets Derm to come in at oh ass hundred.

None of those go away if we post prices. And a lot of people will be upset – somebody will decry us pricing differently for different patients – everyone deserves the same care at the same cost. Somebody will decry us for not pricing differently enough – people should be reward for making good decisions.

Long run, healthcare is going to get more expensive. I expect it will eventually be on part with mortgage payments (you know you live in your body 24/7). But there is an evergreen fantasy that … if only … then we could reduce prices.

You can’t. You can, maybe, make them rise more slowly, normally for harsh tradeoffs Americans won’t stand. And just about every significant intervention that really moves the price needle … is either selection (e.g. health share ministries have wildly healthier populations because they are heavily selected about drugs, promiscuity, and the rest) or given entirely back by the patient dying later. And the handful of things to do pass muster (e.g. HPV vaccination, Hep C treatment) … it becomes yet another morass of how much to pay whom.

Healthcare is not a normal market. We should stop pretending it could be one.