(Worked on hospital pricing reports since 2001)
I agree that the chargemaster prices are fake, but what you are proposing is:
Hospital: "Our insurance partners pay us a fraction x of Chargemaster charge X, so let's make C larger."
The insurer understands the game being played here, just like you do. It's not like the insurer doesn't also realize just like you do that the chargemaster price is fake.
The insurers are not going to say "Oh C got bigger this year? Well, let's pay more!"
More important are failures of competition in the marketplace, especially consolidation on the hospital side (most markets are now served by large hospital systems, so insurers cannot plausibly threaten to exclude hospitals from networks), the lack of exposure of consumers to most of the price, and the lack of incentives on the consumer side to search for cheaper prices (plus a general lack of any information about which facilities might be cheaper).
In fairness, he's not wrong, and neither is parent. Hospitals companies have local monopolies, which they can use to charge ridiculously high prices. On the other hand, insurance companies do get a kickback of sorts when the hospitals bump prices - the negotiators get compensation based on the dollar amount of savings they can bring from negotiation, so effectively, even if the hospital bumps prices high enough and renegotiates the chargemaster rates to a lower one, while still ensuring a profit for the negotiators, they'll go for it. Bloomberg did a nice write up of it a few years back, but it's now behind pay wall.
I think my takeaway from the whole conversation is that the insurance business can be counterintuitive to outsiders. Salvation may not be as simple as getting rid of them.
Another tidbit is that insurance companies don’t mind being the bad guys. I’m not sure if our focus on that industry blinds us to effective solutions for controlling costs.
Public disclosure and reputational price-indexing as well as regulation of emergency and regionally-monopolized non-elective care would help a lot, but backing the train up on decades of broken incentives and profit-optimized behavior is no small task.
The hospital makes more margin off of people not covered by the insurer, the insurer is largely insulated from the change, and everybody comes away okay... except the uninsured patient who has no negotiating power.
The reason for this is that chargemaster price is a fake dollar price resulting from a broken incentive structure and process. Here’s a setup:
A hospital is working out a negotiated rate for aggregate services with an insurance company. The insurance company wants to pay less, and they’re willing to put the hospital “in network” and bring their block of customers with them by doing it. But the negotiators on both sides aren’t going to sit and figure out the “right” price of every procedure. That would take forever (and there’s dinner at a Michelin starred restaurant to go to after this deal is done), so they agree that they will just pay some percentage of the chargemaster price, say, 50%.
Over time, the hospital administrators say “we need more money for this” and realize they have a lever. 95% of their customers are paying negotiated rates that are a percentage of the chargemaster price. The percentage is locked in stone, but the chargemaster rate? Yeah. They can change that.
The insurance company cries foul at their Michelin two-star dinner the next month, and the hospital agrees to lower the percentage a little in the next contract. Now the insurer is feeling flush, and the hospital is making about what they were doing before from that 95%. The remaining 5% who were uninsured are hanging upside down and getting shaken for loose change.
The cycle continues, and, eventually, the negotiated percentage drops to something comical, like 12%, but the chargemaster rates have soared. In the end, a pair of Advil “costs” $68 and uninsured patients have nosebleeds from being hung upside down for so long.
But there’s a new restaurant to try out, and someone else’s personal bankruptcy is a small price to pay for no-fuss managed care...
(Note: Marketing and administration accounts for more than a third of health care costs in the US, which is to say that health care bloat and weight due to a multi-player adversarial privatized system accounts for more than 5% of our GDP, so the chargemaster isn’t the only reason for sky high healthcare costs in America.)