Interesting article by Brian Norris. We are seeing a movement away from secretive managed care contracts towards old fashion free market economics long missing from American health care financing. The rise of consumer power in healthcare, driven by anger, frustration and financial distress will undoubtedly prevail – Bill Rusteberg
What if every healthcare service had a clear price tag—just cost + 25%?
Senior VP & Managing Director @ MedeAnalytics | MBA Healthcare Management
March 26, 2025
Amid increasing pressure for cost containment, regulatory transparency, and value-based care, the time to reimagine healthcare pricing is now.
The Centers for Medicare & Medicaid Services (CMS) has mandated hospital price transparency, requiring providers to post machine-readable files and shoppable service lists. Payers are now obligated under the Transparency in Coverage Rule to share negotiated rates and cost estimates. Employers are demanding more predictable spending. Patients are demanding fairness. Yet even with these advancements, U.S. healthcare remains fragmented, opaque, and expensive.
I have been pondering the following question for a while:
What if every healthcare service came with a clear price tag: the actual cost to deliver it, plus a fair 25% margin?
I have seen what this looks like in prescription drugs with Mark Cuban’s Cost Plus Drugs model. But what if we applied that same logic across the entire healthcare system—from MRIs to primary care visits, specialist consults, and even surgery?
This approach is timely, not only because of growing financial stress across all healthcare stakeholders, but because it offers a concrete way to restore trust, drive efficiency, and align incentives. With Medicare Advantage plans pushing providers to manage to medical loss ratios (MLR) and margins tightening, a Cost Plus 25% model could offer a rational and standardized alternative.
However, we must acknowledge the headwinds:
- Providers will need to re-engineer operations to thrive on a fixed 25% margin above actual costs.
- This may challenge institutions accustomed to wide variation in margins based on payer mix.
- Health plans operating within MLR constraints will need to assess how to integrate cost-plus into network design, reimbursement, and utilization strategies.
Still, the opportunity outweighs the complexity. Below, we model exactly how this could work, starting with services we all use.
🔢 MRI Scans: From Thousands to Hundreds
Current U.S. Average Price: $1,000 – $3,000+
Cost Plus 25% Model Price: $223.91
Cost Breakdown:
- Machine Depreciation: $66.67
- Maintenance: $24.00
- Tech Labor: $38.46
- Utilities/Supplies: $50.00
Total Cost: $179.13 + 25% = $223.91
“A diagnostic service that routinely costs $1,500 could be transparently and fairly priced at just $224.”
U.S. Annual MRI Volume: ~40 million scans Potential Annual Savings: $31 billion Medicare Share (30% of volume): ~$9.3 billion in Medicare savings
💼 Primary Care Visits: Foundation of Affordability
Current Average Price: $150 – $300
Cost Plus 25% Model Price: $122.40
Cost Breakdown:
- Physician: $47.92
- Staff: $25.00
- Overhead: $24.00
- Insurance/Admin: $1.00
Total Cost: $97.92 + 25% = $122.40
U.S. Annual Primary Care Visits: ~495 million Potential Annual Savings: $28.5 billion Medicare Share (20% of volume): ~$5.7 billion in Medicare savings
❤️ Cardiologist Visits: Transparent Specialty Pricing
Current Avg. Cash Price: $115 – $154 (varies by state)
Cost Plus 25% Model Price: $165.38
Cost Breakdown:
- Cardiologist: $72.92
- Staff: $31.25
- Overhead/Supplies: $22.92
- Insurance/Admin: $5.21
Total Cost: $132.30 + 25% = $165.38
Transparent pricing creates trust, and for specialties like cardiology, it aligns costs with value.
Medicare Share Estimate (30% of specialty care): ~$3 billion in potential savings nationally
🏥 Knee Replacement Surgery: A Precision View (with Fully Loaded Cost Detail)
Current Price Range: $35,000 – $75,000
Cost Plus 25% Model Price: $24,559.38
Detailed Labor Costs:
- Surgeon (2 hrs @ $250/hr): $500
- Assistant (2 hrs @ $80/hr): $160
- Anesthesiologist (3 hrs @ $175/hr): $525
- OR Nurses & Techs (7.5 hrs @ $63/hr avg): $472.50
- Post-op Care Staff (3 days, RN & CNA blended rate): $690
Other Costs:
- Implant: $5,000
- OR & Room Costs: $8,000
- Meds, Imaging, Supplies: $4,300
- Admin: $400
Total Cost: $19,647.50 + 25% = $24,559.38
” Modeled the labor, equipment, room time, and more. A fair and fully loaded cost for knee replacement is under $25K.”
Medicare Share (60% of knee replacements): ~$15.2 billion in Medicare savings
❤️ Coronary Artery Bypass Graft (CABG): High-End Surgical Example
Current Price Range: $70,000 – $200,000+
Cost Plus 25% Model Price: $48,575
Detailed Labor Costs:
- Cardiac Surgeon (4 hrs @ $300/hr): $1,200
- Assistant Surgeon (4 hrs @ $125/hr): $500
- Anesthesiologist (5 hrs @ $175/hr): $875
- OR Nurses & Techs (5 hrs @ $150/hr total blended): $750
- ICU Nurses (2 days x 2 shifts, 16 hrs @ $100/hr): $1,600
- Step-Down Unit Nursing (2 days, 16 hrs @ $50/hr): $800
Other Costs:
- OR Facility & Equipment: $7,500
- Post-Op ICU Bed (2 days): $6,000
- Step-Down Bed & Meals (2 days): $3,000
- Medications, Supplies, Blood Products: $4,500
- Imaging & Lab Work: $2,000
- Admin, Billing, Overhead: $1,300
- Utilities (Power, HVAC, Water): $700
Total Cost: $38,860 + 25% = $48,575
“A CABG procedure that can easily top $100,000 could be delivered at under $50,000—with every clinical and operational input fully covered.”
Medicare Share (approx. 55% of CABG procedures): Estimated annual savings of $8B+ nationally if cost-plus were applied.
🚀 Why a Cost Plus Model Works
- Fair Profit: 25% is enough to cover capital risk and innovation.
- Transparency: Builds trust between patients, providers, and payers.
- Simplicity: Easier to bill, adjudicate, and manage than current models.
- Scalability: Works for outpatient, inpatient, surgical, and pharma (proven model).
I believe a Cost Plus 25% model is more than a pricing strategy. It’s a vision for a fair, efficient, and human-centered healthcare system. Imagine knowing exactly what you’ll pay before you walk into a clinic or schedule a surgery.
📊 Total U.S. Healthcare Savings Potential
Applying a Cost Plus 25% pricing structure system-wide could revolutionize U.S. healthcare economics. Here’s why:
- Current U.S. Healthcare Spend: ~$4.5 trillion/year
- Administrative Waste & Price Markups: Account for 25–35% of total spend
Realistic Savings Estimate:
Even a conservative 20% system-wide savings through Cost Plus pricing would result in:
- $900 billion/year in savings
- Estimated Medicare savings share: ~$300 billion annually
“This isn’t about rationing care—it’s about rationalizing prices.”
We can maintain access, preserve quality, and fuel innovation—while making U.S. healthcare sustainable again.
Want to explore more? Let’s talk.
Brian Norris MBA, RN, FHIMSS – brian.norris@medeanalytics.com
