Price Discrimination By Hospitals


“It might be argued that because hospitals initially bill all of their patients at their chargemaster prices, they do not engage in price discrimination – the practice of charging different customers different prices for identical goods and services. Invoices at chargemaster prices, however, are insincere, in the sense that they would yield truly enormous profits if those prices were actually paid. The reality is that hospitals accept different payments from different payers for identical services, and that can proberly be called price discrimination.”

“Price discrimination is sometimes decried as unfair, and it may be so. It is, however, commonly practiced by the hotel, airline, pharmaceutical, and telecommunications industries; by public utilities; and by universities, where different classes of students are granted widely varying discounts off full tuitiion, partly as a reward for intellectual acumen, or on the basis of the family’s ability to pay. Price discrimination also is a perfectly natural phenomenon in any health system not subject to price regulation.”

“All of these industries have several things in common: They have high annual fixed costs relative to the incremental cost of producing additional services; they can segment their markets into distinct classes of customers, each with different degrees of price-sensitivity; and customers cannot resell their products among themselves, because it is either technically impossible (such as for physician or hospital treatments) or illegal (such as for pharmaceutical products).”

Source:  The Pricing of U.S. Hospital Services: Chaos Behind A Veil of Secrecy – by Uwe E. Reinhardt

Editor’s Note: Read full article here –

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