Payment and Pricing in Health Care


One of the most discussed areas of the health care industry is the payment and pricing systems that it utilizes. Their complexity often becomes a serious issue for patients, health care providers, and the government. However, these systems are extremely difficult to change due to their reliance on government legislation. The complex nature of these systems requires closer examination to reveal the reasons for the complications. This paper will provide an overview of the differences in charging and pricing in healthcare in comparison to other industries, the impact that private and government insurers have on reimbursement, and which form of payment has the most merit.

Differences in Charging and Pricing From Other Industries

The practices of charging and pricing in health care cannot be compared to any other industry. The process of charging in a standard industry is simple. A customer pays for the services or products, and the business receives what they charge. On the other hand, health care businesses have to rely on a third party to get reimbursed for the services and products they provide. Insurance plays a large role in this process. Patients that have commercial insurance are charged by the payment rates stated in their contracts. The contracts themselves are negotiated between the insurance company and health care provider, which often results in varied payment rates between patients. Besides, patients have to be qualified to receive insurance coverage to gain it in the first place. The government is considered one of the main purchasers of health care services, and it does not negotiate the rates, but instead uses a variety of mathematical formulas, which may differ between states, to calculate the rates that would be most appropriate. A major problem in this system is the complexity of billing. Every single procedure, medication, or treatment has to be accurately documented to ensure that the insurance company, or the patient, pays for all the services provided by the hospital. Anything missing from the medical record, but still provided to the patient, would not be reimbursed to the hospital (Cleverley & Cleverley, 2017).

Payment and pricing are equally complex and problematic processes for the health care industry. They are also unlike other businesses and have similarities to the charges system because the payment also comes from the third party with predetermined rates. These rates may not take into account the real price of the drugs and services, which results in the pricing being below-cost or at cost for the health provider (Cleverley & Cleverley, 2017).

Impact of Private and Government Insurers on Actual Reimbursement

The presence of the third party creates a dynamic in which the health care provider is forced to perform additional documentation management to make sure that everything is properly listed in the medical records. Otherwise, the third party will deny payment, which reduces the profits of the provider. While in theory, this process would make for more accurate medical records and attention to patients, in reality, it adds several issues (Cleverley & Cleverley, 2017). Human error in documentation is still possible due to burnout that nurses may experience and the general stressful nature of the job. These errors can eventually lead to the health care provider being forced to reduce its budget and lower the quality of the care (Carlson, 2017). Despite health care being considered a business in the United States, the reliance on third parties during transactions makes it difficult to turn a profit, especially on difficult and highly costly treatments. With a segment of patients being unable to be covered by private or government insurance, it may also be seen as a harmful system to patients (Obama, 2017).

The Form of Payment With Most Merit

I find that diagnosis-related groups provide the most valid form of payment for health care. This system allows medical professionals to classify cases under hundreds of different groups which provide a relative order to the chaotic and almost unpredictable pricing system reliant on third parties. This system allows for a structured and detailed approach to payments with medical services being considered as products that health care provider produces. This system is specifically created to serve the business needs of health care providers and slightly simplifies the complex payment system. This simplification may allow the patient to receive better care as instances of insufficient below-cost payments become much rarer than in other forms (Baltic, 2013).


Health care systems of charges, payments, and pricing are complicated, seemingly beyond the need for complication. However, no major changes in these systems are expected to occur in the following years, which leave patients and health care providers with the responsibility of working within these systems to achieve the best possible outcomes. The diagnosis-related group payment system played a major part in simplifying the payment process for both patients and health care providers, but it did not solve the issue of third parties-based pricing. These systems can cause serious issues for people involved, which sometimes ignite debates on the topic of health care reform. Unfortunately, this issue is much too politicized to lead to any kind of conclusion.


Baltic, S. (2013). Pricing Medicare services: Insiders reveal how it’s done. Managed Healthcare Executive; Duluth, 23(11), 28-30, 33-34, 36, 38, 40.

Carlson, E. A. (2017). Medical errors, passing along nursing knowledge, and stress and burnout: Three books. Orthopaedic Nursing, 36(4), 308-309.

Cleverley, W. O., & Cleverley, J. O. (2017). Essentials of health care finance (8th ed.). Burlington, MA: Jones & Bartlett Learning.

Obama, B. H. (2017). Repealing the ACA without a replacement — the risks to American health care. New England Journal of Medicine, 376(4), 297-299.

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