Megan McArdle Explains Hospital Bills

See our previous post. On the same CNN/Time issue, Megan writes:

The guy…goes on a work trip to Chicago, where it is a rainy, nasty spring. The first evening, he escorts the client from the door of a fancy restaurant to a nearby cab stand. “Allow me,” he says, and unfurls his umbrella. The client gets in the cab, and then…disaster! The icy March wind, which those of us who have lived in Chicago know all too well, turns his umbrella inside out, and then shreds it.

The next day, he buys another umbrella, which he uses for the remainder of his visit. He flies back home, and submits a receipt for expenses, including a new umbrella.His expense report comes back from accounting with everything approved except the umbrella. He appends a note to the report explaining that the umbrella was destroyed in the line of duty and resubmits. Back comes the expense report, with a rather severe note from accounting to the effect that umbrellas are not on the list of allowable expenses.

He responds with a more strongly worded note, explaining that if it were not for the umbrella, they might not have had such a good new order from the client. Another note comes back from accounting: “For the last time, we will not approve the umbrella. Please submit a new expense report.”

…Our frustrated manager tears up the old report, then sits down and fills out a whole new form: $3.94 for lunch, $12.75 for laundry charges, and so forth. Which he sends to accounting with a note attached:


Comments (12)

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  1. H. James Prince says:

    If only it were as simple as all that…

  2. Curly says:

    It seems that once again, the bean counters have got the best of us. I wish I worked in an industry where I could arbitrarily decide what I wanted to charge. I’ll take 400 percent profit any day!

  3. Scott Abela says:

    Does it make sense that hospitals knowingly charge a higher price knowing that it will get negotiated donwn? It seems that no one has any faith in the system which just perpetuates the problem!

  4. Buster says:

    That is one problem with third-party payment. Anyone examining the above scenario understands that a $10 or $15 umbrella is a legitimate expense in this case. But the accounting department has its rules. These rules were undoubtedly established because one bad apple decided to pad his or her expense and get a new umbrella for no good reason. This is how bureaucratic regulations are born.

    In the early days, insurers would have just paid the bill for a hospital stay. But, before long, the bills were rising and all manner of extra were tacked on the bills of those with insurance coverage. This is now why insurers have contractual (negotiateed) rates.

  5. Andrew O says:

    Wouldn’t it all be easier if there were fixed prices for all expenses related to the stay? I don’t know, but it seems to me that the whole jacking up prices because insurers will negotiate deal is a bit ridiculous but with fixed prices, nobody could jack up prices nor negotiate. Or I may be missing something here.

  6. Johanne says:

    These prices are outrageous!! $283.00 for a chest X-Ray?! $13,702 for an injection?! If they at least tried to be rational about these prices perhaps they would get away with it, but they don’t even try…Geez.

  7. Anston says:


    Why would anyone have faith in such a corrupt system? You are looking at it yourself. We are not talking about a couple of bucks to be “negotiated”…we are talking about hundreds and thousands of dollars. Where is the fair negotiation there?! There should never be negotiation of any kind in the first place. How about fixed prices?

  8. Peterson says:

    When it rains it usually poors. Especially when healthcare is the object of discussion.

  9. Gabriel Odom says:

    It is difficult discussing these topics, or having any form of price transparency whatsoever, due to the asymmetry of information prevalent in healthcare.

    If patients were doctors, then they would know just how much that procedure or medication is worth. But patients aren’t doctors.

  10. Allison says:

    Excellent analogy! Just like us, as patients, can’t decide what to pay and what not to pay, they can’t decide how much to charge per service rendered. If there’s not a model they can go by, or a fixed cost for that matter, then it’s just a big mess where hospitals are just corrupting patients left and right.

  11. Jeff says:


  12. John Kumar says:

    This is a clever analogy.