Surgery Center of Oklahoma Blog

May 23, 2011

Price Markup of Supplies

Filed under: Uncategorized — surgerycenterok @ 2:34 am

How much do medical facilities typically “mark up” the price of their supplies?  The answer to this may shock you.  For many supplies, they are not actually included in the inventory of the facility.  This is what we call “consignment.”  What this means is that the company that makes the particular metal plate, screw, anchor, or medical device just stores the device where it is going to be used instead of at their warehouse.  Only when the device is used is there a bill sent to the facility where the surgery occurred.  Keeping this in mind, how much sense does it make for the facility to inflate the price charged to the patient or the insurance company by 300%?  Or how about 1000%?  Medical devices (such as total joint components) are typically “marked up” about 300%, i.e., the hospital pays $5000 and the patient or insurance is billed $15,000.  Pharmaceuticals are typically “marked up” 1000%.  Yes, that’s right.  A drug that costs $10 is billed out at $100.

Some devices or implants are expensive….like cochlear implants.  These are devices that restore hearing to the deaf.  These devices are implanted many times into children that would otherwise not hear at all.  Sounds like  a situation where gross profiteering would be unethical, huh?  Many times charitable organizations will pay for all or help with the cost of this life-changing procedure.  This device is $27, 000.  The big hospitals charge $81,000 for the device.  What?  You thought they were not-for-profit entities didn’t you?  Charitable organizations for the deaf have figured out that they can restore hearing to 3 deaf children at our surgery center for every 1 child operated on at one of the big hospitals because we “mark up” the implant…..ready?….none.  What?  But we are for profit. How can this be?  Why would a not-for-profit facility need 3 times as much money as we do to not make a profit?

As I have mentioned in a previous post we provide copies of invoices for these implants and others to the patient to show that there is no “markup” whatsoever for the device or implant.  And here is the amazing part.  At our prices we are still profitable.

There is plenty wrong with health care in the old USA.  But only to the extent that the free market has been denied its role in disciplining those providing the service.  Price posting by competing facilities would go a long way toward curbing the abuses of implant “markups.”

G. Keith Smith, M.D.

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