How much health insurers pay for almost everything is about to go public

A couple of terms I need to define up front:

Provider = Anyone or anything rendering healthcare services.

Payor = We'll just define this as a health insurance company.

Charge Amount = This is the "sticker" price, many of you have heard of it. This is something defined by the provider, essentially all providers maintain a chargemaster which is a list of all services (procedure codes) and their respective charge amount (more on this later). Almost always they just have one chargemaster.

Allowed Amount = This is the negotiated price for a service between a provider and a payor.

So, say I'm getting a knee replacement at Man's 4th Best Hospital. The knee replacement is procedure code 27445. The hospital looks at their chargemaster and the charge amount is $10,000. If you want to self pay, they will often offer you a discount based on the charge amount. Often times around 80%, but it's very variable. Many people ask "well what would it be if I used my insurance so I can compare price". To which you get response of "we don't know, or we don't share that info, etc". Almost always they honestly don't know and it's actually really really hard for them to find out. I can talk about why this is so hard if there's interest.

Anyway, back to the example. A common myth is that the charge amount is just a made up number. This isn't really true, it is based on something. In virtually every contract there is a clause the insurance company puts in that says "we (the insurer) will pay the lessor of the charge amount and allowed amount". In other words if the allowed amount is less than the charge amount then the insurer pays the allowed amount, if the charge amount is less than the allowed amount then the insurer pays the charge amount.

So, we get our knee replacement at Man's 4th Best Hospital, the billing department submits a claim for procedure code 27445 and includes the charge amount of $10,000 on the claim. They send it off to Man's 4th Best Insurance Company. Side note, the claim would be much more complicated than this. Also happy to explain more about why that is if there is interest.

Now say the Hospital and the Insurance Company had negotiated an allowed amount of $5,000 for this procedure code. This means that Insurance Company will pay the Hospital $5,000. What if the billing department submitted the same claim with a charge amount of $4,000. Well then the Insurance Company would only pay them $4,000, it doesn't matter that they had in fact negotiated a higher rate of $5,000. So you can see how the burden is on the provider to ensure they submit the claim with a charge amount that is greater than the negotiated allowed amount otherwise they will get underpaid.

Alright, now back to OPs use of the word "$Maximum" for self pay. Remember how I said providers maintain one chargemaster. Because providers have many many contracts with many different payors, and across all these contracts the allowed amount can vary quite a bit, they need to set their charge amount as the highest allowed amount across all their negotiated contracts. If not they will sometimes get underpaid when submitting a claim. This is in large part what the charge amount is based on. It is the highest allowed amount across all their contracts with payors.

You may be thinking, hold up I thought you said they don't know what their negotiated allowed amounts are so how do they know how to set their charge amount at the highest allowed amount across all contracts. One way they can figure out the charge amount is by looking at how historical claims were paid out.

Okay okay sure, makes sense I guess, but why don't they just set the charge amount as $1,000,000 for everything. They could maybe, perhaps there's some rule against this, but regardless it wouldn't be very helpful. The chargemaster is a useful negotiating tool as it tells you your highest negotiated rate for a given procedure code. It's also useful for forecasting your financials. For example, you can look at last years claims for a given payor mix, and determine what percent of your chargemaster they paid out. Then you can use that to forecast revenue for next year. This is a really dumbed down example but I hope you get the idea.

So long story short you now understand the "why" behind the self pay cash price being a discount on their highest negotiated allowed amount, aka $Maximum as OP put it. That doesn't mean you're getting price gouged necessarily. Their chargemaster charge amount may be less than medicare rates if they have bad contracts (little negotiating power), or it could be super high if they have good contracts (lots of negotiating power).

My background is in the healthcare tech world on "both sides" (for providers and payors) for about 5 years doing analytics/data science/engineering stuff. I just mention this because as a long time lurker of hackernews anytime I see big healthcare threads like this I see a lot of questionable information that at least in my experience isn't accurate. There are some high ranked threads in this post that are not accurate in my opinion.

So all this to say, I empathize with OP's "/been there //tried that", it's a very frustrating experience. If there's one thing I've learned in my short time in the weeds of the US healthcare system, it's that the overwhelming majority of clinicians are honestly trying their best and are just as frustrated as patients (sometimes for different reasons but a lot of times the same reasons). The most exploitive behaviors are taking place multiple levels beyond the clinician you see at the clinic and are acting like puppeteers, where the puppets are clinicians and patients. The puppet strings are so long and so tangled that we can't even really tell what's causing all our anguish, so we just get upset at the only thing we can see.

There has to be supporting clinical notes for anything that gets billed. There are companies/researchers that try to find large scale fraud and then pursue legal action under the False Claims Act (if they win they get up to 30% of what is recoverable) https://en.wikipedia.org/wiki/Medicare_fraud#Medicare_fraud_...

There are also companies that try to help maximize billing. Really they're just trying to bill for everything that occurred, they aren't doing anything exploitive necessarily.

Prices paid in other countries are irrelevant due to numerous factors, such as cost of living, purchasing power of local currency, legal liabilities, and most important, whether or not it is taxpayer funded healthcare which means all sellers are dealing with 1 buyer, which is the nearly the exact opposite of the US, where it is all buyers dealing with 1 seller (hospital or drug manufacturer who owns the patent).