What hospitals charge vs what Medicare pays

For a major joint replacement, the median US hospital lists a charge of $72,218. Medicare pays $12,922. That is a 5.3x gap on one of the most common procedures in the country, and it is not the widest one. Across the 2,904 hospitals with Medicare DRG detail in their latest cost report data, the median hospital's charges come in at 4.8x what Medicare actually pays.

Before anyone reaches for the pitchfork: almost nobody pays those list prices, and hospitals will tell you, correctly, that Medicare pays below their cost of care. Both things are true at once, and the space between them is where every hospital bill, every insurance negotiation, and a good share of American health policy lives. Here is the gap, measured.

Two price systems, one bill

A hospital carries two sets of numbers for the same service. Gross charges are the list prices in the chargemaster, set unilaterally by the hospital and inflated by decades of annual increases that long ago detached from cost. Payments are what changes hands: Medicare and Medicaid pay administratively set rates, commercial insurers pay negotiated rates, and the uninsured get billed list and then, usually, some discount off it. Federal price transparency rules now force the negotiated numbers into machine-readable files, but the chargemaster is still the anchor everything swings from.

The distance between the two systems is measurable. At the median, a hospital collects 33 cents of every dollar it charges across all payers. A quarter of hospitals collect 22 cents or less. A chargemaster tells you almost nothing about a hospital's economics, which is why we benchmark hospitals on what they collect, net patient revenue, not what they bill.

What charges do determine: the first bill an uninsured patient sees, the starting point of every commercial negotiation, and the size of the "discount" an insurer reports winning. List prices are not economics. They are leverage.

The markup, procedure by procedure

Set the median charge against the median Medicare payment for the highest-volume DRGs. Digestive disorders (DRG 392): $32,550 charged, $5,141 paid, 6.5x. Sepsis without major complications: $37,612 against $7,104, 5.5x. Major joint replacement: $72,218 against $12,922, 5.3x. Heart attack with complications: $61,182 against $11,408, 5.3x. Kidney and urinary infections: $28,500 against $5,469, 5.3x. Pneumonia with complications: $46,284 against $9,239, 5.0x. Heart failure: $43,263 against $9,309, 4.7x. Sepsis with major complications, the highest-volume DRG in the data: $65,262 against $14,113, 4.6x.

Notice what the table is telling you. The multiple barely moves across clinically unrelated services, 4.6x to 6.5x. Charges are not priced service by service against cost. They are scaled, roughly uniformly, off a base that has drifted upward for decades. The chargemaster is a policy, not a price list.

The spread between hospitals is the story

The 4.8x median hides a wide field. The bottom decile of hospitals marks up at 2.3x or less. The top decile sits at 9.5x or more, and 8.3% of hospitals carry a median markup of at least 10x. Same procedures, same Medicare rates, list prices that differ fourfold.

That spread is the tell. If charges tracked cost, markups would cluster. Instead they vary more between hospitals than between procedures, which means chargemaster policy is a strategic choice about negotiating position and about revenue capture from the small share of payers who pay closest to list, a group that skews toward the uninsured and the out-of-network. A patient cannot see that choice from the parking lot. The data makes it visible.

The last serious public accounting here was a 2015 Health Affairs study by Bai and Anderson naming the 50 hospitals with the most extreme charge-to-cost ratios. People still cite it because nothing current replaced it. The figures above cover every IPPS hospital with reportable Medicare volume, from filings within the last two fiscal years, and the per-hospital numbers sit on the profiles.

The part hospitals are right about

Medicare's payment is not a neutral yardstick either. The median hospital loses money on patient care, negative 2.4% at last filing, and loses $360 per adjusted discharge overall. The American Hospital Association's standing complaint that Medicare pays below the cost of care is consistent with what the cost reports themselves show. So a 5x markup over Medicare is not a 5x markup over cost. For many services Medicare sits below cost, the list price sits far above it, and the commercial rate that keeps the lights on gets negotiated somewhere between the two.

That is the accurate frame for the whole fight: charges are inflated and Medicare is stingy, simultaneously. Every rate negotiation in healthcare is a search for the defensible middle, and knowing both endpoints for a specific hospital is most of the game.

Look it up before you argue about it

Every hospital profile in the directory carries its financials free, and the Pro tier holds the top-DRG detail behind the figures here. Whether you are negotiating a contract, underwriting a deal, or writing a story, the hospital-specific numbers beat the national medians every time.

FAQ

Why are hospital charges so high? List prices anchor commercial negotiations and almost no one pays them, so they compound year after year independent of cost. That is how the median hospital's charges reached 4.8x its Medicare payments while it loses money on patient care overall.

Does anyone pay hospital list prices? Mostly no. Government payers pay set rates, insurers pay negotiated rates, and most uninsured patients get discounts or charity care. The median hospital collects 33 cents per charged dollar. List prices matter most as the first bill for the uninsured and the anchor for negotiations.

How much does Medicare pay hospitals compared to charges? For the highest-volume DRGs, the median payment lands around a fifth of the median charge: $12,922 against $72,218 for a joint replacement, $14,113 against $65,262 for sepsis with major complications.

Sources and method

Computed from Medicare cost report data (CMS HCRIS), most recent filed year per hospital, joined to Medicare inpatient DRG detail; 2,904 IPPS hospitals with reportable volume, 25,254 hospital-DRG observations. Charge figures are gross charges; payment figures are Medicare program payments. Markup is each hospital's median charge-to-payment ratio across its top DRGs. Collected-per-dollar figures use all-payer net patient revenue against gross charges. Medians throughout, never means. Source detail: Medicare cost reports, explained.

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