> Hospitals have an operating margin of 2-5%

Very curious where this comes from and how accurate it is. For example the $37 a provider charges for an Aspirin seems like more than 2-5% margin.

You can search for more reports, because they do vary based on methodology. But the median hospital in the US makes between -1% (yes, negative, they lose money, because a huge percentage are non profits) and 4% depending on the source.

When the hospital charges you $37 for an aspirin, that singular pill might have a crazy profit margin in isolation. But your entire treatment could very well be losing the hospital money.

In my own anecdotal experience, the one hospital I know enough details about to comment on specifically, had something like 85% of patients costing the hospital more money than the hospital made. It was entirely funded by the relatively small number of people who had the “right” insurance and had the “right” procedures done.

Eg Kaufman: https://www.vizient.com/insights/reports/national-hospital-f...

On the occasions that I’ve watched a hospital go through the actual process of selling a small amount of inexpensive medication for a large amount of money, there is a ridiculous amount of ceremony involved. I can easily imagine that it costs that hospital 2 cents for the pill, $5 in amortized capital plus operating expense for the facility that stores that pill, plus $25 in labor and IT expenses to get that pill to the patient.

Audited financial statements of all kinds of hospitals, both non-profit and for-profit. Here’s data from Moodey’s a credit rating agency: https://www.chartis.com/insights/hospital-margins-trend-high... (“This month, Moody’s credit rating agency released its annual not-for-profit and public healthcare median financial report for 2024, showing that overall hospital performance continues to improve. The median operating margin increased from 0.5% in 2023 to 1.5% in 2024.”).

The $37 for an aspirin offsets huge costs elsewhere for (non-NP) nurses, receptionists, janitors, orderlies, etc., who can’t bill directly to medicare.

Insurance pays the higher of their negotiated rate or the billed charge. Medical facilities set their billed rates so high that they’re guaranteed to be higher than all negotiated rates, ensuring that they get paid.

When you see $37 aspirin on the line, nobody actually pays $37 for it. The billed amount is replaced with whatever insurance rate is allowed for that. If someone is cash paying they get a large discount.

The billed items also have to cover everything. It’s not directly $37 for the aspirin, or the $5 or whatever allowed coverage it ultimately gets billed it. That had to cover the facilities, the salaries of the pharmacy staff who reviewed the request and dispensed it, the staff who inventory and order the medications, and the cost of billing insurance.

The only part that nationalized health care would change are the allowable billed rate and maybe the administrative overhead of billing different insurances. Even nationalized health care systems have admin overhead though.

You can think of it like when you have to pay $11 for a single glass of wine from a bottle that the restaurant paid $10 for. You’re not just paying for the liquid, you are paying into a big bucket of charges that all need to add up to more than the cost of the supplies, staff, building, and everything that goes into running it. The margin on individual products doesn’t make the entire operation profitable.

It comes from the fact that lots of the charges they bill (both of the patient share billed to insured patients and of all costs billed to uninsured patients) end up written down or off because they are uncollectable.

The margin built into the prices bulled is not the actual margin the hospital ends up with.

Hospital billing practices are often terrible or even fraudulent, but stories about the $37 aspirin are generally misleading. Most hospital claims and bills are actually coded around day rates and DRGs, so even if the aspirin shows up as a line item it doesn't actually impact the patient's financial responsibility or the amount allowed by their health plan. (I'm not trying to defend such a confusing system, just explaining how it works.)

Medicare has been playing a shell game with reimbursements for decades. They cut the base rate for an office visit or hospital stay to below the cost of the actual service, but allow for separate charges for various things that make up the difference so that doctors don't just stop accepting Medicare in mass. That's why you get billed $37 dollars for aspirin, $15 for drug administration, $50 for IV placement, $10/bag for saline drips, $75 for vitals checks, etc. That way the hospital can make up the money lost from the actual visit charge, this also requires more administration overhead, to both keep track of all the additional charges, and to make changes as the rules change.

You understand that hospitals have more costs than just aspirin, right? Depreciation, amortization, utilities, rent, taxes, maintenance, salaries, etc...

Its all coming out of revenue.

This is because a whole swath of people are getting the aspirin for free (uninsured) so they need to gouge the payers for the aspirin.

Also, then, of course, we need to cover the United Healthcare guy's salary, which decreases margins.

Ever hear of loss leaders? Some parts of a typical hospital make money while others lose it hand over fist. The overall margin isn’t across the board, it’s after everything hopefully balances out.

ER’s for example are money pits, but society really needs them.

https://www.definitivehc.com/resources/healthcare-insights/h...

Hospitals, now that private equity is involved, do this weird cost shifting accounting BS with shell companies etc, as such their books aren’t straight forward and the 2-5% thing is likely greatly underestimated given the amount of understaffing PE has driven in that space and how much gouging there is from PBM etc.

Hand-waving numerous details, but - That $37 isn't the price in the hospital's gift shop. It's n=1 pricing, hand delivered to your bedside by a nurse with a whole hierarchy of higher-level medical & admin staff behind her, and documented out the wazoo. Aspirin could be free & unlimited at the hospital pharmacy's receiving dock, and it wouldn't affect the @bedside price.