How Does Hospital Billing Work & Why Do Hospitals and Providers Charge so Much?

A group of doctors at a table discussing hospital billing and charges.

Medical billing is a complex and convoluted process. Insurance companies, hospitals, doctors, and the government have created murky waters for patients to navigate. However medical billing processes and procedures do follow basic rules which can help clear up the confusion.

One of the most commonly used practices is overcharging with the intent to negotiate the total costs. Hospitals and doctors often charge exponentially high rates for common practices with the expectation of negotiating with insurance companies.

But let’s take a closer look to see why this happens, how it happens, and what you can do about it.

How Does Hospital Billing Work?

First, let’s examine how hospital billing works. The medical billing process and procedures can be broken down into eight simple steps:

  • Registrations
  • Establishment of financial responsibility for the visit
  • Patient check-in and check-out
  • Checking for coding and billing compliance
  • Preparing and transmitting claims
  • Monitoring payer adjudication
  • Generating patient statements or bills
  • Assigning patient payments and arranging collections


As soon as you set up an appointment, you’re pre-registering with your doctor. If it is your first time seeing that doctor or provider, you’ll be required to provide personal and insurance information to jumpstart the appointment.

Establishing financial responsibility

This part of the process determines what amounts are owed for the visit. This will also help determine which services are covered under the insurance plan. Keep in mind that insurance coverage varies which means your services or prescription medications may not be covered.

Patient Check-in and Check-Out

During check-in, you provide your complete personal and insurance information to the front desk. During check out, your medical report will be generated and then sent to a medical coder. This will be translated into actual medical billing code and a superbill is generated that is sent to the medical biller.

Checking for Coding and Billing Compliance

Claims follow some basic requirements such as including the patient’s information along with the procedures performed. Billers are responsible for meeting the standards of billing compliance when sending bills.

Preparing & Submitting Claims

Claims are submitted according to the biller’s need.


The process of adjudication requires a payer to evaluate a medical claim and decide whether or not it is compliant. This typically is done by the insurance company. During this stage, a claim may be accepted, denied or rejected.


After this lengthy process, the statement is then sent to you, the patient. In some instances, an Explanation of Benefits will also be sent to you.


Once the bill is sent, it is up to the patient to pay any remainder an insurance company may not have. IF the bill goes delinquent, it will be sent to a collections agency for further follow-up.

Common Medical Billing Processes and Procedures

While the above breaks down the process of billing, the costs associated with your medical bills and coverage can look quite different.

Providers, for example, assign costs to patients based on what they charge, rather than the costs associated with providing care. Factors such as the personnel used, equipment, and medications, aren’t what impacts the final bill.

There are other factors that are used to negotiate with insurance companies about the final cost you’ll see on your bill. These include:

  • Supply and Demand

Just like any other service, hospitals and providers often use demand for their services to dictate prices. Higher demand often results in a higher medical bill.

  • The capacity of the Hospital

Hospitals with a greater number of beds can provide more services. This, in turn, can reduce the prices of surrounding hospitals since they offer greater coverage than their competition.

  • Reputation

Hospitals with an excellent reputation, multiple awards, and recognition, often charge far more for their services than other hospitals and providers can.

  • Charge Description Master

This is a master resource list that medical billing professionals use to determine the cost of a service at a particular hospital.

Hospitals and providers often have mark up costs on their services and procedures thanks to a combination of the above factors. They also recognize that insurance companies are required to cover certain procedures, which means they can charge just about whatever they want and still get paid. But there is one more hidden reason why hospitals and doctors bill insurance companies and Medicare/Medicaid so much.

The Number One Reason Hospitals & Doctors Bill So Much

Put simply, hospitals and doctors bill so much at the beginning of any treatment because they know two things: insurance companies will negotiate, and roughly one-fourth of all patients don’t have insurance and they’ll never receive payment for treatment. In fact, in 2022, two-thirds of hospitals lost money providing care to Medicaid and Medicare patients, and one-fourth lost money overall.

Losing money is serious for hospitals and doctors. While the costs of medical bills may seem high, the final costs can be much lower. Additionally, making up for unpaid claims is part of the billing process. There is little to no logic behind how much any given service costs. It is simply a matter of numbers and how to achieve enough earnings to continue existing as a hospital or provider.

Higher initial fees lead to higher final payouts. Of course, this might have you wondering how you can avoid being overcharged for your medical bills.

How to Avoid Being Overcharged

One way to avoid being overcharged for your medical bills is to do your research. One excellent resource our team in Houston, Texas recommends is It works similar to the Kelley Blue Book for vehicles by letting you know what the ‘standard’ or ‘going’ rate is for specific medical procedures.

Considering complications and other factors also allow you to make an informed choice on where to have your procedure completed. In some cases, a patient’s company will even pay for them to fly to a hospital or doctor who is both the cheapest and highest quality available.

We hope this answered your question about how does hospital billing work and touched on the medical billing processes and procedures that factor into the final price. Give us a call if you have more questions about this process.

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