Hospital bills are baffling. Each hospital has a schedule of charges – what you might call list prices – for thousands of procedures. But hardly anyone pays these. People who don't have health insurance are the ones most likely to get hit with them.

For most patients, actual prices are set in negotiations with private health insurers, where hospitals typically offer big discounts.

The discounts are getting bigger all the time. Despite this, insurers – or, more accurately, insurance customers – are paying more every year. What looks like a bargain, said insurer David West, is actually a "shell game."

The federal Medicare Payments Advisory Commission says hospitals had list charges averaging 185 percent above their costs in 2007.

West's company – Group & Pension Administrators Inc. of Dallas – is defying this trend. When a hospital submits a claim, GPA staffers ignore the charges. They check the data hospitals report to Medicare, where hospitals show their actual costs for each procedure. Then GPA pays those costs, plus 12 percent for the hospital's profit.

For a patient who stayed three days in an Austin hospital after knee surgery, that payment method reduced the bill from $69,000 to $15,000. For another patient, the bill fell from $11,000 to $1,000, West said.

"If they then try to charge ... [the patient] for the difference, we give them access to a law firm" to defend the reimbursement, West said.

In the 18 months that GPA has pursued this course, none of the hospitals has sued, West said.

Hospitals have reported charges, costs and Medicare reimbursements to the federal Centers for Medicare and Medicaid Services for several years. These numbers are combed by data mining companies and sold to insurers, rival hospitals and the like.

American Hospital Directory, one such data mining company, ran an analysis of cardiac surgeries for The Dallas Morning News.

The differences are eye-popping.

Two years ago, a coronary bypass at Baylor University Medical Center listed for $72,172. Baylor's cost for the procedure was $26,976.

The same operation at Medical City Dallas Hospital listed for $137,322. Actual cost was reported as $24,907.

Medicare ignores these list prices and reimburses hospitals on what's supposed to be a cost-plus payment formula that includes regional variations in labor costs and so on. The hospitals say their Medicare reimbursements fall short, and the reported numbers seem to agree. Baylor got an average of $20,976 from Medicare for that coronary bypass – $6,000 less than cost. Medical City got $17,637 – or $7,270 less than cost.

GPA's reimbursement model accepts the hospital's cost numbers as reported to Medicare. In execution, it's closer to the model used by the state of Maryland than to Medicare.

In Maryland, an independent commission sets hospital reimbursement levels. These are calibrated above cost, including for Maryland Medicare and Medicaid patients. The state makes these numbers available to the public, so consumers can compare prices.

Maryland's approach gives the hospitals relief from low Medicare and Medicaid reimbursements. But it does away with that "discount-from-charges" method used in negotiations between hospitals and private insurers.

Cost-plus isn't an ideal solution, either. It treats costs as a permanent price floor and ignores the possibility that medical technology could finally increase productivity and lower the costs of treatment.

If you have health insurance, a contrarian formula for reimbursements won't change things for you unless your insurer is willing to try it. But if you don't have insurance, arming yourself with some of the cost information at your local hospital could be important.

You can get some of this information on Medicare's HospitalCompare.hhs.gov Web site or at American Hospital Directory's site (www.ahd.com).

Drilling down to the cost of a procedure will be tougher without a subscription to a data-mining company. If you can get the information, though, you might be able to negotiate a better outcome on your hospital bill.