And that MS-DRG premium means that they get $0 extra? Maybe it's less than 20% extra, and maybe it's more, but I certainly doubt that it's $0.

It sounds a lot like you were presented with evidence that people, particularly hospital administrators, were incentivized to pump the numbers of COVID cases in the US, and dismissed it as a "conspiracy theory."

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The fact of the matter is that people respond to incentives. Whether consciously or not. When you pay people to hand out COVID diagnoses, you are going to get a lot of COVID diagnoses. Particularly, you are going to get people who accept false positives as true positives.

Note that this doesn't mean that they over-counted cases in total: the US likely still under-counted cases due to all the people who never took a test when they were sick. They just under-counted a lot less than many other countries, thanks in part to the incentives being in favor of producing positive test results. Past epidemics have had reporting rates well under 10% in countries with good surveillance.

In China, the incentives are different. Chinese administrators are heavily incentivized to have fewer COVID diagnoses. This means much more draconian lockdown policies (which reduce the number of true positives for COVID), but it also means that they will accept negative test results (true and false negatives) without much question and try very hard to eliminate false positives.

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IMO the most likely story ("conspiracy theory") is:

1. The US and Western Europe, which had similar disease management policies and similar levels of contact between people, likely had very similar true positive rates of cases.

2. China probably had a lower true positive rate due to using more serious procedures to reduce R.

3. Due to co-morbidities (Americans being fat), cases in the US were on average more serious than cases in the EU, meaning more infected people going to the hospital and more people taking tests. On its own, this raised the reporting rate in the US.

4. Hospital systems and doctors in the US followed their incentives and over-reported cases (still under-counting the actual number of total cases by a factor of at least 2). What could have been "you have a mild cold, go home and get some rest" turned into "better take a COVID test just to be safe," and if that test was positive, it was reported as a case.

5. Hospital systems and doctors in China followed their incentives and under-reported cases (under-counting total cases by a factor of 50+). Things that could be COVID cases, but were unlikely, would get swept under the rug without a test.

6. Hospital systems in the EU ended up somewhere in between the US and China in terms of their surveillance rate.

This logically explains the variance in the reported case numbers between countries that did the same things, and also explains why a rational person could be skeptical of official numbers in certain countries. But sure, offering a narrative that lines up better with reality than the official narrative is a "conspiracy theory." As we all know, the official narrative is always correct, even when it is "there are WMDs in Iraq" or "smoking has no adverse heath effects."