We all know healthcare is expensive. However, new research from Johns Hopkins reveals one of the causes: hospitals inflate their charges.
This research is outlined in an article published in the September 2016 Issue of Health Affairs entitled, “U.S. Hospitals are Still Using Chargemaster Markups to Maximize Revenues,” and summarized in an article published on the Johns Hopkins Carey Business School website entitled, “Hospitals’ CT Scan and Anesthesiology Departments on Average Charge More Than 20 Times Their Costs.”
In short, a “chargemaster” is the list of the prices of everything a hospital bills for: $120 for a bag of IV saline, $2 for an aspirin, $3,000 for 30 minutes of operating room time, etc.
All of these charges are tallied together for each visit and this total is referred to as “billed charges.” For patients with commercial insurance (e.g. Blue Cross, UnitedHealthcare, Cigna, Aetna, etc.), these billed charges are submitted to the insurance company and “discounted” according to their in-network contract. This process of discounting is called “repricing.”
After the billed charges have been repriced, the final price is referred to as the “allowed amount” or “contract rate.” The allowed amount is applied to the patient’s deductible and coinsurance to determine how much the patient must pay out-of-pocket and how much is paid by the insurance plan.
Billed charges have little impact on Medicare because the Centers for Medicare and Medicaid Services (CMS) sets the payment to hospitals, regardless of billed charges. In essence, the government gets to pay whatever it wants. Typically the government underpays what it actually costs the hospital to deliver the service, so the hospital overcharges commercially-insured patients to make up the difference.
This ‘overcharging’ of privately insured patients is accomplished by raising the prices on the chargemaster, as the study found to be true.
This study is important because it confirms the practice of overcharging privately-insured patients to make up for Medicare underpayment is still going on.This study confirms hospitals are overcharging privately-insured patients to make up for Medicare underpayment. Click To Tweet
I don’t fault hospitals for doing this. They are just trying to act rationally given the incentives in the marketplace.
I also don’t fault patients and employers for wanting more transparency in this practice.
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