The contention of the hospital industry that gross charges, or list prices, don't mean much may be getting harder to defend.
Most payers, the industry contends, reimburse at contracted levels that have little to do with gross charges.
But awareness of gross charges first was raised last year when an advocacy group, Consejo de Unidos Latinos, pressured Tenet Healthcare Corp. over its billing and collection practices toward uninsured patients, and noted that these patients face the highest prices in the hospital-gross charges. More significantly, last December the Santa Barbara, Calif.-based company revealed that a strategy of rapidly increasing its gross charges was a huge factor in the exceptionally high level of Medicare outlier payments the company was receiving.
Gross charges are important to payer issues beyond Medicare outlier reimbursements, said Paul Ginsburg, president of the Center for Studying Health System Change.
Among federal policymakers, Ginsburg said, there "is a belated recognition of the fact that there are some categories of services that have long been more profitable than others. The source of this has to be in the charge system." These profitability distortions, amplified by rapid increases in gross charges, have resulted because of productivity improvements in some clinical areas, such as cardiovascular and orthopedic services, he said. Fewer such gains have been made in treating medical admissions, he added, so these DRGs tend to be money-losers.
General hospitals-not to mention specialty hospitals and surgery centers-have followed those incentives and have invested in the profitable services and downplayed the unprofitable services or, in other words, skewed their case mix to favor the lucrative services, Ginsburg said. That has thrown the overall fairness of the Medicare reimbursement system out of whack, he said.
Tenet and its list prices were at the center of a study released last week by a major Tenet adversary-the California Nurses Association in Oakland. The study of Medicare cost reports, conducted for the union by the Institute for Health and Socio-Economic Policy, found that Tenet hospitals accounted for 64 of the top 101 hospitals with the highest ratios of charges to costs. The CNA-linked institute, which used fiscal 2000 and 2001 Medicare cost reports in the study, found that 81 of the top 101 hospitals in charge-to-cost ratio were investor owned (See chart). Among not-for-profit systems, nine-hospital Saint Barnabas Health Care System, West Orange, N.J., led the way, with four hospitals on the top 101 list. Tenet's Doctors Medical Center of Modesto (Calif.) topped the union's list with charges of 10 times costs.
The institute also reported aggregate charge-to-cost ratios for the 50 states, the District of Columbia and Puerto Rico. California, Florida and New Jersey were the states with the three highest ratios, each with charges around three times costs. Maryland had the lowest ratio.
In response, Tenet spokesman Steven Campanini said, "This is just another (public relations) stunt by the husband-and-wife team at the CNA and the IHSP." Campanini was referring to CNA Executive Director Rose Ann DeMoro and her husband, Don, who is director of the IHSP. Campanini also noted the CNA's ongoing efforts to unionize registered nurses at Tenet hospitals. He declined to make specific comments on the validity of the methodology used.
Rose Ann DeMoro said the study pierces through the usual complaints that hospital operators make about relying on charges because the study shows a strong link between higher charge-to-cost ratios and higher profits. As for Tenet, she said, "They sure knew how to lowball the employees and highball the patients."
Jeffrey Prescott, spokesman for Nashville-based HCA, said any study looking at gross charges "doesn't seem compelling. What really would be telling is what a hospital receives in payment vs. cost. That would really be telling. Charges and payment are so far different." Prescott said such data are not publicly available for proprietary reasons, as health plans could use the figures against a hospital during contract negotiations.
Gross charges also affect the stop-loss provisions of managed-care contracts, which, like Medicare outliers, provide extra reimbursement to offset the costs of treating the most complex cases. Tenet has shifted the emphasis in its managed-care contracting away from stop-losses and toward set "per diem" payments, Campanini said. "Frankly, we prefer per diems, because they're much easier to administer," he said.
Prescott, however, said stop-loss provisions are important to HCA. "We think stop-losses are an important part of managed-care contracts. Things just change so fast and there are so many moving parts."