The rising prices that hospitals set for procedures have increased reimbursement rates while disproportionally impacting the uninsured and out-of-network patients, according to a new study.
The price lists, known as chargemasters, are often significantly inflated to gain leverage in negotiations with third-party payers. The idea is that hospitals and payers will meet somewhere in the middle. Certain hospitals increase their list prices to generate revenue, but the uninsured and out-of-network patients can take the biggest hit – they are typically charged for the full list price that has little bearing on the actual cost or quality of the procedure, according to the study published in Health Affairs on Monday.
There is not a meaningful market check to counteract ballooning chargemasters, said Barak Richman, a law professor at the Duke University School of Law.
“The problem of surprise bills from the chargemaster is even more pernicious,” he said. “It's almost akin to stealing, stealing for the purpose of obtaining leverage for subsequent negotiations.”
An additional dollar in list prices for hospital procedures translated to a 15-cent increase in payment from private insurers, the study found. Yet, higher prices did not correlate to higher quality and varied drastically from hospital to hospital, per the study.
The study researchers, Michael Batty of the Federal Reserve Board and Benedic Ippolito at the American Enterprise Institute, used inpatient Medicare Provider Utilization and Payment data from 2003 to 2014 produced by the CMS across 3,230 U.S. hospitals to gauge chargemaster price variation. Specifically, for each hospital-diagnosis-related group observation, the data include the average amount charged to the CMS and the subsequent payment. They also analyzed California's Office of Statewide Health Planning and Development data from 2002 to 2013 to determine how list prices affected payments.
The most common procedure was hip replacement surgery, which varied from $39,100 to $71,600 for the 25th and 75th percentiles of charges, respectively. Generally, large, for-profit hospital chains had higher chargemasters than smaller, independent nonprofit hospitals, the study found.
Some price lists have more than doubled over the past 10 years.
Hospitals manipulate their chargemasters to increase revenue from both the uninsured and commercially insured patients, said Glenn Melnick, an economist at University of Southern California's Schaeffer Center for Health Policy & Economics.
“For insured patients, higher charges are used to threaten plans with excessive out-of-network charges for emergency room patients if the plan does not agree to higher in-network prices,” he said.
For nonprofit hospitals, higher chargemasters can lead to an inflated view of charity care, said George Nation, professor of law and business at Lehigh University. If Medicare reimburses $3,500 of a $30,000 charge for a hip replacement, uncompensated or “charity care” looks huge, he said.
“You get a lot of this crazy gamesmanship,” Nation said. “But some people pay that full $30,000 if they are uninsured or out-of-network.”
There has been some progress to regulate charges on a statewide level. California's Hospital Fair Pricing Act went into effect in 2007, which capped what hospitals can collect from low-income, uninsured patients at the Medicare reimbursement level. This could provide a model for other states, the study said.
Healthcare facilities in Maryland are paid the same amount by all government and private insurers as regulated by a state commission. West Virginia regulates hospitals' chargemasters to rein in prices. Many states have also enacted laws that aim to increase transparency throughout the healthcare industry.
The study advocated dissemination of charge-to-cost ratios to better inform consumers and direct regulatory intervention when it comes to the uninsured or out-of-network patients.
A free market, with exception to the uninsured, could help stabilize prices, Nation said. It needs to be in hospitals' best interest to compete on price because, as of now, there is no incentive, he said.
“If you give consumers information, they can be discriminating consumers,” Nation said. “I don't like government control but the market is broken here. You either have to have the government take more control or add more transparency to give the consumers more choice and allow the markets to function. There is a lot of money at stake.”