When Medicare and Medicaid reimbursements didn't cover the entire cost of a procedure, costs were shifted, said Joe Fifer, CEO of the Healthcare Financial Management Association.
“A hospital cannot operate in a break-even environment; they have to make money,” Fifer said. “That comes from the cost-shift into the commercial payer environment, where some contracts are tied to a percentage of the chargemaster.”
As chargemaster prices rise, higher reimbursements follow. An additional dollar in list prices for hospital procedures translated to a 15-cent increase in payment from private insurers, the Health Affairs study said.
Certain not-for-profit hospitals would use higher chargemasters to artificially inflate their charity care, healthcare experts said. The Internal Revenue Service tried to thwart that practice in 2008 when it required hospitals to calculate charitable and uncompensated care at cost. Yet some providers still game the system, experts said, and providers could likely find ways to circumvent direct government intervention.
Some healthcare executives have been told not to share chargemasters with other hospitals because it could lead to antitrust issues and collusion, former healthcare executives said. Part of the problem is that the chargemasters are not a reflection of the free market, Richman said.
“Chargemasters rise to increase reimbursement rates and Medicare payments as well, and there is no meaningful market check to counteract it,” he said. “And yes, the uninsured are injured deeply, but ultimately so are the insured because the chargemaster prices are leveraged to force insurers into more-expensive contracts.”
For the insured, higher charges are used to threaten plans with excessive out-of-network charges for ER patients if the plan doesn't agree to higher in-network prices, said Glenn Melnick, an economist at University of Southern California's Schaeffer Center for Health Policy & Economics. Regulations limiting what hospitals can collect from the uninsured and out-of-network patients, possibly structured around government reimbursement levels, would limit the ability of hospitals to manipulate chargemasters to raise prices, he said.
“These charge amounts are often more a reflection of the level of competition rather than any measure of value,” said Suzanne Delbanco, executive director of Catalyst for Payment Reform, adding that barriers to entry into the healthcare market should be eliminated to create competition.
Ideally, providers would compete against each other to provide outcomes at the best price, said David Lansky, CEO of the Pacific Business Group on Health, a not-for-profit that helps businesses manage healthcare costs. Medicare and other payers are utilizing alternative payment models to push the broader reimbursement conversation toward value rather than individual unit prices, he said.
A handful of states have enacted legislation that prohibits providers from charging patients for the gap between chargemaster prices and a payer's reimbursement. 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.
Healthcare systems 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 limit prices. Many states have also enacted laws that aim to increase transparency, which can be effective as long as the information is understandable through bundled payments rather than itemized charges, Fifer said. The HFMA in 2014 issued a report on price transparency which, among other things, called on hospitals to provide price information that clearly tells patients “what services are and are not included in their estimates, and offer other relevant information, such as quality and safety data, where available.”
Disseminating charge-to-cost ratios would better inform consumers, and direct regulatory intervention could work when it comes to the uninsured or out-of-network patients, experts said.
Hospitals should be required to price their services based on Medicare DRG codes, publish the average amount accepted from private insurers and charge no more than 115% of that average to the uninsured or out-of-network patient, Nation said.
Whether the government needs to take more control or health systems need to provide more information to consumers, something needs to change-the system is broken, he said.
“We're at a pivotal point because the numbers have gotten so high,” Nation said. “It's daunting.”