Chargemaster prices have 'limited relationship' to hospital quality at best, study finds

A study in Health Affairs found although hospitals' chargemasters may reflect strategic business decisions, they do not have a significant relationship with quality of care provided.

Chargemasters can seem arbitrary in the billing process, since prices for services are often set more than three times what hospitals are paid for administering care. However, researchers uncovered a positive relationship between higher prices and higher payments, with the relationship causal in some cases. Specifically, from 2002 to 2013, list prices marked a dollar higher were associated with an additional 15 cents in privately insured payment.

The study authors, Michael Batty, an economist at the Federal Reserve Board in Washington, D.C., and Benedic Ippolito, an economist at the American Enterprise Institute in Washington, D.C., measured list price variation using inpatient Medicare Provider Utilization and Payment Data from CMS across 3,230 U.S. hospitals between 2003 and 2014. To study how list prices influenced payments, researchers also analyzed California's Office of Statewide Health Planning and Development data between 2002 and 2013.

Here are four key takeaways from the study.

1. The clearest example of a causal relationship between high list prices and revenue was found in payment differences among the uninsured in California prior to the state's fair pricing law, according to the researchers. Before the law was implemented in 2007, an additional dollar in list price was associated with an increase in payments of about 20 cents from uninsured patients. After the law was instated, the association was statistically insignificant, the authors said. 

2. While an association existed between high list prices and higher payments, the authors did not find a significant association between high list prices and higher quality. That is, when list prices were compared with 30-day readmission rates, "the relationship between list price and readmission rate for all payer types was indistinguishable from zero," according to the study.

3. Researchers found certain hospital descriptors were strong indicators of higher chargemaster prices. Large urban, for-profit hospitals that were also part of a system had list prices 360 percent higher than their rural, small nonprofit and independent counterparts.  

4. While researchers found payer mix did not have a significant affect on list prices, the severity of the illnesses treated in a certain case-mix was associated with higher list prices. 

Study authors concluded: "Although we make no claims about whether list prices are set in a way that maximizes hospital revenue, we found that they did appear to reflect systematic hospital-level pricing decisions and were related to payments (causally in at least some cases), but did not have a systematic relationship to care quality. Overall, these findings are consistent with certain hospitals' increasing list prices as part of a strategy to generate revenue, and they suggest that list prices do play an important role in some cases and should not be ignored."

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