Study: Chargemasters still drive up revenue at US hospitals

Hospital executives and economists often argue chargemasters — hospitals' master price lists — are irrelevant to patients because most insurers do not pay the full list price. However, two authors of a study in Health Affairs — Ge Bai, PhD, and Gerard Anderson, PhD, both of Baltimore-based Johns Hopkins University — beg to differ. They set out to demonstrate that the chargemaster is still largely relevant, especially to a hospital's bottom line.

After Medicare adopted the hospital prospective payment system in 1985, chargemasters became less relevant, Drs. Bai and Anderson wrote, but the list prices are still used for outlier payments. This means uninsured patients, out-of-network patients, auto insurers, or casualty and workers' compensation insurers could be paying full price. Additionally, high chargemaster prices can help hospitals glean higher payments from private payers that often pay a discounted chargemaster price for outpatient services, or the high prices can help keep an insurer in network, according to the authors.

To determine if chargemasters are still used to boost revenues, Drs. Bai and Anderson analyzed 2013 Medicare data for hospitals' charge-to-cost ratio, or the chargemaster price divided by the Medicare-allowable cost, which they call the hospital markup. Drs. Bai and Anderson also examined the patient care revenue per adjusted discharge. These two measures would help them determine if chargemaster prices affected revenue and, if the markup varied between department and hospital type, would help indicate if hospitals were using chargemasters to drive revenue.

Drs. Bai and Anderson ultimately found charge-to-cost ratios varied across hospital types and between departments. Specifically, they found for-profit hospitals, hospitals with large uninsured populations and hospitals with regional power tended to have higher markups. Additionally, charge-to-cost ratios varied from 1.8 to 28.5 across departments. The authors argued it requires effort for hospitals to vary the markup by department and doing so indicates hospitals may be trying to maximize revenue.

The authors also found charge-to-cost ratios were associated with higher patient care revenue per adjusted discharge. They found each one-unit increase in the charge-to-cost ratio was associated with $64 more in patient care revenue per adjusted discharge.

These findings suggest in 2013 hospitals were using chargemaster prices to maximize revenue, the authors conclude.


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