Hospital Pricing Data Dump Won't Hurt You, Yet

Philip Betbeze, May 17, 2013

If you are a high-cost outlier, don't panic. Even if you can't kill your chargemaster, you can mitigate its effect by identifying—and rectifying—what your hospital charges.

My column last week, "Kill Your Chargemaster," predictably generated a lot of reader response. With a provocative headline like that, I expected to get a lot of "you don't know what you're talking about," types of emails and comments. I can take that, and I fully recognize that I'm not an expert on the intricacies of healthcare finance and what got us into this mess.

But I was surprised.

Instead of nasty condemnation, I got thoughtful responses. Exhibit A is from Frank Poggio, a former hospital CFO who is now a consultant, about why hospital prices are such a Gordian Knot, and why killing your chargemaster (or at least making sensible changes to it) is so tough. Read what he says (edited for punctuation and grammar):

"Yes, hospital charges are nonsense, all over the map, and not based on logic. All true. But how'd that happen? As a former CFO, I can tell you it was all done via the Medicare Cost Report, the core basis of the Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals.

So over the decades, any good CFO would make sure that his charges maximized his governmental payments. And Medicare and Medicaid usually make up 60% of his total payments.

Some 30 years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That's the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report. One of the most insane ways of 'identifying' costs ever cooked up. And it's still used today!

Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost Report... and here we are 30 years later—with both! If you want to know why charges are a mess, just look at the Cost Report, and ask who created that monster? Oh, the government, the same one that now complains about warped prices. What did they expect?"
Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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