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CMS Releases Hospital Pricing Data

Margaret Dick Tocknell, for HealthLeaders Media, May 9, 2013

The public release of the chargemaster rates, or what Health and Human Services Department Secretary Kathleen Sebelius terms "a key piece of the [healthcare] cost puzzle, is the latest federal effort to "bring more transparency" to the healthcare market as well as "empower consumers, create competition, and help hold down costs. When consumers can easily compare the price of goods and services, producers have strong incentives to keep those prices low. That's how markets work," states Sebelius.

HHS officials note that Medicare—and most private health insurers don't actually pay Swedish Medical Center more than $92,000 for joint replacement. Medicare applies a system of standardized payments based on the DRG. At Swedish the average total Medicare payment for the joint procedure was $22,824.

Sebelius stressed the value of the data to the uninsured and underinsured, who she says are often expected to pay the full chargemaster rate. For elective procedures those consumers can "easily compare average prices" at local hospitals and factor those costs into their decision on where to have a procedure performed.

Exactly why hospital costs have such a wide variance remains a mystery according to Jonathan Blum, the deputy administrator and director for the Center for Medicare at CMS. "Some speculate that the difference is driven by patient health status or the teaching status of the hospital facility or the higher capital costs of some hospitals."

But Blum says there is no relationship. "We cannot see any business reason why for so much variation." He hopes the data release will help community leaders and consumer activists engage stakeholders in a more public discussion of the variations and perhaps help identify the contributing factors.

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4 comments on "CMS Releases Hospital Pricing Data"


Frank Poggio (5/12/2013 at 11:32 AM)
This report should be filed under the heading "We have seen the enemy and it is US!"...Pogo, circa 1960. If there was ever a report that was self-indicting this is it. Yes hospital charges are non-sense, all over the map, not based on logic, etc. 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 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% or the his total payments. Some fifty thirty 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? Frank Poggio The Kelzon Group KelzonGroup.com

Mark Egge (5/9/2013 at 7:03 PM)
It'll be interesting to see whether CMS's publication of charges either a) reduces and standardizes charges, or b) simply injects more confusion into healthcare pricing. Ultimately, there's almost no correlation between charges and actual payment[INVALID]so posting charges is going to make it hard for anyone (other than the uninsured) to shop around. In our view, hospitals could just as rationally charge $1m for every DRG. It wouldn't make a difference. Here's our take: http://atlasrevenuemanagement.com/atlas-insights/healthcare-costs/physician-charges-dont-matter/

Linda Branam (5/9/2013 at 3:36 PM)
Ken, please note that you are not in the category of patients who will benefit most directly: Sebelius stressed the value of the data to the uninsured and underinsured, who she says are often expected to pay the full chargemaster rate. For elective procedures those consumers can "easily compare average prices" at local hospitals and factor those costs into their decision on where to have a procedure performed. [end quote] As for your insurance paying your charges, the more insurance companies have to pay, the higher your premiums are. So if they can compare costs, they can pay the lowest price. And you can keep an eye on whether they pass the savings on to you. ;-) Everyone benefits.