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Kill Your Chargemaster

Analysis  |  By Philip Betbeze  
   May 10, 2013

Regardless of how your organization looks on the massive list of hospital pricing data released to the public by the Centers for Medicare & Medicaid Services, you've got some strategic thinking to do.

When you came to work yesterday, surely you spent some time combing through the massive amount of data released Wednesday by the Centers for Medicare & Medicaid Services regarding hospital procedure pricing.

After your tour through data on your hospital or health system and your local competitors, you're either embarrassed or pleased, depending on where your hospital or health system landed on the continuum. Probably, you're feeling a little bit of both.

Likely, you're pleased if you landed right in the middle. If you're at either end of the price continuum, you're likely looking for ways to address the problem. But regardless of how your organization looks on the list, you have some work to do.

Hospital pricing, as we all know, is complex. But if you're the CEO of Brookwood Hospital in Birmingham, AL, and your hospital is charging $87,065 to treat chronic obstructive pulmonary disease while across town, St. Vincent Hospital is charging $23,245, you have a problem today where you didn't yesterday.

But wait, you say, Medicare isn't paying Brookwood the full amount (it's actually paying $7,473), and it's not paying St. Vincent that amount either (it's actually paying $7,027).

Since the two are in the same small geographical area, Medicare is paying them both roughly the same amount for the procedure. As you know, Medicare pays based on a system of standardized payments based on the DRG.

In fact, many of you would argue that the chargemaster prices cited above, and throughout the CMS data release, are irrelevant given the actual reimbursement amount. OK. I'll buy that. Anyone who knows healthcare would buy that. But that doesn't mean the "list prices" are meaningless.

If the chargemaster prices are so irrelevant to your organization's reimbursement, why do they exist? I've never gotten a satisfactory answer to that question in nearly 13 years of covering healthcare.

The only reason must be that since commercial insurers also negotiate to get the best deal they can and often start negotiations with Medicare payments, that the list prices are intended for the uninsured.

Several stories in the trade media over the past 10 years have focused on the role the chargemaster plays in billing the uninsured for care. Court cases on hospitals' nonprofit status have been based at least tangentially on chargemaster billing, as have Congressional hearings and the beefing up of requirements for hospitals to justify their tax exemption through the IRS.

Time Magazine didn't discover the practice of billing the uninsured based on the chargemaster. But Steven Brill's article has received a lot of attention not only for its comprehensiveness, but also for its focus on real people who are paying "full boat."

So don't tell me chargemasters don't matter. They clearly do for some people.

In stories I've written about charity care policies, nonprofit status, the cost of the uninsured to hospitals, and so-called patient-friendly billing, hospital and health system senior leaders insist that chargemaster prices represent a data point for negotiations with private insurers.

Even then, they say Medicare rates are a more relevant starting point. But this is where market dominance is so important. If you have the network insurers must have in a local area, you have a lot more firepower in negotiations, which allows you to get more "real" reimbursement than your less connected neighbor hospital. All of that is just noise to most patients.

With the release of this data, however, chargemaster pricing insanity is right there in black and white, which makes it relevant, at least in the game of perception. How should you react if, say, you are among the highest-charging hospitals in your local area? In your region? You probably don't want that label.

After all, it's as easy as the click of the mouse for patients and employers to see what you're charging and what Medicare is paying you. Besides that, local media is likely calling right now for an explanation, and they're as clueless about all of this as your patients probably are. All they see is the crazy variation.

So it's at least a public relations problem. But treating chargemaster variation as a public relations problem is what has gotten hospitals collectively into this mess.

Using the New York Times's wonderful map application to look at various hospitals is almost too easy. I spent the better part of an hour just clicking around to see the differences in local areas. Just click and compare prices. It's that easy—and it's fun—of a sort. I spent a good amount of that time looking at pricing in Nashville, where I live.

A major joint replacement at St. Thomas Hospital, an Ascension hospital, is billed to Medicare at $45,029, and Medicare pays $12,081. At Vanderbilt University Medical Center, a teaching hospital, a major joint replacement is billed to Medicare for $59,822, and Medicare pays $18,386. I can reach both of these hospitals from my house in five minutes. Which one appears to be the better value, no matter who's paying?

And finally, insurers should ponder the relevance of the release of hospital pricing data. In my experience, they use chargemaster data to show you, as a patient, how much they're doing for you in getting cheaper care.

If you pay first-dollar coverage like I do, you cast a jaundiced eye at explanation of benefits memos that list the charge for the care and then show you the negotiated rate as a means to convey how much they've saved for you based on your premiums. Others likely see that information less cynically, but they're learning.

If chargemasters are so irrelevant to reimbursement, find a way to get rid of yours.

And if they're not irrelevant, find a way to make sure yours doesn't portray you as a greedy outlier, because this is only the latest attempt to shine the light of day onto how we as a nation pay for healthcare. Others are on the way.


Philip Betbeze is the senior leadership editor at HealthLeaders.

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