Medical fees shrouded in mystery
The seemingly common practice of advertising competitors' prices has broken a long-held tradition in health care in the
Dr.
The medical community does not want the public to focus on what hospitals and doctors are charging, he said. But as consumers are being forced to pay more out of their pockets, many are eager to comparison shop for health care,
Hospital officials, however, insist the prices listed in the
What patients actually pay, after insurance payments are deducted, is not reflected in the prices posted in the ads, they said.
The advertisements are pushing the
"That's why they are so mad because we are floating [the chargemaster rates] as fact, but to them it doesn't matter. Their published prices have no relationship to what they are actually getting paid. [Hospitals] don't want the discussion to come down to what they are actually being paid," he said.
Transparency?
Local hospital officials agree the current system of pricing medical care and billing patients is outdated, confusing, and needs to be changed. But they maintain hospitals are working hard to be as transparent as possible to patients about costs.
"It is about transparency in terms of where we used to be 10 or 15 years ago as an industry to where we are heading. As we look at it, it's about making it easier for consumers and transparency. I just wish we were there. We're not yet," said
Hospitals have greater overhead from running 24-hour emergency centers, for example, and by law they cannot turn away people who can't pay their bills,
"Health care is a complicated mix of not just prices but more importantly what the insurance company has negotiated to pay, the cost of the health-care provider to deliver the service, whether the cost makes sense compared to the charge or to what the health plans pay, coupled with what are all the services bundled with that," said
"I know for the average consumer it's just, 'Would somebody please make this simple and transparent.' The [
"I know for a fact that [the hospitals'] volumes have been dropping and ours have been increasing. People do shop. People are smart consumers," he said.
A different model
Hospitals and physicians deal directly with consumers but operate on a different business model than other such businesses.
Knowing the cost of a product, and if it is a good deal, is what drives some people to make purchases.
Two of the major hospital systems in the
To qualify as a nonprofit, hospitals have to follow certain guidelines established by the federal government, including having a written policy explaining how patient charges are calculated. But when asked how the list prices that hospitals charge customers are created, hospital representatives declined to give specific answers and spoke only in generalities, citing concerns over revealing too much information to their competitors.
"Like most industries it's the cost to run the business. It's the cost to cover all the uninsured that we cover --
'Chargemaster' rates
Every hospital has a retail price list commonly known in the health industry as the "chargemaster." It lists a charge for every item that can be billed to patients and insurance companies, including things like aspirin, knee implant, and diagnostic tests. At
"There's a cost look. There's a market look. There's thousands of codes and there's also just a little bit of, OK, prices have moved in the market 2 percent so we're gonna move a big block of these codes 2 percent," said
"The chargemaster is the dirty little secret hospital administrators would rather no one understand," said
The chargemasters are created either by a committee in the hospital or they hire a company to do it. Hospitals "create chargemaster prices by multiplying the cost they pay for a product by 300 to 1,200 percent,"
"The lower the cost of an item, the more it is marked up," he said. "A prosthetic knee, which is a higher cost item, for example, will not get a high markup on the chargemaster, but a Band-Aid, which could cost the hospital as little as
The research organization for the National Nurses United labor union released a report in 2014 that examined the ratio between what a day in the hospital costs and what the hospital charges -- the cost-to-charge ratio.
The study, from the group's
Three
For St. Anne, the charge-to-cost ratio is 579 percent.
"That is over five times the cost. That's quite a markup and this is well above the national average of of 331 percent," said
"Comparing charges to
"We wanted patients to have the same pricing no matter which hospital they were receiving care at. While this approach is more convenient and better for the patient experience, it does superficially raise cost-to-charge ratio for a community hospital like
"They have been influenced and impacted by decades and decades of negotiations with insurance companies, with
What patients pay
Despite the admission that chargemaster rates can be superficially inflated, local hospital officials argue that what's most important to patients is what they actually pay out of their pocket, not the list price.
The chargemaster is irrelevant because the
Private insurance companies negotiate individual contracts that dictate how much they will pay hospitals for service. Even uninsured patients are offered deep discounts off chargemaster rates, hospital officials said.
"The vast majority of people don't pay anything related to what the list price is of the hospital,"
Adding to the complexity, a private insurance company will likely pay a different price to Mercy from what it pays to
The larger the hospital system is, and the more patients it has in its network, the more leverage it has in the negotiations to demand higher reimbursement rates from insurance companies,
The desire to have greater leverage in negotiations with insurance companies is one of the factors driving hospitals systems to keep acquiring new hospitals under their umbrella and hiring physicians and physician groups to work directly for them, he said.
The reimbursement contracts with medical providers are considered private, and all of the
"It's very complex. There are certain things I'm not going to be able to talk about because of the confidentiality with our managed-care groups,"
He added that what each individual patient actually ends up paying out of pocket for services also varies widely.
Those enrolled in
Although hospital officials argue that list prices don't matter, some experts contend the ever-increasing chargemaster rates are driving up costs for everyone. Even though private insurance companies don't always pay those rates, they are sometimes the starting point for contract negotiations,
"There is a direct correlation between the hospital chargemaster rates and the profit made by that hospital,"
Hospital officials said that despite the chargemaster rates, they are operating on very thin profit margins -- in most cases 4 percent or less in the
"You've got to make some small profit margin like that in order to reinvest in the place. Not for profit doesn't mean that you shouldn't make money on your bottom line,"
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