It is common knowledge that chargemaster prices bear no resemblance to the reimbursement from health plans or what patients pay to hospitals. “The prices contained in these documents are fictitious,” says George A. Nation III, JD, a professor of law and business at Lehigh University.
However, that is not altogether true. For some unfortunate people, the posted charges are all too real. “Many patients have their financial lives ruined by the aggressive efforts of hospitals to collect these exorbitant prices,” Nation says.
Now, some patients are using the legal system to fight back. Nation expects to see more lawsuits for hospitals. Attorneys are demanding access to the real reimbursement amounts hospitals receive.
A recent Texas case involved an uninsured patient who was brought to an ED after a motor vehicle accident. The patient received X-rays, a CT scan, and lab tests.1 Because she was uninsured, the hospital billed the patient at the full chargemaster prices — more than $11,000. The patient’s lawyer argued that the bill was unreasonable under the Texas Hospital Lien Act. The attorney requested discovery of the amount the hospital would have been paid from its in-network commercial insurers as well as from Medicare and Medicaid for the same care. The hospital objected to providing this information. “But the Supreme Court of Texas ruled that that information was relevant, even though the patient was uninsured, to determine a reasonable price for the care the patient received,” Nation says.
Few would argue the chargemaster prices are fair to consumers or allow anyone to compare actual costs in a meaningful way. Nation says there are two important issues at play: the price itself and whether it is fair and whether consumers have enough advance notice of the price they are going to pay so they can compare that estimate to other hospitals.
Posting chargemaster prices is “a complete and utter waste of time,” Nation argues. “It is completely useless to patients.”
So what should be posted? The average reimbursement amounts hospitals receive from in-network commercial insurers, according to Nation. “This is readily available and could be easily disclosed by hospitals if they chose or were required to do so,” he adds. Nation acknowledges that in-network health plans provide benefits to hospitals that self-pay patients do not. For one thing, hospitals can see many potential patients. For another, hospitals receive quick, reliable payment for services. Thus, it is reasonable for self-pay patients to pay more, says Nation. The question becomes: How much more?
Nation suggests a fair price for self-pay patients is in the ballpark of 10% to 15% over the average reimbursement paid by in-network health plans. “Under no circumstances should self-pay patients be expected to pay the exorbitant chargemaster-based prices,” Nation offers.
Notably, neither commercial health plans nor Medicare and Medicaid use chargemaster prices to determine how much they pay hospitals. Rather, they use procedure-based pricing. This is based on all the goods and services involved during an entire episode of care. In this model, a single price is established for a noncomplicated appendectomy, gall stone removal, knee replacement, or other procedure.
For instance, a patient knows in advance if he is going in for a hernia repair. Right now, there is no good way to compare prices at local hospitals. Knowing the average reimbursement the hospitals agreed to accept from in-network insurers would be “very useful for determining which hospitals have the lowest price,” Nation says.
By publishing an average, hospitals do not need to reveal any proprietary information. Since these reimbursement amounts are the actual amounts that hospitals have agreed to accept as full payment, comparing them tells patients which hospitals are most and least expensive, Nation explains. He would like to see hospitals do two things:
• Publish procedure-based average reimbursement amounts that the hospital receives from commercial insurers that are in network. “The reason that hospitals don’t want to disclose these amounts is that it would force them to compete on price,” Nation argues. “That could result in a reduction of their revenue.”
• Commit to self-pay patients that hospitals will charge no more than 110% to 115% of those amounts. Reimbursement rates set by Medicare and Medicaid often are below cost for some hospitals. Therefore, the rates would need to be adjusted upward to create a fair price for self-pay patients. “As a general ballpark amount, somewhere around 125% to 150% of the Medicare reimbursement amount probably represents a fair price,” Nation offers.