Saturday, March 2, 2013

The Chargemaster and Non-Profit Charity Care

In Steven Brill's article, the main take home message is that pricing for hospital based services is arbitrarily far too high.  The starting point for negotiations between hospitals and the various third party payors (Medicare, private insurance plans) begins from a price listed in the hospital "Chargemaster", an all-encompassing compendium of charges for everything a hospital can bill for (example here).  No one knows where prices listed in the chargemaster originate from.  And so you end up with absurd situations where itemized bills will show that the tylenol the ER gave you for a headache got charged at $18.50 per pill.  Paper surgeon's gown for $32.  IV tubing priced at $125.00.  Troponin lab tests for $199.50.  The CT of your head, several thousand dollars.  Now hospitals themselves don't pay any attention to the chargemaster.  Those patients with Medicare or private insurance don't pay anywhere near the listed chargemaster price.  But if you have no insurance or some sort of shoddy, limited-reimbursement plan, then the bill you receive, when itemized, will include charges on ridiculous items that insurance plans routinely disregard as part of the facility fee, and all the prices will come directly from the chargemaster. 

So yes, those who are least able to pay get charged the most.  And many hospital systems adopt strict non-negotiation stances toward patients who are in financial difficulty.  Unpaid bills are quickly turned over to collections agencies, written off as "free care", or sometimes the hospital will actually litigate to squeeze everything they can from patients already teetering on the edge of financial catastrophe.

And this concept of "free care" is where hospitals are suddenly very interested in the chargemaster.  Those without insurance get charged the full monty.  An inpatient stay that would normally net a hospital $1500 or so from a patient with Medicare will go on the books as a $100,000 bill for the uninsured patient.  And this is the number that gets reported when it comes time for a non-profit hospital to tally its amount of charity care over the course of a fiscal year.

In all, the amount of charity care that the nation's non-profit, tax exempt health care organizations provide is of a magnitude of less than 5% of total operating revenue.  When hospitals report their yearly contributions to "charity care", it's important to take the numbers with a grain of salt.  However many millions in free care is claimed, be sure and knock off about 75-80% from the total; it's a number they would never have collected even 100% of their patient population having some form of insurance.  It's a pure figment of imagination.  Once again, as Brill notes:
  In fact, when McKinsey, aided by a Bank of America survey, pulled together all hospital financial reports, it found that the 2,900 nonprofit hospitals across the country, which are exempt from income taxes, actually end up averaging higher operating profit margins than the 1,000 for-profit hospitals after the for-profits’ income-tax obligations are deducted. In health care, being nonprofit produces more profit.


1 comment:

Anonymous said...

One reason for this problem of overcharging for services, at least at outpatient offices, is the problem which occurs when you undercharge. Most insurance plans have contractual language that states that practices accept “preferred” or discounted rates to that insurance. Those “preferred” rates are not the rates that you bill for, but what you actually receive. Those “preferred” rates are not the same for each insurance. Furthermore, by law and contractual arrangements, practices cannot charge Medicare more than they charge any other patient, insured or otherwise, nor balance bill the patients (i.e. asking patients for the balance between charged and actual monies received). These factors lead to practices charging higher than those “preferred” rates and Medicare rates to keep them out of danger from insurances coming back and stating that offices offered lower rates to other insurances. Charge high, accept lower payments, and no one can say you are not accepting preferred rates, and ask for money back (which for Medicare can be seven years back). In fact, because the contracts between insurances and offices are private, it is hard to know what that preferred rate is before a service is billed for and monies received. For patients who are self-pay, offices cannot “offer” lower rates, but may well “negotiate” a discounted rate based on financial need if the patient asks for it—this keeps offices out of danger of offering lower rates. This is a result of the third party payer system in this country, leading to lack or price transparency.-- from a rheum in private practice