Stricter charge­mas­ter reg­u­la­tions needed to rein in healthcare pric­ing

Modern Healthcare - - NEWS - By Alex Kacik

Charge­mas­ter prices have been steadily climbing— some more than dou­bling in the past decade.

Price trans­parency has dogged hospi­tals and health sys­tems for years, and while the pub­lic scru­tiny of how charges are set comes and goes, real-world im­pli­ca­tions tax pa­tients on a daily ba­sis. Take the case of a fam­ily in South­ern Cal­i­for­nia. Af­ter a three-hour visit to the emer­gency room, a young girl left with a headache and a $4,875 bill.

The fam­ily was charged three times the fair and cus­tom­ary price for a CT scan— about $2,000—to see if the girl’s fall caused head trauma, said Lisa Berry Black­stock, a pa­tient ad­vo­cate the fam­ily hired to ne­go­ti­ate a lower fee. The fam­ily’s high-de­ductible health plan meant they had to cover the en­tire cost.

The root of the prob­lem? The charge­mas­ter, Black­stock said. Many states don’t reg­u­late the item­ized lists of pro­ce­dure charges, which has led to in­creas­ing healthcare costs and dras­tic vari­a­tions in pro­ce­dure prices. Hospi­tals typ­i­cally have free rein to set pro­ce­dure prices with the un­der­stand­ing that pay­ers will meet them some­where in the mid­dle.

With pay­ers and con­sumer ad­vo­cates call­ing for greater price trans­parency though, charge­mas­ters have come un­der in­creased scru­tiny dur­ing the past few years. The is­sue gained broader pub­lic aware­ness in 2014 with the pub­li­ca­tion of Steven Brill’s Bit­ter Pill, an ex­pose on the na­tion’s healthcare sys­tem.

“There are no bound­aries to what they can and can’t do. I think it’s ter­ri­fy­ing,” Black­stock said, adding that one of her clients was charged $1,174 for an an­tibi­otic.

Hospi­tals use the doc­u­ments—which are kept in rel­a­tive se­crecy—to ne­go­ti­ate with third-party pay­ers and gen­er­ate rev­enue, of­ten at the ex­pense of the unin­sured and out-of-net­work pa­tients, re­searchers and ex­perts said.

“A vi­ral up­ward pres­sure on charge­mas­ters has led to higher healthcare costs across the board,” said Ge­orge Na- tion, pro­fes­sor of law and busi­ness at Le­high Univer­sity. “These list prices do have an im­pact—hospi­tals have every in­cen­tive to keep rais­ing them and no in­cen­tive not to.”

Charge­mas­ter prices have been steadily climbing, with some more than dou­bling in the past decade. While hospi­tals don’t typ­i­cally re­ceive the full list price in the charge­mas­ter, the unin­sured and out-of-net­work pa­tients are gen­er­ally charged the full amount. Those prices have little bear­ing on the ac­tual cost or qual­ity of the pro­ce­dure, ac­cord­ing to a re­cent Health Af­fairs study.

Pub­lish­ing charge-to-cost ra­tios, cap­ping charges on the unin­sured and struc­tur­ing charges around Medi­care’s di­ag­no­sis-re­lated groups would rein in costs, econ­o­mists and healthcare ex­perts said.

“The prob­lem of sur­prise bills from the charge­mas­ter is even more per­ni­cious,” said Barak Rich­man, a law pro­fes­sor at Duke Univer­sity School of

Law. “It’s al­most akin to steal­ing-steal­ing for the pur­pose of ob­tain­ing leverage for sub­se­quent ne­go­ti­a­tions.”

When health in­sur­ance be­came even more com­mon due to the en­act­ment of Medi­care and Med­i­caid in 1965, in­sur­ers gen­er­ally re­im­bursed hospi­tals based on the cost plus a 10% sup­ple­ment for ad­min­is­tra­tive work, Na­tion said.

By the early 1990s, govern­ment in­sur­ers tight­ened their re­im­burse­ments through their own case-based sys­tem us­ing DRGs. Mean­while, private in­sur­ers were pay­ing hospi­tals lower ne­go­ti­ated dis­counted rates. Hospi­tals tried to make up the dif­fer­ence by rais­ing charge­mas­ter rates, re­sult­ing in an in­creas­ing gap be­tween charges and prices paid by most in­sur­ers.

When Medi­care and Med­i­caid re­im­burse­ments didn’t cover the en­tire cost of a pro­ce­dure, costs were shifted, said Joe Fifer, CEO of the Healthcare Fi­nan­cial Man­age­ment As­so­ci­a­tion.

“A hos­pi­tal can­not op­er­ate in a break-even en­vi­ron­ment; they have to make money,” Fifer said. “That comes from the cost-shift into the com­mer­cial payer en­vi­ron­ment, where some con­tracts are tied to a per­cent­age of the charge­mas­ter.”

As charge­mas­ter prices rise, higher re­im­burse­ments fol­low. An ad­di­tional dol­lar in list prices for hos­pi­tal pro­ce­dures translated to a 15-cent in­crease in pay­ment from private in­sur­ers, the Health Af­fairs study said.

Cer­tain not-for-profit hospi­tals would use higher charge­mas­ters to ar­ti­fi­cially in­flate their char­ity care, healthcare ex­perts said. The In­ter­nal Rev­enue Ser­vice tried to thwart that prac­tice in 2008 when it re­quired hospi­tals to cal­cu­late char­i­ta­ble and un­com­pen­sated care at cost. Yet some providers still game the sys­tem, ex­perts said, and providers could likely find ways to cir­cum­vent di­rect govern­ment intervention.

Some healthcare ex­ec­u­tives have been told not to share charge­mas­ters with other hospi­tals be­cause it could lead to an­titrust is­sues and col­lu­sion, for­mer healthcare ex­ec­u­tives said. Part of the prob­lem is that the charge­mas­ters are not a reflection of the free mar­ket, Rich­man said.

“Charge­mas­ters rise to in­crease re­im­burse­ment rates and Medi­care pay­ments as well, and there is no mean­ing­ful mar­ket check to coun­ter­act it,” he said. “And yes, the unin­sured are in­jured deeply, but ul­ti­mately so are the in­sured be­cause the charge­mas­ter prices are lever­aged to force in­sur­ers into more-ex­pen­sive con­tracts.”

For the in­sured, higher charges are used to threaten plans with ex­ces­sive out-of-net­work charges for ER pa­tients if the plan doesn’t agree to higher in-net­work prices, said Glenn Mel­nick, an econ­o­mist at Univer­sity of South­ern Cal­i­for­nia’s Scha­ef­fer Cen­ter for Health Pol­icy & Eco­nomics. Reg­u­la­tions lim­it­ing what hospi­tals can col­lect from the unin­sured and out-of-net­work pa­tients, pos­si­bly struc­tured around govern­ment re­im­burse­ment lev­els, would limit the abil­ity of hospi­tals to ma­nip­u­late charge­mas­ters to raise prices, he said.

“These charge amounts are of­ten more a reflection of the level of com­pe­ti­tion rather than any mea­sure of value,” said Suzanne Del­banco, ex­ec­u­tive di­rec­tor of Cat­a­lyst for Pay­ment Re­form, adding that bar­ri­ers to en­try into the healthcare mar­ket should be elim­i­nated to cre­ate com­pe­ti­tion.

Ide­ally, providers would com­pete against each other to pro­vide out­comes at the best price, said David Lan­sky, CEO of the Pa­cific Busi­ness Group on Health, a not-for-profit that helps busi­nesses man­age healthcare costs. Medi­care and other pay­ers are utiliz­ing al­ter­na­tive pay­ment mod­els to push the broader re­im­burse­ment con­ver­sa­tion to­ward value rather than in­di­vid­ual unit prices, he said.

A hand­ful of states have en­acted leg­is­la­tion that pro­hibits providers from charg­ing pa­tients for the gap be­tween charge­mas­ter prices and a payer’s re­im­burse­ment. Cal­i­for­nia’s Hos­pi­tal Fair Pric­ing Act went into ef­fect in 2007, which capped what hospi­tals can col­lect from low-in­come, unin­sured pa­tients at the Medi­care re­im­burse­ment level.

Healthcare sys­tems in Mary­land are paid the same amount by all govern­ment and private in­sur­ers as reg­u­lated by a state com­mis­sion. West Vir­ginia reg­u­lates hospi­tals’ charge­mas­ters to limit prices. Many states have also en­acted laws that aim to in­crease trans­parency, which can be ef­fec­tive as long as the in­for­ma­tion is un­der­stand­able through bun­dled pay­ments rather than item­ized charges, Fifer said. The HFMA in 2014 is­sued a re­port on price trans­parency which, among other things, called on hospi­tals to pro­vide price in­for­ma­tion that clearly tells pa­tients “what ser­vices are and are not in­cluded in their es­ti­mates, and of­fer other rel­e­vant in­for­ma­tion, such as qual­ity and safety data, where avail­able.”

Dis­sem­i­nat­ing charge-to-cost ra­tios would bet­ter in­form con­sumers, and di­rect reg­u­la­tory intervention could work when it comes to the unin­sured or out-of-net­work pa­tients, ex­perts said.

Hospi­tals should be re­quired to price their ser­vices based on Medi­care DRG codes, pub­lish the av­er­age amount ac­cepted from private in­sur­ers and charge no more than 115% of that av­er­age to the unin­sured or out-of-net­work pa­tient, Na­tion said.

Whether the govern­ment needs to take more con­trol or health sys­tems need to pro­vide more in­for­ma­tion to con­sumers, some­thing needs to change-the sys­tem is bro­ken, he said.

“We’re at a piv­otal point be­cause the num­bers have got­ten so high,” Na­tion said. “It’s daunt­ing.”

“The prob­lem of sur­prise bills from the charge­mas­ter is even more per­ni­cious. It’s al­most akin to steal­ing— steal­ing for the pur­pose of ob­tain­ing leverage for sub­se­quent ne­go­ti­a­tions.”

Barak Rich­man Law pro­fes­sor Duke Univer­sity School of Law

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