EXECUTIVE SUMMARY
U.S. hospitals still are using chargemaster markups to maximize revenues, found a recent study. Some ethical considerations include the following:
- Some patients pay more for care to compensate for unreimbursed care.
- Hospitals are legally obligated to provide care to people unable to pay.
- Patients may be unable to make rational decisions about the cost of care due to illness or emotional stress.
U.S. hospitals still are using chargemaster markups to maximize revenues, a recent study found.1
“The findings are contrary to a common argument that chargemaster prices are innocuous and inconsequential,” says Ge Bai, PhD, CPA, the study’s lead author and assistant professor at The Johns Hopkins Carey Business School in Washington, DC.
The researchers analyzed data from the chargemasters — the prices hospitals set for services before discounts — of more than 2,400 hospitals. In another paper, they compiled a list of the 50 U.S. hospitals with the highest markups over their actual costs.2
“When hospitals set their chargemaster prices, they need to consider the financial and ethical implications of high charges for uninsured, out-of-network patients, and other patients who are liable to the chargemaster price,” says Bai.
Transparency Is Growing
Tim K. Mackey, MAS, PhD, associate director of the Joint Masters Program in Health Policy and Law at the University of California, San Diego, sees similarities in the growing concern over pricing transparency in the hospital setting and the recent public uproar over prescription drug pricing. He points to the recent controversy around the price of Mylan’s EpiPen.
“This stems from a few factors, including the fact that Medicare is barred from negotiating pricing with drug companies,” says Mackey. There is little transparency despite wide variations in drug pricing, largely depending on the individual’s insurance status.
“This lack of pricing regulation and wide variation in cost is analogous to hospital charges,” says Mackey. Another factor is the cost used to market drugs, either by direct-to-consumer advertising or marketing to physicians, which ultimately is passed on to consumers.
“In this area, efforts have been made through Sunshine laws, first enacted by states and later as part of the ACA,” notes Mackey. These require drug manufacturers to report all payments made to physicians, which is then publicly reported.
“Similar efforts are emerging to encourage transparency and disclosure of hospital charges and provider payments,” says Mackey. He points to the Centers for Medicare & Medicaid Services (CMS)’s 2013 release of data on charges for the 100 most common inpatient services and 30 common outpatient services nationally. These showed wide variation across states.
“Whether CMS or the federal government will ever require more robust transparency and public disclosure of hospital charges remains unknown,” says Mackey, adding that he expects states to lead the way.
According to the National Conference of State Legislatures, more than 30 states require hospitals to report select charges and reimbursement rates. “Some states run their own public health price information disclosure websites,” adds Mackey.
Data on charges, coupled with quality and patient satisfaction data, helps consumers make more informed healthcare decisions. “These initiatives, coupled with the changing physician-patient relationship and digitization of healthcare data and services, will likely lead to the further ‘consumerization’ of healthcare,” notes Mackey. “That has its own benefits and costs.”
Some Charged More
Matthew Wynia, MD, MPH, FACP, professor of medicine and director of the Center for Bioethics and Humanities at University of Colorado Anschutz Medical Campus in Aurora, says the central ethical question is, “What comprises a ‘fair’ charge for services and goods provided by a hospital?”
“The answer to that will depend on the extent to which you think hospitals should be allowed to make a profit, and if you think they should be allowed to charge more to some people to make up for the others who don’t have insurance — or who have bad insurance — and can’t pay their bills,” says Wynia.
If hospitals operated like most for-profit businesses, they would simply charge whatever the market will bear. Some believe competition is enough to keep prices down. As for whether it’s acceptable to charge some patients more to compensate for unreimbursed care, Wynia says this is a difficult question.
“By law, many hospitals can’t just turn people away,” he notes. “So they are forced to provide care, at least in emergencies, to lots of people who won’t be able to pay their bills.” Once a physician has taken on a patient’s care, he or she is ethically obliged not to abandon that patient. This creates some responsibilities for the hospitals where physicians work.
Some hospitals actually must charge more to some in order to cover the costs of others, says Wynia. “Because some people can’t pay their bills when they get sick, hospitals — who are required to provide care to these folks — are required to behave a bit like health insurance plans,” he says. Hospitals charge everyone more to cover the cost of those who can’t afford care.
“If hospitals can’t charge extra to their paying customers to make up for this, then they will lose money on these nonpaying patients. Eventually, they will go out of business,” says Wynia. Most hospitals operate on very thin margins, making this a very real possibility — especially for smaller, rural facilities.
Since insurance plans regularly negotiate discounts on the chargemaster prices, this puts pressure on the hospital to start out with a high baseline structure as a starting point. “Of course, if you are just one person, not a health plan, it’s practically impossible for you to negotiate a better price,” says Wynia.
The result of this dynamic is that well-insured people, who usually are better off financially, end up paying less for the same care compared to uninsured people, who generally are poor.
“Many people see that as fundamentally unfair. It’s one of the reasons for the Affordable Care Act: If everyone has insurance, then everyone has a group that can help negotiate on their behalf,” says Wynia.
Wynia says hospitals should include costs, when possible, as part of the informed consent process. “‘Free market’ healthcare solutions often assume that if people have better information, they will make wiser healthcare choices,” says Wynia. “And sometimes that’s true. But I also wonder how often someone who’s a patient in a hospital can really act like a rational consumer of the hospital’s services.” Patients may be fearful, in pain, or incapacitated or unconscious when confronted with these decisions.
Another issue is the collections practices of hospitals, and how aggressive they should be when individuals can’t or won’t pay their bills. Wynia says the following are difficult, but important, questions:
- Should hospitals put patients and their families into collections?
- If the bill is much higher than it would have been if the patient had been insured, should hospitals just seek to recoup what the charges would have been if the patient had been insured — or should they try to collect the higher amount?
- What will be the effects of being put into collections on the patient’s eventual ability to pay, and on his or her health?
While these questions are best addressed on a case-by-case basis, says Wynia, “they can be guided by ethical principles and practices — which should be based on the organizations’ core values.”
REFERENCES
- Bai G, Anderson GF. Hospitals are still using chargemaster markups to maximize revenues. Health Aff 2016; 35(9):1658-1664.
- Bai G, Anderson GF. Extreme markup: The fifty US hospitals with the highest charge-to-cost ratios. Health Aff 2015; 34(6):922-928.
SOURCES
- Ge Bai, PhD, CPA, Assistant Professor, The Johns Hopkins Carey Business School, Washington, DC. Phone: (202) 580-7573. Email: [email protected].
- Tim K. Mackey, MAS, PhD, Associate Director, Joint Masters Program in Health Policy and Law/Assistant Professor, School of Medicine, University of California, San Diego. Email: [email protected].
- Matthew Wynia, MD, MPH, FACP, Professor of Medicine, Director, Center for Bioethics and Humanities, University of Colorado Anschutz Medical Campus, Aurora. Phone: (303) 724-3994. Fax: (303) 724-3997. Email: [email protected].
U.S. hospitals still are using chargemaster markups to maximize revenues, found a recent study.
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