Medicare took hospital bills public. Now what?

While valuable, new data offers only a limited view of hospital pricing

Juliette Mullin, Daily Briefing

CMS this week released hospital billing data for the 100 most frequently billed discharges. The move was unprecedented and widely hailed—but experts warn that the information sheds little light on what insurers and patients actually pay for hospital care.

What the data actually represent

The 2011 billing data was posted on CMS's website. It represents about seven million discharges at 3,300 hospitals in 2011, or about 60% of the overall Medicare IPPS discharges for that year. Essentially, the data allow you to find out exactly how much a hospital bills Medicare for a specific inpatient service.

In a statement announcing the new database, HHS Secretary Kathleen Sebelius said, "Currently, consumers don't know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city." 

This is true—but the newly public data don't fully answer those questions.

The data represent hospitals' "chargemasters." In an interview on NPR's "Talk of the Nation," Kaiser Health News' Jordan Rau noted that these "prices" are "artifacts of an older time… [before] prices were negotiated by their Medicare or by private insurers."

In the same NPR interview, the Advisory Board's Chas Roades explained that chargemasters are—very vaguely—based on how much it costs a hospital to perform a procedure and keep its doors open, while investing for the future. But, "they don't reflect money that's actually expected to come into the hospital at the end of a unit of service," Roades said.

Instead, the charges generally serve as negotiating tools with private insurers—who pay only a fraction of those prices. According to the American Hospital Association's Caroline Steinberg, insurers are demanding larger "discounts" from chargemasters, and so hospitals have increased the chargemaster to protect their bottom lines.

According to Gerard Anderson, the director of the Johns Hopkins Center for Hospital Finance and Management, the negotiated rate for commercial payers will end up being about 30% more than the rate that Medicare pays.

However, the amount that private insurers actually pay hospitals remains uncertain—and the newly released data does not include these price points. 

Many argue that uninsured patients are therefore the victim of high, variable chargemasters. Writing in TIME earlier this year, Steven Brill shed light on exorbitant hospital bills for uninsured patients. 

Hospitals say they rarely charge uninsured patients chargemaster "prices." In fact, the Affordable Care Act requires hospitals to offer financial aid to all eligible patients. "That's driving all of the rates for uninsured patients towards the same amount the Medicare pays," Steinberg told the New York Times.

Nonetheless, Chapin White from the Center for Studying Health System Change says that some patients do end up paying—or trying to pay—the chargemaster, because they do not know how to obtain a discount.

What data do we really need?

Writing in TIME's "Swampland" this week, Brill applauded the administration for releasing the data. (A CMS official told him that his February cover story in the magazine was among the reasons for the data release.)

Brill wrote there are two reasons why the data is "a great first step toward a new transparency in health care costs:" (1) It sheds light on massive disparities in what hospitals charge for medication, equipment, and procedures; and (2) It proves that "hospitals' chargemaster prices are wildly inconsistent and seem to have no rationale."

True, the data hint at the major price variation among hospitals, a finding that is unsurprising to most industry experts. But experts say that more data is needed to get a better picture of what those prices really are:

  • Brill urges HHS to disclose chargemasters for outpatient procedures and diagnostic tests.
  • Some advocates—including Brill—urge the federal government to require that hospitals disclose the amount that they charge insurers. Some states do require this, but research suggests that the impact of such disclosure is mixed.
  • Hospitals argue that the data we really need is the amount that insurers and hospitals actually charge patients. Steinberg notes that AHA has backed  legislation that would require public reporting of such data. "What we support is information that would be useful to consumers, so it would be what the consumers' obligation would be," she told Modern Healthcare.

Regardless, experts and industry leaders agree that the new database is an important contribution to the conversation about health care costs and a strong first step toward better price transparency.

The next step may come at the state level: HHS has announced $87 million for states that work to expand their collection and publication of provider charges and insurance rates.

Sources: Daly, Modern Healthcare, 5/8 [subscription required]; Meier et al., New York Times, 5/8; "Talk of the Nation," NPR, 5/8; Brill, "Swampland," TIME, 5/8; Cass/Neergaard, AP/Philadelphia Inquirer, 5/9

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