And the best article on the implications of this, surprisingly, comes from Huffington post authors Young and Kirkham:

The database released on Wednesday by the federal Centers for Medicare and Medicaid Services lays out for the first time and in voluminous detail how much the vast majority of American hospitals charge for the 100 most common inpatient procedures billed to Medicare. The database — which covers claims filed within fiscal year 2011 — spans 163,065 individual charges recorded at 3,337 hospitals located in 306 metropolitan areas.

Within the nation’s largest metropolitan area, the New York City area, a joint replacement runs anywhere between $15,000 and $155,000. At two hospitals in the Los Angeles area, the cost of the same treatment for pneumonia varies by $100,000, according to the database.

We discussed this issue before when it was brought to the public’s attention by Brill’s “Bitter Pill” piece in Time. Hospitals have a wildly-irrational billing scheme that represents a war they are in with payers. However, Brill was wrong to attribute excess costs of US healthcare to the charge master problem, while the HuffPo piece gets this issue right. It’s not a problem for insurance companies, or government, since they don’t pay these bills. It only screws payers without negotiating power or knowledge of how to navigate these bills – the uninsured:

“The charge masters are totally irrational,” Robert Laszewski, a former health insurance company executive who consults for health care companies as president of Alexandria, Va.-based Health Policy and Strategy Associates, wrote in an email to The Huffington Post.

Hospitals used to base prices on health care costs and on the need for profit that would, among other things, enable them to make investments in their facilities, Laszewski explained. “They became the baseline from which the hospitals started,” he wrote. But over time, hospitals raised charges in anticipation of negotiating discounts with private health insurance companies while maintaining their revenue streams, he said.

Prices have continued growing over decades to the point where there is no plausible justification for them, according to Laszewski: “Over the years, the charge masters have become more and more disconnected from reality.”

And since they haven’t been public or shared before now, I suspect each hospital probably has some set of services that appear to be priced excessively compared to their near neighbor. The costs haven’t grown so much from a response to the treatments they provide, so much as the perceived ability to force insurers to pay a larger portion. Each hospital has probably independently evolved a strategy to do this, hence the wide variability in pricing.

The charges are the prices hospitals establish themselves for the services they provide. Although Medicare and Medicaid don’t base their payment rates on these figures, private health insurance companies typically do, which means they usually pay more for the same health care than the government does. That translates into higher premiums for people with insurance. And uninsured people are expected to pay the full list price or a discount from that number, which tends to mean they pay more than anyone else.

When a hospital doesn’t get paid as much as it wants from one source, it tries to make up the difference in other ways, such as billing so-called self-pay patients — almost always the uninsured — for the full list price of a service, said Robert Huckman, a health care expert at Harvard Business School. Even when hospitals agree to huge discounts for patients who can’t pay the bill, those discounts are taken from inflated prices much higher than those the government or private insurance companies pay, he said.

“The charge master is complete nonsense that really doesn’t matter — unless you are an uninsured person and you’re getting these huge bills driving you toward bankruptcy,” Laszewski wrote. “The biggest irony of the U.S. health care system is that only the uninsured — often people who don’t have a lot of money — are the only ones the hospital expects to pay these incredibly inflated list prices!”

Hospitals also inflate charges to raise money for things that aren’t related to treatments, said former Sen. David Durenberger (R-Minn.), who is senior health policy fellow at the University of St. Thomas in Minneapolis.

“The biggest factor by far, in my experience, is what are you trying to cross-subsidize,” he said. Hospitals will increase charges to finance things like technology upgrades and education and research and to compensate for their operational efficiencies, Durenberger said.

We’ve discussed extensively the sources of excess costs in US healthcare. It’s not the chargemaster. It’s excessive administrative costs of private health insurance, excessive drug costs (everything from direct-to-consumer advertising, the fact US citizens are charged more and GWB made it so medicare can’t negotiate for lower drug prices), inefficient delivery (primary care in the ER), redundant delivery, lack of a government-implemented or regulated standardized electronic medical record (EMRs from private companies actually increase costs), defensive medicine, excessive end-of-life care, and excessive reimbursements of procedures and diagnostic testing.

What will this data release mean for health care costs? Probably not much as the hospitals will now just normalize excessive bills to each other, rather than just having their own individually-irrational billing scheme. The charge master is unjust, but it’s not why we pay more for healthcare overall.

There is a solution to the charge master problem though, and it was found in New Jersey. Force hospitals to charge the uninsured what they charge Medicare. It’s that simple. It’s that easy.

Comments

  1. #1 Tony Mach
    May 11, 2013

    In Germany, we have the “Gebührenordnung für Ärzte” (GOÄ), the “regulation of fees for doctors”. It regulates (almost) everything a doctor/clinic can charge. The good thing: Every payer pays (more or less) the same for a procedure (there is some leeway). Regardless whether you are uninsured and pay it out of pocket, regardless whether you have a “private” insurance*** (and what then those “private” insurances pay for any procedure), it is all in a list. And then for the “gesetzliche Krankenkasse”, a highly regulated insurance system that most of Germans have, there is a similar “Einheitlichen Bewertungsmaßstab” (EBM).

    Obviously there are problems, like what to do with new procedures? Or if costs sink (e.g. for diagnostic tests), how do you transfer that lower cost to the payer?

    But overall it works quite well. The risk of going bankrupt due to having to go to the doctor is quite mitigated here in Germany.

    *** We have here in Germany two types of insurance the “gesetzliche Krankenversicherung”, which is a highly regulated insurance “for everybody”. Then we the possibility for the rich to leave this solidarity system and got to an “private” insurance.

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