The Precarious Pricing System For Hospital Services

Abstract

Over the past twenty-five years, the average ratio of hospital charges for services (gross revenues) to payments received (net revenues) has grown from 1.1 to 2.6. This reflects a transition from predominantly cost-and charge-based payment systems to regulated and negotiated fixed payments. Hospitals have been able to squeeze additional revenues from remaining charge-based payers and services by sharply increasing charges, negatively affecting the uninsured. Although protection of the uninsured seems warranted, it might be difficult to regulate hospital pricing systems in isolation from other controversial issues, such as the acceptability of cross-subsidies and the role of market forces. [Health Affairs 25, no. 1 (2006): 45-56] O c c a s i o na l n e ws s to r i e s have "exposed" inexplicable prices for products and services provided by hospitals, such as a five-dollar aspirin pill. During the past twenty-five years, hospital charges have gone from tracking fairly closely with production costs to exceeding them many times over. Are hospitals aggressive price-setters that are brazenly taking advantage of patients at their most vulnerable moments? Or have powerful payers lowered hospital payments to levels that force hospitals to seek additional funding from a limited number of other payer groups?This paper attempts to shed light on the forces that have generated the gap between billed charges and underlying costs by tracing the history of setting charges for hospital services and examining the role and implications of the chargemaster (catalog of retail list prices) for hospitals, purchasers, and patients. Data were obtained from a literature review and interviews with a small convenience sample of senior executives and other professionals working in the hospital industry in different parts of the country, including for-profit and not-for-profit settings.

Trends and Burden of Bronchiectasis-Associated Hospitalizations in the United States, 1993-2006

“…15 We analyzed the total hospital costs instead of charges because cost has been shown to better represent economic impact. [16][17][18] Total cost of hospital stay was calculated from total charges available in the SID using the cost-to-charge ratio developed by AHRQ. 19 Analysis of hospital costs was limited to the 12 states from 1999 through 2006 because of the years available in the AHRQ cost-to-charge ratio fi les.…”

Inpatient Hospital Charge Variability of U.S. Hospitals

“…This regressive pricing strategy may preferentially target vulnerable populations who are self-pay and expose them to the highest prices of hospital care. 3,5,6 In fact, research has demonstrated the financial benefit of pursuing collections from uninsured, self-pay individuals. 22 Hospitals collected more charges from uninsured patients than from commercially insured patients, further legitimizing this concern for cost-shifting.…”

“…3 This trend of escalating health care costs may make health care unaffordable for many. In contrast, hospital administrators and some policy makers have minimized the importance of hospital charges (or the chargemaster price list).…”

All-Payer Rate Setting: A Framework for a More Efficient Health Care System

“…A chargemaster is an itemized listing of every procedure that a hospital provides to its patients. Chargemasters may contain tens of thousands of line items that are assigned to a procedure code, such as the American Medical Association's Current Procedure Terminology (CPT) source codes (Tompkins, Altman, and Eilat 2006, 48). Hospitals generally do not implement a common method for adjusting their chargemasters.…”