Chargemasters and Markup Madness
Confusing secrecy in list prices and markups typify hospital charges.
Have you ever received a hospital bill — replete with page after page of charges, discounts, insurance payments and, of course, "charges you are responsible for" — and were bewildered by the complexity of it all, in spite of being a health care professional? Well, you can thank the perplexing document known as the "hospital chargemaster" for that.
A hospital's chargemaster is its comprehensive list of billable items and their unit prices. Chargemaster prices are inflated (often highly) to serve as a starting point for the lower negotiated ("discounted") prices that insurance companies (and self-pay patients) actually end up paying.
Here's the funny thing about chargemasters: the charges often have little to do with costs. Low-cost items are often marked up much more than higher-cost items or services that the hospital provides. Why is that? Is there any other industry that has a similar case of the "markups-that-seem-to-make-no-sense"? Restaurants commonly markup fountain soda to 20 times cost, but steak and seafood can be loss leaders. The rationale: capping food menu items gets people through the door, but once in, they'll probably want a beverage (or two or more) to go with that food and will be willing to pay a higher price for that drink.
But the customer experience differs between a restaurant and a hospital in one important way: who chooses "menu" (or chargemaster) items. When hospitalized and connected to a ventilator, post-coronary bypass, with lines and drains entering and exiting a variety of holes created on your torso, you aren't casually perusing your health care menu options and selecting bandage materials that suit your median sternotomy wound coverage preferences based on just the right vintage and price. "Hmmm, I'll have that $12 imported pure Egyptian cotton 2014 bandage; 2014 was a very good year. On the other hand, the 2011 is truly excellent, but I just can't bring myself to fork over $54 for it." Although the choice to have surgery may be in the hands of a patient, choices about all the myriad small items used during an episode of care are not.
This week, Radiology Firing Line podcast moderator Dr. Saurabh (Harry) Jha and his collaborator Dr. Matthew Hawkins are joined by first-time guest Dr. Seth Stein, a radiology resident at NYP/Weill Cornell Medical Center, to further explore hospital chargemasters. In addition to explaining what they are and how they work, the team offers several remedies to deal with chargemasters' lack of transparency and inexplicable pricing variability.
After listening to the podcast, you should have a better understanding of chargemasters, why they are increasingly in the news, and why they are the targets of some state-level legislation. What's been your experience, either as a health care professional or as a patient? Leave a comment below, or start a conversation on the American College of Radiology's on-line forum, Engage, open to all members.