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10 Things to Know About Rising Hospital Charges

Originally Posted by: Becker’s Hospital CFO

Written by Helen Adamopoulos

Last week, CMS provided its first annual update to the Medicare hospital charge data the agency originally released last year. Here are 10 things to know about the data and what it revealed about the growth of hospital charges.

1. The data updates the hospital charge data released by CMS last year for the 100 most common inpatient services and 30 most common outpatient services. The landmark release of hospital charge information paved the way for the agency’s decision earlier this year to grant the public unprecedented access to Medicare physician payment data. The new data includes 2012 prices at 3,376 hospitals and accounts for $57 billion in Medicare reimbursement, according to The Wall Street Journal.

2. The initial release of the data followed a 36-page investigative report journalist Steve Brill wrote for TIME on the hospital health insurance market and healthcare costs. Mr. Brill has written that a CMS spokesperson told him the announcement of the hospital billing data is partly in response to his article. The report and the data release are part of the U.S. healthcare price transparency movement, which has been gaining momentum as consumers take on more responsibility for the cost of their care.

3. It’s important to note that the hospital charges don’t reflect what Medicare and health insurers actually pay. Medicare rates, which are based on set fee schedules, are typically much lower than the listed charges, and private health insurers also negotiate their own lower rates. However, the charges still matter because they represent the starting point for reduced rate negotiations, and uninsured patients can get charged the full listed amount, according to the Journal.

4. The updated data offers insight into hospital charge trends from 2011 to 2012. News outlets including the Journal and The New York Times have analyzed it and found hospital charges increased for the treatment of common ailments. For instance, charges for chest pain went up by 10 percent, from an average of $16,815 in 2011 to $18,505 in 2012. Additionally, charges for digestive disorders went up by 8.5 percent, from $20,278 in 2011 to nearly $22,000 in 2012, according to the Times.

5. Overall, from 2011 to 2012, the median increase in hospital charges for 100 common service types was nearly 5 percent, according to the Journal. Prices increased for 77 of the 98 most common ailments patients were admitted for, according to the Times.

6. Hospital charges vary widely from hospital to hospital, even between those in the same geographic region. For example, Kaiser Permanente Antioch (Calif.) Medical Center charged $46,374 for joint replacement services, while NorthBay Medical Center in Fairfield, Calif., charged $150,953.

7. This significant variation across hospitals first came to light last year, when CMS released its first round of hospital charge data. Although the reasons behind the dramatic variations are still up for debate, higher reimbursement rates for certain hospitals — such as teaching facilities and those in regions with high labor costs — explain some of the discrepancies, according to the Times.

8. The reasons behind the general rise in hospital charges are complicated and somewhat unclear as well. Industry experts say hospitals could be increasing their charges to compensate for higher IT or drug costs, declining volumes and slower Medicare payment growth rates, according to the Times. From 2011 to 2012, Medicare reimbursement rates went up by just 1 percent for most inpatient stays, and the updated data shows the total number of discharges decreased by nearly 7,000.

9. The charge data may also reflect the recent frenzy of hospitals and health systems acquiring each other and physician practices, although the higher administrative costs from those trends don’t entirely explain the rising charges, Hamilton Moses III, MD, an adjunct professor of neurology at Johns Hopkins University and chairman at the consulting firm Alerion Advisors, told the Times.

10. Although charges are increasing, their growth is expected to remain slow in the coming years because of continuing pressure on reimbursements, sequestration cuts and flattening consumer price index growth for hospital services, according to a recent Fitch Ratings report.