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Chargemaster Still a Revenue Engine for Hospitals

Chargemaster Still a Revenue Engine for Hospitals

Hospitals continue to use chargemaster updates to maximize revenue from commercial and self-pay patients, researchers find.

Hospitals charged more than 20 times their actual costs for some services, including CT scans and anesthesiology services, according to research from two Johns Hopkins researchers which was published recently in Health Affairs.

The study authors refuted the belief, held by many hospital senior leaders, that chargemaster prices are irrelevant to revenue and profit margins because Medicare switched from a system that used list prices to determine reimbursement to the so-called prospective payment system in 1985.

The prospective payment system has not eliminated the relevance of the chargemaster, contended study authors Ge Bai of the Johns Hopkins Carey Business School and Gerard F. Anderson of the Johns Hopkins Bloomberg School of Public Health.

Rather, the chargemaster—a comprehensive list of every billable product or service a hospital can provide and their prices—is actually an important tool for maximizing revenue. Medicare, after all, represents only about 35% of hospital revenues.

Through 2013, at least, hospitals were using chargemaster updates to maximize revenue from commercial and self-pay patients, and that the practice likely continues, the study found.

Anderson, who is a professor in the business school’s department of health policy and management, said the impact of these markups is vast.

“They affect uninsured and out-of-network patients, auto insurers and casualty and workers’ compensation insurers,” he claimed in a press release. “The high charges have led to personal bankruptcy, avoidance of needed medical services, and much higher insurance premiums.”

The study found that a one-unit increase in the charge-to-cost ratio (the chargemaster price divided by the Medicare-allowable cost) was associated with $64 higher patient care revenue per adjusted discharge.

It further found that hospitals appeared to systematically adjust their charge-to-cost ratios, an activity that should produce no effect if chargemasters were, in fact, irrelevant to revenues.

Instead, the charge-to-cost ratio varied widely across patient care departments. For-profit hospitals were associated with a higher charge-to-cost ratio than government and nonprofit hospitals.

The findings suggest that hospitals, despite their protestations, still consider the chargemaster to be an important way to enhance revenue, the study authors stated.

They recommend policymakers consider developing additional tools that improve markup transparency to protect patients from unexpectedly high charges for specific services.

“We realize that any policy proposal to limit hospital markups would face a very strong challenge from the hospital lobby,” Anderson said in a press release, “but we believe the markup should be held to a point that’s fair to all concerned―hospitals, insurers, and patients alike.”

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