Hospital charges, Medicare reimbursement out of whack

Hospitals charge nearly four times, on average, what they accept as Medicare reimbursement, making it nearly impossible for patients to compare providers, according to a new study.

In a blog post for Health Affairs, David Muhlestein, director of research at Leavitt Partners, reveals the conclusions of his study, which examined the characteristics of hospitals that have higher-than-average and lower-than-average charges compared with what they are actually reimbursed. 

Muhlestein's findings come in the wake of the Centers for Medicare & Medicaid Services' release of data that compared average hospital charges for the 100 most common Medicare claims. CMS said consumers could use the information to determine how much hospitals charge for particular procedures.

Muhlestein based his study on hospital characteristics data from the 2011 American Hospital Association annual survey and matched it to data from CMS using the Medicare Provider number or the name of the hospital. Financial information came from 2011 Medicare cost reports.   

The study revealed hospitals that charge more are usually investor-owned, affiliated with a hospital system and located in urban areas. Facilities that charge less tend to be small, unaffiliated, government-owned hospitals in rural areas.

Although Muhlestein expected some variability in charge-to-reimbursement ratios among hospitals, he said he was surprised by the degree. A small amount of hospitals (35 out of 3,337) actually have an average Medicare charge that is less than what they were actually reimbursed. But others, he said, bill, on average, as much as 16 times what they receive in Medicare reimbursement.

"From a consumer's perspective, the disadvantages of higher charges that are not strongly correlated with actual reimbursement rates are real," he said in the blog post.  "Specifically, charges uncorrelated with actual reimbursements make it difficult, if not impossible, for patients to compare providers, eliminating any potential financial benefit of consumer-directed choice of hospitals."

However, Muhlestein said the recent movement toward transparent pricing may help patients become more involved in the cost of their care.

To learn more:
- read the blog post