Hospitals use chargemasters to overcharge for specialty services

Calculator on top of a piece of paper with match equations

Hospitals use their chargemasters and a relative lack of price transparency to overcharge for CT scans and other specialty services.

That's the conclusion of researchers from Johns Hopkins University based on findings from 2013 Medicare cost reports. The research was published in the most recent issue of the journal Health Affairs.

Hospitals on average charged 4.32 times Medicare allowable cost to payers for all services, according to the study. For-profit hospitals had higher ratios (6.31) versus non-profits (3.79) and government facilities (3.47).

But the charge-to-cost ratios for CT scans (28.5), anesthesiology (23.5) and MRIs (13.6) were far higher. By contrast, more basic services such as general routine care (1.8) were marked up at much lower rates.

“Hospitals apparently mark up higher in the departments with more complex services because it is more difficult for patients to compare prices in these departments,” said lead author Ge Bai, an assistant professor with the Johns Hopkins Carey Business School, in a statement.

The study concluded such markups had negative effects on a variety of constituencies. They “can impose financial pressure on uninsured patients, out-of-network patients, auto insurers, and casualty and workers’ compensation insurers. The high charges can lead to personal bankruptcy or avoidance of needed medical services and much higher auto, casualty, and workers’ compensation insurance premiums.”

Journalist Steven Brill pointed out in a 2013 Time magazine article that hospitals used their chargemasters to overcharge some patients. Hospitals themselves dismissed the significance of chargemaster prices.

While the Health Affairs study did note that states such as California do publish chargemaster prices for all hospitals, given their lists often contain as many as 20,000 items, it is nearly impossible for consumers to undertake comparisons. And in states such as Oregon, which have provided some pricing data for uninsured patients, its scope and usage is questionable.

The study authors recommend three solutions:

  • Place a cap on the maximum markup hospitals can charge.
  • Require hospitals to provide a benchmark rate, such as what Medicare would pay for the same services, on all medical bills so that patients can compare the amounts. Hospitals should also disclose the total charges as a separate line item on their annual income statements.
  • Improve the consistency of the charge-to-cost ratios across all departments and services within each hospital.

“We realize that any policy proposal to limit hospital markups would face a very strong challenge from the hospital lobby,” said co-author Gerard F. Anderson of the Johns Hopkins Bloomberg School of Public Health, in the statement, “but we believe the markup should be held to a point that’s fair to all concerned--hospitals, insurers, and patients alike.”