Combating Hospital Overcharges – Part I


Have you been hospitalized lately? If you have, you’ve also known the experience of seeing your hospital bill and getting sick all over again.

Understanding the way hospitals charge for their services is a full time job but some basics are important for everyone. Dr. Robert Pearl, writing in Forbes, gives us three ways in which hospitals overcharge patients:

The Impenetrable “Chargemaster”

The chargemaster is a computerized database in every hospital that determines the full price for every service and every item used in the care and treatment of patients. Pearl considers it the “manufacturer’s suggested retail price” or MSRP of the hospital industry. However, the public never sees this price which can be inflated up to 10 times actual cost to the hospital.

Insurance reimbursement rates are then negotiated down from this inflated price according to the volume of patients received from the insurer. The amount of discount provided to each insurer is a closely guarded secret.

Insurers and purchasers watch these charges closely and the outcomes of the patients treated. This data is used in subsequent negotiations to favor the insurer whenever possible.

For example, in 2008, Pacific Business Group on Health (PBGH), a large purchaser of healthcare services, noticed that total joint replacement surgery varied from about $30,000 to as much as $120,000 but the outcomes were the same. Thereafter, they refused to pay more than $30,000 as a bundled payment for the same surgery.

Uninsured patients, however, frequently are charged the full chargemaster price and when they can’t pay the bill collectors descend upon them. Those without assets probably never pay but anyone who cares about their credit rating can be devastated.

The Rise In Upcoding

Medical charges are determined by coding. Each code describes a specific treatment for a specific condition. However, there are currently 68,000 ICD-10-CM codes and 87,000 ICD-10-PCS codes giving providers great flexibility in choosing codes to describe the condition and treatment rendered.

Pearl says these codes can be abused to charge you a higher price than is justified for the service rendered. He says to imagine purchasing a Toyota Camry and then being charged for a Lexus. In the car business you’d recognize the overcharge immediately because prices are transparent but in the hospital industry they are not.

The New York Times recently reported an investigation at one hospital when an outside management company called EmCare took over emergency room staffing and billing. The report said, “Before EmCare, about 6% of patient visits in the hospital’s emergency room were billed for the most complex, expensive level of care. After EmCare arrived, nearly 28% got the highest-level billing code.”

You can be sure the severity of treatment did not vary 22% to explain this difference. The new management company simply chose higher-cost coding.

This difference may represent choices made by the doctors intentionally or simply different codes chosen by those in the billing department in response to new management guidelines.

Beware Out-of-Network Care

Most commercial insurance coverage stipulates which providers, doctors and hospitals, are “in-network” and everyone else is considered “out-of-network.” If you stick to “in-network” providers you have a good idea of the costs you will be incurring.

However, when you go to the hospital you have no control over those doctors you see in the emergency room, the radiology service providers, those assisting your surgeon in the operating room or those interpreting your laboratory studies. These other providers may be “out-of-network.”

Charges “in-network” can be assumed to be “usual and customary” but not so for “out-of-network” providers who can literally charge whatever they want. The lack of transparency in this situation can lead to much higher than anticipated charges.

These are just some of the most common ways in which hospital charges can greatly exceed expectations. In Part II of this post we will discuss possible ways to avoid these problems or reform the system.

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