6 Key Facts about Pricing Transparency and the Role of the Hospital Chargemaster
The federal government seeks to advance transparency around hospital and health care pricing by requiring hospitals to post charges online, starting January 1, 2019.
This mandate and the public discussion it will likely engender does indeed have the potential to foster a better understanding of what useful health care price transparency might look like—if policymakers, the media, and consumers can agree on some basic realities of how we in America pay for our health care.
To that end, I offer six basic facts about hospital chargemasters, as well as this short one-minute explainer video.
- Most times, hospitals are paid less than charge rates.
The chargemaster shows a hospital’s “list prices.” These charge rates represent standard or regular prices, not the actual—and typically much lower—payment rates that hospitals receive from health insurers, Medicare, and uninsured patients with low incomes.
- Insurers negotiate hospital payment rates that are lower (sometimes much lower) than charges.
Insurance companies negotiate with hospitals and other health care providers to establish contracts that specify what insurers will pay for various health care services. In the vast majority of contracts, these payment rates are lower than charge rates.
You may see these discounted rates on the Explanation of Benefits you receive from your insurer. In this example, the Member Responsibility section shows the difference between:
1) The hospital or Provider Charge rate
2) The Plan Allowance (or Covered Charges—the contracted payment rate that insurer or health plan negotiated with the hospital or other provider)
Individual insurers negotiate contracts and rates with every different hospital and health system included in the insurer’s network. Many different factors affect these negotiations, including the type of services a hospital or health system offers, quality and other performance metrics, and patient volumes.
So you can see why payment rates would vary from insurer to insurer, hospital to hospital—and even among different plans offered by the same insurer.
- Medicare also pays hospitals less than charge rates.
The federal government sets fixed payment rates for hospital services provided to people who receive fee-for-service Medicare benefits. (Fee-for-service is the “original” Medicare plan administered by the federal government, as opposed to Medicare Advantage plans offered by commercial insurers.) The majority of Medicare reimbursement rates are also much lower than charge rates.
- Uninsured and underinsured patients receive discounts and assistance based on financial need.
The vast majority of hospitals provide discounted or free charity care to patients with limited financial means. (By law, all not-for-profit hospitals must have policies in place to help low-income uninsured or underinsured patients afford their health care. This financial assistance is one of the ways that not-for-profit hospitals “earn” their tax exemptions.)
A hospital’s financial assistance policy spells out:
- Who is eligible for help based on income and other factors
- How much help—discounts, or free charity care—eligible patients will receive
If you or someone you know has trouble affording care, hospital patient advocates, financial counselors, or social workers can provide advice and guidance. Hospitals can also help develop payment plans or identify free or low-cost services available in the community. If lack of health insurance is the problem, counselors will work to find affordable coverage.
- Posting charges is just one step toward meaningful price transparency.
For most people, charges are not the best way to understand the financial implications of hospital and health care services. So much depends on the terms of patients’ health insurance, including deductibles, copays, and coinsurance.
Hospitals and health systems know they have to do better. In Pennsylvania, hospitals have been working on this issue since 2015, when they developed Principles and Operational Guidelines for Consumer-focused Hospital Financial Services. Most Pennsylvania hospitals (70%) have voluntarily pledged to follow these guidelines.
For non-emergency services that give consumers time to shop, Pennsylvania hospitals are trying to help consumers understand—before receiving care—what they will have to pay, out of their own pockets, for that care. In addition to financial counseling, some hospitals are providing help lines for questions about patient billing and pricing and online price estimators for common services.
- Consumers and patients should make money part of the overall health care discussion. Hospitals and insurers must be ready to talk.
By asking questions about the cost of health care, consumers play an important role in advancing health care pricing transparency.
In this blog post, I provided some tips about how to estimate hospital and health care bills before you get care. These tips include:
- Using the price estimators and provider network information available at health plan websites
- Asking hospitals for help estimating out-of-pocket costs
- Talking about quality, value, and cost with doctors or other health care providers when considering treatment options
Achieving meaningful health care pricing transparency will take time, effort, and collaboration on the part of government, hospitals, insurers, and consumers.
Let’s start by developing a common understanding of concepts like hospital charges as compared to hospital payments and what consumers pay out of pocket for health care, as determined by their health plans.