Studies show medical laboratories may be particularly hit by adjustments to hospital chargemasters as hospitals prepare to comply with Medicare’s New Transparency Rule

Recently, Kaiser Health News (KHN) published a story about a $48,329 bill for allergy testing that cast a spotlight on hospital chargemaster rates just as healthcare providers are preparing to publish their prices online to comply with a new Centers for Medicare and Medicaid Services (CMS) rule aimed at increasing pricing transparency in healthcare. The rule goes into effect January 1, 2019.

The patient—a Eureka, Calif., resident with a persistent rash—had received an invoice for more than $3000 from her in-network provider.

Though this type of allergy skin-patch testing is usually performed in an outpatient setting by a trained professional, such as an allergist or dermatologist, the patient elected to have the testing performed at Stanford Health Care (Stanford), a respected academic medical system with multiple hospitals, outpatient services, and physician practices.

The patient’s insurance plan, Anthem Blue Cross (Anthem), paid $11,376 of the $48,329 amount billed by Stanford Health Care, which was the rate negotiated between the insurer and Stanford, Becker’s Healthcare reported. The patient ultimately paid $1,561 out-of-pocket.

So, where did that $48,329 in total charges come from? Experts pointed to the provider’s chargemaster. A chargemaster (AKA, charge description master or CDM) lists a hospital’s prices for services, suppliers and procedures, and is used by providers to create a patient’s bill, according to California’s Office of Statewide Health Planning and Development (OSHPD).

Chargemasters note high prices beyond hospitals’ costs and may be considered jumping off points for hospitals to use in invoicing payers and patients, RevCycleIntelligence explained.

Hospital representatives will negotiate with insurance companies, asking them to pay a discounted rate off the chargemaster list. A patient with health insurance accesses care at that negotiated rate and perhaps has responsibility for a share of that amount as well.

However, an out-of-network patient, uninsured person, or cash customer who receives care will likely be billed the full chargemaster rate.

In a statement to KHN, Stanford explained that the California woman’s care was customized and, therefore, costly: “We conducted a comprehensive evaluation of the patient and her environmental exposures and meticulously selected appropriate allergens, which required obtaining and preparing putative allergens on an individual basis.”

Johns Hopkins researchers Ge Bai, PhD, CPA (left), and Gerard Anderson, PhD (right), authored a study published in Health Affairs that shows “Hospitals on average charged more than 20 times their own costs in 2013 in their CT scan and anesthesiology departments.” Hospitals with clinical laboratory outreach programs will want to consider how their patients may respond as new federal price transparency requirements make it easier for patients to see medical laboratory test prices in advance of service. (Photo copyright: Johns Hopkins University.)

Now is a Good Time for Clinical Laboratories to Make Chargemaster Changes

Some organizations, such as the Healthcare Financial Management Association (HFMA), are calling for chargemaster adjustments as part of a comprehensive plan to improve transparency and lower healthcare costs. This falls in line with the new CMS rule requiring hospitals to post prices online starting Jan.1, 2019.

In fact, hospital medical laboratories, which cannot distinguish their services from competitors, may be impacted by the new CMS rule perhaps more than other services, the HFMA analysis warned.

“The initial impact for healthcare organizations, if they have not already experienced it, will be on commoditized services such as [clinical] lab and imaging. Consumers do not differentiate between high and low quality on a commoditized service the same way a physician might, which means cost plays a larger role in consumers’ decision making.” That’s according to Nicholas Malenka, Senior Consultant, GE Healthcare Partners, and author of the HFMA report. He advises providers to do chargemaster adjustments that relate charges to costs of services, competitors’ charges, and national data.

Medical laboratory leaders also may want to take another look at the opportunities and risks for labs suggested in an earlier Dark Daily e-briefing on the Medicare requirement. (See, “Latest Push by CMS for Increased Price Transparency Highlights Opportunities and Risks for Clinical Laboratories, Pathology Groups,” August 8, 2018.)

Are Chargemaster Charges Truly Excessive? Johns Hopkins Researchers Say ‘Yes!’

Most hospitals with 50 beds or more have a charge-to-cost ratio of 4.32. In other words, $432 is charged when the actual cost of a service is $100, according a study conducted by Johns Hopkins University and published in Health Affairs.

The researchers also noted in a news release about their findings titled, “Hospitals Charge More than 20 Times Cost on Some Procedures to Maximize Revenue,” that:

  • Charge-to-cost ratios range from 1.8 for routine inpatient care to 28.5 for a CT scan; and,
  • Hospitals with $100 in CT costs may charge an uninsured patient or out-of-network patient $2,850 for the service.

“Hospitals apparently markup higher in the departments with more complex services because it is more difficult for patients to compare prices in these departments,” lead author Ge Bai, PhD, CPA, Associate Professor at Johns Hopkins Carey Business School, noted in the news release.

“(The bills for high charges) affect uninsured and out-of-network patients, auto insurers, and casualty and workers’ compensation insurers. The high charges have led to personal bankruptcy, avoidance of needed medical services, and much higher insurance premiums,” co-author Gerard Anderson, PhD, Professor of Health Policy and Management at Johns Hopkins Bloomberg School of Public Health, stated in the news release.

Legal Issues Possible for Hospitals, Medical Laboratories, Other Providers

Still another study published in the American Journal of Managed Care (AJMC) explored the legality of “surprising” uninsured and out-of-network patients with bills at the chargemaster rates. It found that contract law supports market-negotiated rates—not chargemaster rates that do not reflect actual costs or the market.

“Patients and payers should know that they are under no obligation to pay surprise bills containing chargemaster rates, and state attorneys generally can use the law to prevent providers from pursing chargemaster-related collection efforts against patients,” the researchers wrote.

Labs Need to Get Involved

Clinical laboratory leaders in hospitals and health systems are advised to reach out to hospital chargemaster coordinators to ensure the chargemaster, as it relates to the lab, is inclusive, accurate, and in sync with competitive market data. Independent medical laboratories may want to similarly check their chargemasters to see how their lab test prices compare to the prices charged by other labs serving the same community.

—Donna Marie Pocius

Related Information:

That’s a Lot of Scratch: The $48,329 Allergy Test

Allergy Tests

Six Things to Know About a Woman’s $48K Allergy Test

The Role of the Hospital Chargemaster in Revenue Cycle Management

Why Your Access Strategy Demands Pricing Transparency

CMS Proposes Changes to Empower Patients and Reduce Administrative Burden

US Hospitals Are Still Using Chargemaster Markups to Maximize Revenue

Hospitals Charge More than 20 Times Costs on Some Procedures to Maximize Revenue

Battling the Chargemaster: A Simple Remedy to Balance Billing for Unavoidable Out-of-Network Care

Latest Push by CMS for Increased Price Transparency Highlights Opportunities and Risks for Clinical Laboratories and Pathology Groups