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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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Excessive $48,329 Charge for California Patient’s Outpatient Clinical Laboratory Testing Calls Attention to Chargemaster Rates and New CMS Price Transparency Rule

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


Colorado Hospitals Share Self-Pay Prices as New Transparency Law Takes Effect; Hospital Medical Laboratories and Anatomic Pathologists Working with Hospitals Could be Impacted

Regardless of potential confusion, the bill’s passage is seen as a positive step toward greater transparency by high-level members of the state’s government

In an effort to promote price transparency in healthcare, Colorado legislators passed a new law requiring hospitals in that state to post self-pay prices for the most common procedures and treatments. Their hope is healthcare consumers who lack insurance will find it easier to price shop and, therefore, make informed healthcare decisions.

However, not all providers in that state think the bill is needed and some are concerned it could cause confusion. It remains to be seen how Colorado hospital medical laboratories and outpatient practices, such as anatomic pathology groups, will be impacted by the new transparency requirements.

Potential Confusion a Concern for UCHealth

The Transparency in Health Care Prices Act (SB17-065), which took effect on January 1, 2018, calls for Colorado hospitals to post self-pay prices for their top 50 diagnosis-related-group codes; and self-pay prices for the 25 leading current procedural technology billing codes, according to the Denver Business Journal.

Physicians’ practices and other providers also must post prices for their 15 most popular procedures under the new law, Healthcare Dive reported. In an issues brief, the Colorado Hospital Association (CHA) supported the bill “because it aligns with the Association’s transparency policy principles.”

But some Colorado healthcare providers have expressed concerns about the new requirements.

“Because of the complexity of pricing, it’s possible the self-pay prices we have posted on our website might increase confusion,” Dan Weaver, Senior Director of Public Relations for UCHealth, told Colorado Politics. “Patients who have insurance coverage, Medicaid or Medicare will have very different out-of-pocket responsibilities [from the posted price].” The article was later published in the Durango Herald.

Various points of potential confusion include:

  • Prices show what self-pay patients must pay and not what an insured patient would pay under their health plans, which would be much lower;
  • Only 7% of Colorado residents are uninsured, according to a Colorado Health Institute report; and,
  • Even an “apple-to-apple” comparison by price is not so easy to do, reported Healthcare Finance based on its analysis of some Colorado hospitals’ price lists.

Christine Clark, Associate CFO Revenue Cycle (above), Denver Health, told Healthcare Finance, “We do have concerns that this will make the issue more confusing to patients as there is not a ‘one size fits all’ approach to providing patients estimates due to the wide variability insurance plans bring to the process. Providing a self-pay price for a service is probably the least complicated.” However, she added, “There is always some variability in the price of procedures due to different patient needs.”

Regardless of the potential confusion, however, some see passage of the bill as a step in the right direction.

Senate Republican Kevin Lundberg (above right) shaking hands with Colorado’s governor following signing of SB17-065, which Lundberg sponsored. In a statement, he noted, “Coloradans have a tough enough time navigating the complicated structure of our broken healthcare system without worrying about hidden healthcare costs.” (Photo copyright: Colorado Senate Republicans.)

Studies Show Consumers Not Highly Motivated to Shop for Healthcare

Ironically, consumers do not appear to be rushing to compare hospital prices, as they do for other products and services. And those who do shop around do not like the price data tools or understand the data, state and national studies found.

“Even with pricing data available, patients tend to rely more on their physician’s advice about where and from whom to seek medical care,” noted the Health Policy Institute of Ohio (HPIO). According the HPIO report, consumers say healthcare price data tools are not user-friendly.

And a national study, published in Health Affairs, that explored American’s views and habits when shopping for healthcare, noted:

  • Only 13% of 3,000 survey respondents who had out-of-pocket responsibilities sought cost information before their healthcare encounters; and,
  • Just 3% compared costs across possible providers before accessing care.

The researchers acknowledged the existence of price transparency tools, such as those offered by Colorado, Ohio, and on other state websites. Nevertheless, survey respondents still reported:

  • Lack of awareness about available price information;
  • Unwillingness to switch providers; and,
  • Network constraints and lack of providers available to patients.

“Simply passing price transparency laws or regulations appears insufficient to facilitate price shopping. Price information must be more accessible and comprehensible,” the study authors wrote in Health Affairs. “Even if information was more accessible, patients’ preference to maintain provider relationships and efforts to coordinate care would limit overall rates of shopping.”

Keeping it Simple Could Be the Key

Researchers suggested non-urgent services in quantity, such as a package of physical therapy visits, may best suit comparison price shopping.

“Price is not being presented in a simplified enough way for consumers to make informed decisions,” Elena Prager, PhD, Assistant Professor, Kellogg School of Management, Northwestern University, told Healthcare Finance.

Ultimately, it’s not enough that healthcare price data is simply made available to consumers, it also must be easily found and understood. Though transparency laws might not be directly aimed at clinical laboratories; lab leaders are nonetheless encouraged to ensure self-pay prices for procedures and diagnostic tests are accessible to the public.

—Donna Marie Pocius

Related Information:

Colorado Hospitals Must Begin Posting Prices for Most Common Procedures on Jan. 1

Colorado Law Requires Hospitals Post Prices for Common Procedures

Issue Brief, Senate Bill 17-065 Price Transparency

Colorado Sings Law Mandating Hospitals Post Self-Pay Prices

New Colorado Law Gives Patients More Transparency on Medical Fees

Colorado Health Access Survey

Healthcare Data Transparency Basics-2016

Americans Support Price Shopping for Health Care, But Few Actually Seek Out Price Information

Vitals Study Shows Consumers Using Cost Transparency Tools Select Clinical Laboratories with Low Test Prices

Vitals Study Shows Consumers Using Cost Transparency Tools Select Clinical Laboratories with Low Test Prices

Researchers find shopping for medical laboratory tests increased by nearly 50%, and people are saving more than a million dollars annually by shopping for blood tests

Each year, more consumers use online healthcare price-shopping tools to find hospitals, physicians, and clinical laboratories that have the lowest prices. And medical laboratory tests is among the top services on their lists!

Researchers at Vitals of Lyndhurst, NJ, a company that publishes online physician ratings, analyzed how consumers were using its price and quality transparency tools. They confirmed that shopping for medical laboratory tests/blood work is one of the top healthcare procedures checked by consumers.

According to a recent Vitals press release, approximately 46% more people shopped for blood tests in 2015 than the year before, and they saved $1,149,682 by doing so. That’s because their health plans reward them for selecting good quality and low-price providers, as well as adopting healthy behaviors, such as losing weight, exercising more, and lowering high cholesterol scores. (more…)

Using the Reference Pricing Strategy, Safeway and its Employees Reduce Spending on Clinical Laboratory Tests by 32% in Only 24 Months by Selecting Lab with Lowest Prices

Researchers at the University of California Berkeley tracked how the incentives of Safeway’s reference pricing program caused patients to reduce their use of medical labs with the highest prices

It took just 24 months for Safeway and its employees to pay 32% less for clinical laboratory tests using a new health benefits strategy called “reference pricing.” This strategy targets the large variation in prices that different medical laboratories charge for the same tests and incentivizes employees in a consumer-friendly way to select medical laboratories with lower prices over labs with higher prices.

Dark Daily’s sister publication, The Dark Report recognized how Safeway’s use of reference pricing to reduce the overall cost of what it and its employees pay for clinical laboratory tests by about a third in just 24 months could turn out to be a sentinel event of a wider trend. This trend would put those medical labs with the highest lab test prices under significant financial pressure if other employers and health insurers were to incorporate a reference pricing arrangement in their health benefit plans.

This is why, on September 6, 2016, The Dark Report devoted an entire issue to the topic of reference pricing and its potential to trigger powerful downward pressure on the highest lab test prices charged by some labs. This is essential reading for senior lab administrators, executives, CFOs, and their financial advisors. (more…)

Innovative California NPR Project Takes on Healthcare Pricing Transparency

NPR stations in San Francisco and Los Angeles crowdsourced healthcare cost data from listeners to reveal arbitrary pricing of medical services

Over the past two years, Dark Daily has published a number of stories dealing with price transparency, or lack of it, most of which involved government agencies or nonprofits concerned about the high cost of healthcare services. This latest effort to shine a light on healthcare pricing, however, comes from National Public Radio (NPR).

San Francisco’s NPR station, KQED, initiated PriceCheck, an innovative project designed to reveal just how arbitrary medical pricing is in California, in June 2014. KQED partnered with Los Angeles’ NPR station, KPCC, and, a New York City start-up that publishes a national list of low to high charges for common healthcare services, to crowdsource healthcare cost data.

The two NPR stations appealed to listeners to share the charges they paid for four medical services: mammograms, lower-back MRIs, IUDs, and diabetes testing. Hundreds of people responded to share prices they paid for these services, and thousands of people looked up prices on (more…)