Varying Charges and Questionable Costs

Varying Charges and Questionable Costs Ari B. Hoffman, MD 1 and Andrew B. Bindman, MD 2,3 Department of Medicine, UCSF Medical Center, University of California San Francisco, San Francisco, CA, USA; 2 Departments of Medicine and Epidemiology & Biostatistics, San Francisco General Hospital, University of California San Francisco, San Francisco, CA, USA; 3 Philip R. Lee Institute for Health Policy Studies, University of California San Francisco, San Francisco, CA, USA. J Gen Intern Med 30(11):1579–80 DOI: 10.1007/s11606-015-3454-8 © Society of General Internal Medicine 2015 it comes to healthcare, all of us—patients, pro- W hen viders, payers, employers, and health systems—have more financial Bskin in the game^ than ever. Patients exposed to higher out-of-pocket costs now scrutinize their hospital bills as never before; insurance companies and employers use their leverage as major purchasers of healthcare to drive down costs; and health care managers seek new ways to efficiently deliver care to maximize value. In every case, getting costs under control requires an understanding of their basis. Hospitals account for almost one-third of all healthcare expenditures, making them the largest slice of the healthcare pie. American hospitals cost nearly three times the OECD median per discharge when adjusted for costs of living. 1 The challenge of understanding these costs is reflected in the hospital Charge Description Master, commonly referred to as the Bcharge master.^ The charge master is a lengthy catalogue of non-discounted prices for services provided to patients, including lab tests, supplies used, and procedures performed. Hospital prices have increased almost three times the rate of general inflation since the 1980s. 2 Only a small proportion of patients actually pay these prices, but those without the protection of insurance are at greater risk for being billed for the full charge, and dispro- portionately face bankruptcy as a result. 3 Public and private insurers use their clout as high volume purchasers to negotiate lower rates of hospital reimbursement. In California, hospitals collect an average of 38 % of their charge master prices billed to privately insured patients and 21 % billed to Medicare. 4 Hospitals use different formulas to determine charge master prices, with dramatic variability. In California, which mandat- ed public charge master reporting in 2004, prices for the same service can vary up to 17-fold across institutions. 5 The article by Park et al. published in this issue of JGIM attempted to discover the factors that might explain this variation in charges across hospitals. 6 The authors examined county measures of socioeconomic status, health status, health behavior, access to and quality of outpatient care, and the physical environment. They found that among 2871 hospitals nationwide, there was Published online July 1, 2015 little statistical association between the 29 community mea- sures they tested and hospital charges. The two exceptions were the percentage of uninsured in a county, which was associated with higher hospital charges, and the percentage of children living in poverty in a county, which was associated with lower hospital charges. The association between rates of uninsured and higher charges is consistent with cost shifting—the idea that hospitals purposefully raise their charges to compensate for anticipated losses related to caring for the uninsured. Park et al. adjusted for differences in local wages, hospital market competition, hospital patient severity, as well as ownership type, and still found higher hospital charges in communities with more un- insured patients. Furthermore, the finding that hospital charges are lower in association with the percentage of children living in poverty is also consistent with the conclusion that hospitals raise their charges in an attempt to shift costs for the uninsured onto those who are insured. Since children living in poverty are categorically eligible for Medicaid, this demographic char- acteristic of a county would be expected to be inversely associated with the county’s rate of uninsured. The Affordable Care Act (ACA) was largely designed to reduce the number of uninsured, which should reduce the degree to which hospitals shift costs for the uninsured onto the insured. Congress anticipated this change as a source of potential savings to offset the cost of coverage expansion within the ACA by reducing the rate of growth for Medicare hospital payments over time. Congress did not anticipate that its planned expansion of Medicaid within the ACA would become optional based on a subsequent Supreme Court ruling. 7 Thus far, states that have expanded Medicaid coverage have experienced much greater reductions in the percentage of remaining uninsured as com- pared to states that have not. 8 If the variation in the hospital charge master is indeed related to the rate of uninsured in a hospital’s community, then we might observe a dramatically different growth rate in the hospital charges seen in Medicaid expansion and Medicaid non-expansion states. A slower rate of growth of hospital charges in Medicaid expansion states might indicate that those with insurance coverage prior to the implementation of the ACA will experi- ence financial benefits from the expansion of coverage to the uninsured. However, relying on the charge master to form judgments about the successes and failures of health care policies is indirect. In fact, the ratio of charges to costs has