BUSI 523 Week 1 Discussion Board Forum 1 Thread Example

Discussion Board Forum 1 Thread: Charges, Costs and Payments in Health Care Finance

BUSI 523 Financial Analysis and Decision Making in Healthcare, Discussion Board Forum 1 Thread

Thread by [Student Name]

The hospital, the patient and the prices are composites; the textbook, Scripture and the peer-reviewed sources cited are real.

A patient at our community hospital had an MRI of her knee last month and received three different numbers for it. The itemized statement listed a charge of $3,400. Her neighbor, who is on Medicare, had the same scan the same week, and Medicare paid the hospital about $400. A third patient with commercial insurance learned that her plan's negotiated rate was about $1,100. The first patient was uninsured, and the bill she received asked for the full $3,400 before any discount. She came to our patient financial services office asking a fair question: how can one scan have three prices, and why is hers the highest?

Harrington (2016) explains that a hospital's charges are the prices it lists for its services, its costs are what it spends to produce them and its payments are what it actually collects, which depend on who pays. Medicare and Medicaid set their own rates, largely without regard to the hospital's charges, while commercial insurers negotiate discounts from charges or contract for fixed rates. As a result, the gap between charges and payments, recorded as contractual allowances, can be very large. For most insured patients the chargemaster price is a starting point that no one pays. For an uninsured patient, though, it may be the bill.

Many administrators argue that the chargemaster no longer matters because so few payers use it. Research suggests otherwise. Bai and Anderson (2016) used 2013 Medicare data and found that each one-unit increase in a hospital's charge-to-cost ratio was associated with $64 more in patient care revenue per adjusted discharge. Hospitals also set very different markups across departments, with average charge-to-cost ratios ranging from 1.8 to 28.5, and for-profit hospitals carried higher ratios than nonprofit and government hospitals. Hospitals with more uninsured patients and more market power also tended to mark up more. An earlier study by Bai and Anderson (2015) found that the national average charge was about 3.4 times Medicare-allowable cost, while the fifty hospitals with the highest ratios charged about ten times cost, and 49 of those 50 were for-profit. The authors noted that uninsured patients are commonly asked to pay full charges, along with out-of-network patients and some workers' compensation and auto insurers.

In other words, the list price earns money precisely from the payers with the least bargaining power. A commercial insurer with thousands of members can negotiate a 68% discount. A single uninsured woman with a knee injury cannot.

I recommended two changes to our chief financial officer. First, cap every self-pay bill at no more than our average commercial payment for the service, and screen every uninsured patient for financial assistance before the first statement goes out. Second, publish our overall charge-to-cost ratio in our annual community benefit report so the board can see how far our list prices sit from our costs. The first change will reduce collected revenue modestly, but self-pay accounts already have low collection rates, so the actual loss is smaller than the gross charges suggest.

The law of Moses forbade merchants from keeping two kinds of weights in their bag, a large and a small, and required full and fair weights so that the people's days might be long in the land (English Standard Version Bible, 2001/2016, Deuteronomy 25:13-15). A merchant with two sets of weights could favor some customers and cheat others while appearing honest. A chargemaster that bills the uninsured three times what an insurer pays for the same scan is a second set of weights. Fair pricing does not require charging every payer the same amount, since volume and risk justify discounts, but it does forbid using the highest price on those least able to resist it. Do your organizations bill uninsured patients from the chargemaster, or do they start from a lower rate?

References

Bai, G., & Anderson, G. F. (2015). Extreme markup: The fifty US hospitals with the highest charge-to-cost ratios. Health Affairs, 34(6), 922-928. https://doi.org/10.1377/hlthaff.2014.1414

Bai, G., & Anderson, G. F. (2016). US hospitals are still using chargemaster markups to maximize revenues. Health Affairs, 35(9), 1658-1664. https://doi.org/10.1377/hlthaff.2016.0093

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Harrington, M. K. (2016). Health care finance and the mechanics of insurance and reimbursement. Jones & Bartlett Learning.