Hospital pricing needs to be simpler, more equitable

Recently, the federal government’s Centers for Medicare and Medicaid Services (CMS) released what U.S. hospitals “charge” for 100 of the most common inpatient procedures. The release of this data caused an uproar in the media because of the vast disparity in hospital charges for pills, procedures and operations.

Baptist Health fully supports the move toward improving transparency in the healthcare system and educating consumers about how to make the best choices for themselves and their families.

The healthcare payment system in the United States is incredibly complex, and the information published by CMS is not meaningful or easily understandable.

Hospital charges do not dictate the amounts paid by Medicare or Medicaid and are often unrelated to amounts paid by commercial health insurers. Hospital charges vary because they reflect differences in patients’ conditions, the hospital’s mission, the patient population served and other factors.

A hospital’s “charge” is similar to the price shown on windows of automobiles for sale. Rarely does anyone pay it. But many media reports about the CMS release contained the misleading concept that hospital “charges” equated to the “prices” paid for services. This is simply not accurate.

The hospital “charge” or “chargemaster” is a concept similar to the list price used in many other industries. The Medicare laws require hospitals to maintain a “chargemaster” showing the list price of all chargeable items. The chargemaster at Baptist Health includes 65,000 items, whereas the hospital down the street may have only 20,000 items. This lack of standardization makes it nearly impossible to meaningfully compare the chargemaster from hospital to hospital.

Let’s continue with the automobile analogy: Consumers want to know the total cost of the vehicle, not the price list of its 3,000 parts.

Medicare and Medicaid pay rates that have nothing to do with the chargemaster. The government unilaterally establishes the rates it pays each hospital. Commercial insurers negotiate their rates based on complex formulas and proprietary payment methodologies.

While the release of the CMS data did shine light on a broken hospital industry pricing system, it did not provide the public with sufficient information to make informed decisions. Patients usually want to know: “What will it mean to my wallet?”

Payment rates for identical medical procedures are different among the nation’s 13,000 commercial insurers. Health insurers pay hospitals using a variety of methodologies, including per diems (an amount per day, depending on the type of care received), case rates (based on discharge diagnosis or procedure), carve-out pricing for implants or high-cost drugs, and other methods. Clearly, these contractual rates do not lend themselves to meaningful comparisons or give consumers the total cost of a hospital stay.

We think the hospital pricing system must be replaced with a simpler, more equitable system, and we’re trying to set the example. Indeed, Baptist Health is one of the leading healthcare systems in the nation providing meaningful information to prospective patients and payers.

In 2001, Baptist Health started a Central Pricing Office (CPO), which has been recognized as a national best practice. With a telephone call or online submission, patients can obtain the out-of-pocket estimate specific to their scheduled service, their insurer and their benefit structure. (It is now standard protocol to communicate these estimates to all patients for scheduled services.) The CPO also provides discounted prices to patients without insurance at average PPO prices. Low-income or indigent patients who meet Baptist Health’s charity care guidelines receive their care for free or at a deep discount.

At Baptist Health, we believe value is determined by quality and price. We are an established national leader in clinical best practices, patient safety, outcomes and patient satisfaction — information the U.S. healthcare system has made publicly available.

We encourage consumers to consider these important factors when deciding where to go for healthcare. Rest assured, Baptist Health will continue to seek ways to make this information more transparent, accessible and understandable to consumers.

Brian E. Keeley is president and CEO of Baptist Health South Florida.

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