What Does the Data on Hospital Charges Released by CMS Really Reflect?

CMS’ release of selected hospital inpatient and outpatient charges for the most common procedures has brought strong reactions as to what the data means for consumers. The data show that average charges for both hospital inpatient and outpatient procedures differ substantially from hospital to hospital in how much the hospitals bill patients for the same service. Further, the data show that hospitals’ charges are many times higher than the amount that Medicare pays under its methods of calculating costs.

In the news release announcing the release of the data, HHS said, “Both data sets will enable researchers, data innovators and the public to better understand Medicare spending and service use, spurring innovation and increasing transparency, while protecting the privacy of beneficiaries.” “A more data driven and transparent health care marketplace can help consumers and their families make important decisions about their care,” HH Secretary Kathleen Sebelius noted.

On June 3, 2013, CMS released data that includes estimates for average charges for 30 types of hospital outpatient procedures from hospitals across the country, including clinic visits, echocardiograms, and endoscopies. The data include estimated hospital charges for 30 Ambulatory Payment Classification (APC) Groups paid under the Medicare outpatient prospective payment system (OPPS) for calendar year 2011.  The Medicare payment amount includes the APC payment amount, the beneficiary Part B coinsurance amount, and the beneficiary deductible amount. CMS released similar data in May of 2013, which included hospital-specific charges for the more than 3,000 hospitals that receive Medicare inpatient prospective payment system (IPPS) payments, for the 100 most commonly billed discharges paid under Medicare, based on a rate per discharge using the Medicare severity diagnosis related group (MS-DRG) for fiscal year 2011. These DRGs represent almost 7 million discharges or 60 percent of total Medicare IPPS discharges.

Commenting on the hospital outpatient costs, Jordan Rau of Kaiser Health News (KHN)  said that the “value of the hospital data is hotly disputed because few people actually end up paying the amounts listed.” He added that “others believe the extremely high amounts that hospitals bill, and the lack of any logical connection to procedures’ actual costs is an illustration of the dysfunctional health care market.”

In May 2013, after CMS released the data on hospital inpatient charges, Uwe E. Reinhardt, an economics professor at Princeton University wrote a blog for the New York Times on his take on just what information can be gleaned from such data. According to Reinhardt, “‘Average charges’ in the United States hospital business are pure fiction – and a funny fiction, at that.” The average charges are simply list prices that few patients ever pay. Reinhardt explained that to understand why, one should understand hospital chargemasters.  (The chargemaster is a comprehensive list of items billable to a patient or a patient’s  health insurance and charge descriptions, billing codes, pricing, and other  data elements. Chargemasters are hospital-specific and vary among hospitals.)

Daniel Chang of the Miami Herald reported that Rich Umbdenstock, president of the American Hospital Association, “urged that greater attention be given to the payments hospitals receive from Medicare and private insurers because Medicare currently pays only 89 cents for every dollar hospitals spend treating outpatient beneficiaries,” while Chip Kahn, president of the Federation of American Hospitals, issued a statement stating that “CMS’ release of charge information again misses the mark by not providing price transparency to help consumers.” Chang noted that “prices may become a bigger factor in consumer decisions as health care reform changes the way consumers pay for insurance coverage.” Adding that “many insurance plans are moving from co-pays to co-insurance, which means that instead of a fixed co-payment consumers will assume a percentage of the cost of a medical procedure.”

Whether the release of the data will impact how hospitals determine charges and whether changes will be made remains to be seen.