"However, from a system perspective, I think the chargemaster that Mr. Brill repeatedly attacks is a distraction. The chargemaster is the internal list of prices that every hospital keeps for every procedure and supply item that the hospital uses. These are the prices that Mr. Brill incredulously highlights: $1200 for one hour of a nurse’s services; $1.50 for a single Tylenol tablet that you can buy a 100 of for $1.49 on Amazon.
They are indeed ridiculous, and often created without rhyme or reason. Thing is, they’re also rarely used:
- The latest data (from 2009) shows that on average, 40.9% of hospital cases in the U.S. are paid for by Medicare. Medicare, which–as Mr. Brill describes–could give a rat’s *** (my words) about chargemaster prices and instead pays each hospital a set amount, about 90% of the actual costs of treating that patient (see graph below).
- Another 17.2% are paid for by Medicaid, which vary on a state-by-state basis but are usually some percentage off of Medicare rates.
- 30.5% are paid for by HMOs, PPOs, or other private insurance. According to Mr. Brill, these private payers negotiate rates that are 30-50% higher than Medicare rates (rather than negotiating downward from chargemaster rates)."
If you don't like paying the Cleveland Clinic Medicare at + 50% they will bill you Medicare + 500% and sue you if you don't pay. It is not a case that private insurance is happy with Medicare + 50%, they can't afford Medicare + 500% which is the alternative. If hospitals had reasonable charge masters that more closely reflected what they were actually willing to accept more people would go without PPOs.
In exchange to locking in excessive but not criminal profit margins PPOs afford the hospitals additional protections they desire:
1. Most PPO contracts give hospitals 12 months to submit claims, which can be disastrous for reinsurance contracts. The same contract that gives hospitals 12 months to bill requires they be paid in 30 days.
2. Limits on ability to audit or question the bills you receive are greatly curtailed, see State CA v Sutter Health & MultiPlan.
3. Pricing and discounts are protected by non disclosure agreements meaning private insurance doesn't know what they are getting into until the claim, and liability, is already incurred.
4. Can't favor one network hospital over another, i.e. if we identify a high cost PPO hospital a number of PPOs wont allow us to favor a lower cost PPO hospital.
Any analysis of all hospitals is just as worthless as any analysis that lumps all payors into one basket. Of the thousands of hospitals in the US there are maybe 250 to 500 "problem" hospitals that account for the majority of the excess cost. If we could just get routine and minor care to use alternate hospitals we could lower private spending by double digits.
More to follow....