Chargemasters: Why Hospital Bills Are so High (or How to Charge $19 for an Aspirin and Get Away With It)
You can get a bottle of 500 tabs of the same aspirin for $3.64 on Amazon—that’s $0.007 per tab.
Aspirin is not the only thing that hospitals routinely overcharge for. Besides marking up all drugs and equipment, hospitals charge exorbitant amounts for reusable supplies (surgical gowns, scalpels, warming blankets, table straps) and demand huge fees for diagnostics, often performed in in-house labs or radiology units with equipment that has already been paid for.
A chargemaster is a comprehensive list of items billed to individuals or their health insurance, including all drugs, medical procedures, hospital services, equipment fees, supplies, diagnostic tests and more. Each hospital develops and maintains its own chargemaster, and the prices listed are often highly inflated and many times what the services or supplies actually cost the hospital.
While the chargemaster is not the sole reason that getting cancer generally spells financial ruin or why a trip to the emergency room for indigestion could cost more than a trip to Europe, it is a major sign of what is wrong with American health care.
Hospitals argue that chargemasters do not reflect the actual payments made by Medicare or insurance companies (Medicare prices are regulated by law and hospitals and insurers negotiate prices), and the only the uninsured and underinsured are billed at chargemaster prices.
Hospitals would have patients believe that the only individuals paying these arbitrary and inflated prices are illegal immigrants or rich foreigners on vacation. However, the truth is that hundreds of thousands of regular individuals are subjected to these outrageous prices—and there is little anybody can do about it.
Chargemasters and hospital pricing make the U.S. health care industry unlike any other. This is especially striking considering, as Steven Brill notes in his groundbreaking 2013 article in Time Magazine, that 20 percent of the U.S. gross domestic product is spent on healthcare—twice as much as in most other developed countries.
Getting access to a hospital’s chargemaster can be extremely difficult, as most hospitals tend to be extremely secretive about their pricing. Currently, only California requires hospitals to report chargemasters and publishes them online.
Many hospitals describe prices listed in the chargemaster as a starting point for negotiations with patients and insurance providers. However, with the exception of Maryland, chargemasters are unregulated by law and generally insulated from market forces, allowing hospitals to charge whatever amount they wish, in whatever way they wish.
“In practice, hospitals set prices as if they have no competition at all,” writes Jeffrey Young in the Huffington Post. “Hospitals tend to charge as much as they are able, knowing it’s nearly impossible for patients to determine what local competitors charge or what health insurers pay.”
In most other developed countries, hospitals charge a flat fee for a procedure or for treating a condition. In the U.S., hospitals have found that it is much more lucrative to charge for everything separately, from scalpels to individual aspirin pills to gauze pads to the doctor’s operating and room fees.
Unlike prices in other industries, determined by supply and demand, hospital chargemasters are arbitrary. Patients as consumers have very little choice when it comes to healthcare providers and their ability to “comparison shop.” For one thing, chargemaster items are written in code, making it almost impossible for someone other than hospital administrators to understand what is being charged.
Second, when most individuals receive a hospital bill many do not know it is negotiable, and often go to great lengths to pay before asking for a reduction. Additionally, when a person is seeking health care, it is often not a time to compare prices, even if the prices are made available beforehand, which they are usually not.
“No other industry works like this, where the consumer doesn’t know what the prices are; where they are incapable of understanding or controlling the aspects of the procedure they’re paying for and what the doctor is deciding for them; and where there is little to no accountability for the quality of the product,” said Gordon Bonnyman, director of the nonprofit Tennessee Justice Center, an advocate for health care for the poor, to The Times Free Press. “There’s nothing out there in the real world that everyday people encounter that is remotely like this.”
For example, when 31-year-old pregnant Reneé Martin and her husband inquired at their local hospital in Laconia, New Hampshire about how much maternity care would cost—both were working professionals with insurance that did not cover maternity—the answer was astounding.
At first, the hospital finance office said it could not estimate the amount beforehand. After further questioning, the hospital told the Martins maternity care could cost between $4,000 and $45,000.
“It was unreal,” Ms. Martin told The New York Times. “I was like, How could you not know this? You’re a hospital.”
While the Martins could conceivably have “shopped around” for better prices, a person in an emergency situation or with a life-threatening condition may not have the time or ability to research and take their business elsewhere. When faced with a life-altering diagnosis or a life threatening accident, “how much is this going to cost?” and “how much are they charging next door?” should not immediately spring to mind.
However, arbitrary pricing on chargemasters has created a situation where hospitals in the same area and even in the same city charge wildly different prices for the same procedure, service or drug.
In 2013, the Obama administration released a huge database containing what 3,300 hospitals throughout the country bill Medicare for 100 different procedures through the Centers for Medicare and Medicaid Services (CMS). The discrepancy in prices for the same procedure is astounding.
For example, a joint replacement in a hospital in California ($223,000) costs Medicare 40 times as much as the same procedure in Oklahoma ($5,300). Within the D.C. area the cost for major joint replacement ranged from $68,726 at George Washington University Hospital to $29,757 at Sibley Memorial Hospital.
Even though some variation in cost is expected, such fluctuation lacks reason or justification.
“The amounts are too huge to be explained by obvious differences among hospitals, such as a more expensive regional economy, older or sicker patients, or the extra costs of running a teaching hospital,” said Medicare deputy administrator Jonathan Blum to The Associated Press in May 2013, shortly after the data was released.
It is also important to point out are the costs reported on CMS reflect what is billed to Medicare, not what is on the hospital chargemaster. By law, what hospitals charge Medicare must bear some relation to actual costs and is many times lower than the chargemaster prices.
For example, while Medicare pays a hospital $41 for a frontal chest x-ray, the chargemaster price for the same x-ray at Los Angeles Community Hospital is $261 and $668 at Good Samaritan Hospital in San Jose.
In other words, even if Medicare is charged $223,000 for major joint replacement, the chargemaster cost is likely several times that amount.
While other factors, such as the perverse economics of non-profit (tax-free) hospitals that make much more than private ones, astronomically high salaries and bonuses for hospital administrators, an unregulated drug market where pharmaceutical companies make billions, unnecessary and excessive testing and procedures and insurance that covers nothing, chargemasters are a huge part of why health care costs in the U.S. are completely out of control.
Source for all charts: CA office of Statewide Health Planning and Development. http://www.oshpd.ca.gov/chargemaster/ Hospitals looked at: Good Samaritan Hospital, San Jose; Aurora San Diego Hospital; U.C. San Diego Medical Center; Los Angeles Community Hosp.; Kaiser Foundation Hospital San Francisco
Want more charts? more here
Part of our series on healthcare costs in the U.S.