US Hospitals Are Still Using Chargemaster Markups To Maximize Revenues

Abstract

Many hospital executives and economists have suggested that since Medicare adopted a hospital prospective payment system in 1985, prices on the hospital chargemaster (an exhaustive list of the prices for all hospital procedures and supplies) have become irrelevant. However, using 2013 nationally representative hospital data from Medicare, we found that a one-unit increase in the charge-to-cost ratio (chargemaster price divided by Medicare-allowable cost) was associated with $64 higher patient care revenue per adjusted discharge. Furthermore, hospitals appeared to systematically adjust their charge-to-cost ratios: The average ratio ranged between 1.8 and 28.5 across patient care departments, and for-profit hospitals were associated with a 2.30 and a 2.07 higher charge-to-cost ratio than government and nonprofit hospitals, respectively. We also found correlation between the proportion of uninsured patients, a hospital's system affiliation, and its regional power with the charge-to-cost ratio. These findings suggest that hospitals still consider the chargemaster price to be an important way to enhance revenue. Policy makers might consider developing additional policy tools that improve markup transparency to protect patients from unexpectedly high charges for specific services.

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