Hospital Chargemaster Under Fire

If you’re paying attention to healthcare news you’ve seen the headlines before – hospitals suing patients for tens of thousands in emergency room charges or for a life-saving surgery. Just when you think you’ve seen it all, more outrageous news breaks and the uproar ensues.

Centura Health recently sued a patient for charges not paid by her health insurance policy. Centura received a payment from the policy of $74,597 and was told the remainder of the charges were unreasonable and not subject to reimbursement. The defendant’s policy pays providers based on the rates set by Medicare, plus an additional amount to ensure a fair profit to the hospital – a methodology called reference-based pricing, which is gaining popularity in some parts of the country. In this case, Centura went after the patient for the remaining balance, to the tune of $229,112. Cue the uproar.

And at the core of this debate over reasonable pricing is a tool hospitals use to determine the cost for every service they provide – the chargemaster. Decades ago, hospitals needed to create a standard set of charges, which then increased over the years, vastly outpacing inflation. The bloated charges received little attention since deep discounts were negotiated with insurance carriers and most individuals were only concerned with their deductible and copayment. But with the rise of high deductible health plans (and more recently reference-based pricing) forcing awareness about the true cost of healthcare, more people have begun questioning the reasonableness of hospital charges.

Chargemaster values are not created equally. They are generally unregulated and significant variations can exist between hospitals within the same geographic area, which makes their fairness difficult to assess. It’s not hard to see how reference-based pricing policies evolved – as an attempt to bring hospital charges to a reasonable level by closing the gap between reimbursement levels not subject to the hospital’s chargemaster (such as Medicare and Medicaid) and the inflated reimbursement levels set by the chargemaster that typically apply to private insurance and uninsured individuals.

Although reference-based pricing has existed for a number of years, most providers accept the reduced payments and don’t pursue the remaining charges with the patient – which means there are not many legal precedents available legitimizing a chargemaster as a true cost determination method. The jury in the Centura v. French lawsuit ruled the hospital charges were not reasonable and required the defendant to pay only an additional $766.74. Hospitals may need to reconsider the validity of their chargemaster when attempting to balance bill a patient. Score one for reference-based pricing which no doubt has gained traction.

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