The Chargemaster: What You Need to Know About if You Want to Avoid Medical BankruptcyAs Brill discovered, each hospital has an internal price list called a chargemaster, which contains every single item you may be given or come in contact with during your hospital stay. That includes the little white paper cup you get your medicine in, every box of tissue and band-aid, even a toy to a child (which many mistake as a “gift”) can be billed at upwards of $200. The problem is, no one quite knows how the prices in the chargemaster are created.
“It would seem to be an important document. However, I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it...
I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills... No hospital’s chargemaster prices are consistent with those of any other hospital, nor do they seem to be based on anything objective – like cost – that any hospital executive I spoke with was able to explain. 'They were set in cement a long time ago and just keep going up almost automatically,' says one hospital chief financial officer with a shrug.
...That so few consumers seem to be aware of the chargemaster demonstrates how well the health care industry has steered the debate from why bills are so high to who should pay them... [T]he drag on our overall economy that comes with taxpayers, employers and consumers spending so much more than is spent in any other country for the same product is unsustainable. Health care is eating away at our economy and our treasury.”
There is no real marketplace as such, as you the buyer is completely separated from the seller. There’s absolutely no market feedback to regulate and control the prices that are charged. For the most part the hospitals charge as much as they want, which plays a large role on why these charges have gotten so outrageously out of control. This simply doesn’t happen in countries outside of the US.
About the only defense for the chargemaster rates Brill was able to get was that it has to do with charity. John Gunn, chief operating officer of Sloan-Kettering told Brill:
“We charge those rates so that when we get paid by a [wealthy] uninsured person from overseas, it allows us to serve the poor.”
If this strikes you as nonsense, you’re not alone. Brill found two major holes in that argument. The first one is the most obvious: The hospital is not only charging those rates to wealthy medical tourists or “Saudi Sheiks,” as Brill puts it. These chargemaster rates are billed to average uninsured Americans who aren’t poor enough to qualify for the hospital’s financial assistance program, and don’t qualify for Medicaid.
So in essence, middle-class Americans are being bankrupted to help pay for the poor and the elderly while still allowing the hospital to rake in massive profits and paying their executives some rather astounding salaries. For example, at Montefiore Medical Center, a large nonprofit hospital system in the Bronx, its chief executive has a salary of $4,065,000, the chief financial officer of the hospital makes $3,243,000, the executive vice president rakes in $2,220,000, and the head of the dental department makes a not-so-shabby $1,798,000 per year. Similarly, 14 administrators at New York City’s Memorial Sloan-Kettering Cancer Center are paid over $500,000 a year, including six who make over $1 million.
“Second, there is the jaw-dropping difference between those list prices and the hospitals’ costs, which enables these ostensibly nonprofit institutions to produce high profits even after all the discounts,” Brill writes.
“...[N]o matter how steep the discounts, the chargemaster prices are so high and so devoid of any calculation related to cost that the result is uniquely American: thousands of nonprofit institutions have morphed into high-profit, high-profile businesses that have the best of both worlds. They have become entities akin to low-risk, must-have public utilities that nonetheless pay their operators as if they were high-risk entrepreneurs.
As with the local electric company, customers must have the product and can’t go elsewhere to buy it. They are steered to a hospital by their insurance companies or doctors (whose practices may have a business alliance with the hospital or even be owned by it). Or they end up there because there isn’t any local competition. But unlike with the electric company, no regulator caps hospital profits.”
Hospitals Profit Despite Receiving Only a Small Portion of Billings
Most hospitals end up receiving just 35 percent of what they bill, yet they still manage to make tens of millions of dollars in operating profits each year. Some hospitals, including Sloan-Kettering and MD Anderson, who are tougher in their negotiations with insurance companies, end up getting around 50 percent of their total billings, which quite literally amounts to a fortune. Stamford Hospital reported $63 million in operating profits in 2011, even though about half of their patient base is highly discounted Medicare and Medicaid patients. The actual revenue received, which included all the discounts off the chargemaster, was $495 million.
“That’s a 12.7% operating profit margin, which would be the envy of shareholders of high-service businesses across other sectors of the economy,” Brill writes. “Its nearly half-billion dollars in revenue also makes Stamford Hospital by far the city’s largest business serving only local residents. In fact, the hospital’s revenue exceeded all money paid to the city of Stamford in taxes and fees. The hospital is a bigger business than its host city.”
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