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About CMS's Hospital Charge Data Move: There Are No Secrets Anymore

May 9, 2013
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In the second decade of the 21st century, amid the new transparency in everything, the days when issues like hospital pricing—and clinical outcomes—were obscure topics, are nearly over

The announcement this week that the Centers for Medicare & Medicaid Services (CMS) had publicly released hospital pricing data for the first time led to a wave of mainstream media coverage (not to mention trade press coverage).  From The New York Times to the Washington Post to USA Today to National Public Radio to the ABC Evening News, ad infinitum, print and broadcast media outlets were noting the wild divergences that CMS was publicly revealing, between how two hospitals in the same community have been pricing the very same procedure.

As the Times article noted, “In Saint Augustine, Fla., one hospital typically billed nearly $40,000 to remove a gallbladder using minimally invasive surgery, while one in Orange Park, Fla., charged $91,000. In one hospital in dallas, the average bill for treating simple pneumonia was 414,610, while another there charged over $38,000.” The story went on to say that “Data being released for the first time by the government on Wednesday shows that hospitals charge Medicare wildly differing amounts—sometimes 10 to 20 times what Medicare typically reimburses—for the same procedure, raising questions about how hospitals determine prices and why they differ so widely.”

Fortunately, most of the stories, like the Times report, did differentiate between stated charges and actual reimbursements, which of course are determined by Medicare’s Prospective Payment System. But that fact itself doubtless brought up even more questions in the minds of average Americans/healthcare consumers: why are hospitals setting such wildly divergent charges, anyway, even if that’s not what they’re paid? Of course, the answer to that question then leads to a longer discussion about theoretical prices charged by hospitals versus actual reimbursements from Medicare and other payers, which leads to an even longer discussion about the distortions inherent in a healthcare reimbursement system in which providers are forced to offset uncompensated care through cost-shifting and price-shifting. It’s all quite a mess, fundamentally, as anyone who’s studied healthcare reimbursement in the U.S. already knows!

But here’s the thing: in an era of accelerating transparency—and here, I’m referring not only to healthcare reimbursement or even the healthcare system, but life and society in the 21st century—there are no secrets. Everything eventually becomes known, whether it’s in partisan politics, business, culture, or in society at large. Just look at how instantaneously news spreads now across the globe—including fake news. Remember what happened last month, when hackers somehow accessed the Associated Press’s Twitter feed? They falsely tweeted that President Obama had been “injured,” causing a sudden plunge in the stock market, with the Dow Jones Average losing 130 points, or 0.9 percent, within minutes, before AP closed its Twitter feed, and quickly announced that the tweet had been false.

In any case, healthcare provider executives face an increasing set of challenges when it comes to pricing and reimbursement issues these days, because as purchasers and payers become more militant about the healthcare cost curve, and as consumers begin to become more aware of costs and prices in healthcare (with the acceleration of increases in co-payments and deductibles for care, and continued growth in health savings accounts and other financial vehicles), what a hospital charges for a procedure—even if it doesn’t actually get paid that amount—is inevitably going to come under greater scrutiny.

For CIOs and other healthcare IT leaders, all this will play out against a rapidly changing landscape on both the policy and reimbursement fronts. With value-based purchasing under Medicare now the law of the land since the passage of the Affordable Care Act, and with VBP initiatives growing in the private health insurance sector as well; and with bundled-payment contracting and accountable care organizations emerging more strongly every day, pricing will soon no longer be an obscure topic of concern to only a few back-office managers and a scattering of academics.

And so, gradually, but now in an accelerating fashion, once-obscure financially oriented data in healthcare is going to become more and more available to more and more interested stakeholders. Is your organization ready to defend not only its pricing policies, but also its clinical outcomes? Once sharp-eyed observers begin to put all the pieces together, defending one’s organization against criticism that that organization in particular is not providing value for money spent, could soon become a heavier lift.




If there was ever a report that was self-indicting this is it. Yes hospital charges are non-sense, all over the map, not based on logic, etc. All true. But how’d that happen. As a former CFO I can tell you it was all done via the Medicare Cost Report, the core basis of Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals. So over the decades any good CFO would make sure that his charges maximized his governmental payments. And Medicare and Medicaid usually make up 60% of the total payments.

Some fifty years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That’s the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report. One of the most insane ways of ‘identifying’ costs ever cooked up. And it’s still used today!

Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost report…and here we are 30 years later- with both!

If you want to know why charges are a mess…just look at the Cost Report, and ask who created that monster?

You want transparency, then tell CMS to drain the swamp.

Frank Poggio
The Kelzon Group