Understanding Pricing for Healthcare Services
Before you view the pricing information for any hospital, we wanted to provide you with some basic background information about:
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The provided pricing information
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How it relates to a final hospital bill or pricing information included in an explanation of benefits from your health insurer
While this information should help you compare prices from hospital to hospital, it is unlikely that your final bill will exactly match the prices listed. We’ll explain more about that later.
Each hospital sets a “gross charge” for every individual service rendered to patients within their "chargemaster" or CDM (charge description master). These gross charges do not include any discounts that may be offered, and they serve as the starting point from which payment is negotiated with individual insurance payers for specific insurance plans. As a patient receives services throughout their visit, a charge for each service provided is generated on their account, resulting in a claim that is submitted to the patient’s insurer.
You should know that patients will almost never pay the listed gross charge for healthcare services. However, under federal law, all insurers, including Medicare and Medicaid, must be billed the amount listed on the chargemaster for those services. These charges are rarely paid in full due to the contracted payment rates negotiated between hospitals and insurers.
The EOB provided by individual insurers details each patient’s actual cost for services provided. Hospitals typically cannot publicly disclose the negotiated rates, making it difficult to compare final prices from one hospital to the next using the gross charge information from the chargemaster.
The Information You Will See: Standard Charges & Shoppable Items
Standard Charges
Medicare has defined several different types of standard charges that should be available for patients to see.
They are:
Gross charges
Discounted cash price
Payer-specific negotiatedcharge
De-identified minimum negotiated charge
De-identified maximum negotiated charge
Here’s a quick overview of each.
Gross Charges
The gross charge is the full list price from the hospital chargemaster.
Gross charges can vary, sometimes greatly, from hospital to hospital for the same procedure or service based on how each hospital manages its charges and costs. Charges can vary based on geography, physician supply and medication preferences, the kinds of services the facility typically provides, and the expertise required to deliver these services. External factors also play a role: The cost of living in a given area can have a significant effect on wages, which is a major factor in cost calculations for hospitals. Drug and supply costs also vary greatly depending on which (if any) group purchasing organization the hospital is part of.
Discounted Cash Price
The second type of standard charge defined by Medicare is called a discounted cash price, which is the price offered to patients willing to pay in cash at the time of service without involving insurers.
Payer-Specific Negotiated Charge
The payer-specific negotiated charge is the charge that a hospital has negotiated with a third-party payer for an item or service; this is sometimes referred to as the "allowed amount" on an EOB. This charge amount will likely vary from payer to payer and even between insurance plans for the same insurance payer.
De-identified Minimum Negotiated Charge
The de-identified minimum negotiated charge is simply the lowest charge that a hospital has negotiated across all insurers for an item or service.
De-identified Maximum Negotiated Charge
The de-identified maximum negotiated charge is the highest charge that a hospital has negotiated with all insurers for an item or service.
Shoppable Services
The high degree of variation in charging practices and differences in reimbursement methodologies between insurance payers make it difficult for patients to get the intended full-benefit of “pricing transparency.” Medicare wanted to give patients another way to compare prices, so they’ve also asked hospitals to create a list of shoppable services.
Medicare defines "shoppable services" as a service that typically can be scheduled by a patient in advance on a non-urgent basis. Medicare has identified 70 shoppable services that all hospitals should include and has asked hospitals to each choose at least 230 additional shoppable services that they perform most frequently.
Every shoppable service will contain an easy-to- understand description of the item or service and standard charges information, including the gross charge, discounted cash price, average negotiated charge for each insurance payer, de-identified minimum charge, and de-identified maximum charge.
You'll also see a specification for whether the procedure is done on an inpatient or outpatient basis, as procedures done on an inpatient basis may incur additional charges, such as room and board charges