Study Suggests Hospitals Using ‘Chargemaster’ Markups to Maximize Revenue

Article as seen in Johns Hopkins Carey Business School on September 7, 2016

Hospitals’ CT Scan And Anesthesiology Departments On Average Charge More Than 20 Times Their Costs

Hospitals on average charged more than 20 times their own costs in 2013 in their CT scan and anesthesiology departments ― suggesting that hospitals strategically use “chargemaster” markups to maximize revenue, according to new research from Johns Hopkins University.

Appearing in the September issue of Health Affairs, the study notes that many hospital executives say the chargemaster prices determined by individual hospitals for billable items are irrelevant to patients.

However, the relation between chargemaster markups and hospital revenue and the variation in markups across hospitals and departments show that the hospitals are still using their chargemaster markups to enhance revenues, say the study’s authors, Ge Bai of the Johns Hopkins Carey Business School and Gerard F. Anderson of the Johns Hopkins Bloomberg School of Public Health.

“Hospitals apparently mark up higher in the departments with more complex services because it is more difficult for patients to compare prices in these departments,” states lead author Bai, a Carey Business School assistant professor whose expertise is in accounting issues within the health care industry.

The average charge-to-cost ratios for hospital departments vary from a low of 1.8 for inpatient general routine care to a high of 28.5 for computed tomography (CT) scan, with anesthesiology right behind at 23.5. This means that a hospital whose costs in the CT department are $100 will charge a patient without health insurance and an out-of-network privately insured patient $2,850 for a CT scan.

Anderson, a professor in the Bloomberg School’s Department of Health Policy and Management, says the impact of hospital markups is vast: “They affect uninsured and out-of-network patients, auto insurers and casualty and workers’ compensation insurers. The high charges have led to personal bankruptcy, avoidance of needed medical services, and much higher insurance premiums.” Continue reading