By Paul Levy

First Posted at Not Running a Hospital on 5/8/2013

Paul Levy, Host of (Not) Running a Hospital

Paul Levy, Host of (Not) Running a Hospital

What on earth did CMS have in mind when it released the FY2011 chargemasters for America’s hospitals?  Well, according to one report:

The public release of the data is part of an effort by Medicare to increase transparency in the health system. 

“Historically, the mission of our agency has been to pay claims,” said Deputy Medicare Administrator Jonathan Blum. “We’ll continue to pay claims, but our mission has also shifted to be a trusted source in the marketplace for information. We want to provide more clarity and transparency on charge data.”

CMS explains:

Hospitals determine what they will charge for items and services provided to patients and these charges are the amount the hospital bills for an item or service.

This is a case where the release of bad data is worse than having no data at all.

A hospital’s chargemaster is an archaic fiction, a way previously used to allocate the joint and common costs of the hospital to particular services.  It does not serve as the basis for how much a hospital is paid by Medicare.  It does not serve as the basis for how much a hospital is paid by Medicaid.  It does not serve as the basis for how much a hospital is paid by private insurers.

Further because of federal and state prohibitions against balance billing of patients (i.e., the difference between the amount paid by an insurer and the amount of the charge), it also provides no basis to consumers that means anything at all.

But it sure creates a stir to be able to say: “For joint replacements, which are the most common hospital procedure for Medicare patients, prices ranged from a low of $5,304 in Ada, Okla., to $223,373 in Monterey, Calif. The average charge across the 427,207 Medicare patients’ joint replacements was $52,063.”

For the record, Medicare pays hospitals based on a formula that takes into account the difference in overall wages and prices in different parts of the country.  There are also adjustments for rural hospitals.  There are also adjustments for academic centers to pay for residency training. The chargemaster employed by a hospital is not a consideration in the establishment of these federally determined rates.

Likewise, Medicaid rates are based on a state-determined formula.

Likewise, private insurance companies often base their hospital and physician rates off the Medicare formula, or have their own approach (often not even related to the hospital’s actual costs).  Very, very few have rates based on “a percentage of charges.”

I don’t know what CMS really hoped to accomplish in the way of transparency by publishing out-of-date, irrelevant data.  But such behavior is consistent with CMS publishing out-of-date, irrelevant clinical outcome data.

Transparency, CMS style

CMS says that the recent release of information is “part of the Obama administration’s work to make our health care system more affordable and accountable.”  Oh, wait, this is the same president who had a photo-op with a robotic surgery company that has made its fortune by marketing high cost clinical equipment that lacks clinical evidence to support its relative efficacy.  This is the same president who compared hospital readmissions to going to an auto mechanic and having to bring your car back for re-repair, who doesn’t seem to understand the unintended consequences of poorly designed federal payment penalty strategies.

Meanwhile, CMS fails to take action to solve the well established and recognized problems in its own rate structure that encourage the medical arms race.  Even Mr. Obama’s former adviser wonders why the agency won’t or can’t solve that kind of problem.

When Brent James advises doctors “Don’t wait for Washington,” he knows of what he speaks.  Improvement in the health care system will not come from confused and politically conflicted federal officials.  The challenge is whether it will come from the health care professions, or whether we will start heading down an inexorably declining slope towards higher costs, poorer quality, and (quiet) rationing of services.