Article by: George A. Nation III

43 PEPP. L. REV. 745 (2016)

Hospital list prices, contained in something called a chargemaster are insanely high, often running ten times the amount that hospitals routinely accept as full payment from insurers. Moreover, the relative level of a particular hospital’s chargemaster prices bears no relationship to either the quality of the services the hospital provides or to the cost of the services provided. The purpose of these fictitious list prices is to serve as a starting point or anchoring point for negotiations with third-party payers regarding the amount that they will actually pay the hospital for its goods and services.

Ironically, there is widespread agreement, even on the part of many hospital administrators, that the prices reflected on chargemasters are ludicrously high and are set in an arbitrary and capricious manner. Hospital administrators often argue that this does not matter because no one really pays chargemaster prices. In this contention, however, hospital administrators are mistaken. These insanely high chargemaster prices cause myriad problems throughout the healthcare system. For example, often self-pay patients are in fact expected to pay these exorbitant charges because many hospitals refuse to reduce their charges for many self-pay patients. As a result, debt collectors, often working on behalf of so-called charitable hospitals, hound many self-pay patients mercilessly, to the point of bankruptcy, in a usually futile attempt to collect these outrageous charges.

In addition, chargemaster prices increase constantly and create upward pressure on pricing throughout the healthcare marketplace, resulting in overall higher prices. This is borne out by the fact that over the last ten years increases in the price for hospital care, along with price increases for drugs and medical devices and not intensity of service or demographic change, produced most of the increase in healthcare’s share of GDP.  High chargemaster prices is one of the reasons that healthcare in the United States is more expensive than any other developed country. Also, the chargemaster pricing system contributes significantly to a lack of price competition in healthcare, which exacerbates the problem. That is, the chargemaster system makes meaningful comparison-shopping by patients on the basis of price impossible because it all but eliminates price transparency, encourages complex and meaningless (to the patient) à la carte pricing, and contributes to rampant price discrimination.

Creating a more competitive healthcare market is necessary in order for the United States to continue to provide the highest quality healthcare in the world. The chargemaster pricing system has been a significant factor in the destruction of the competitive market for healthcare. I argue here that the government needs to step in, not to take over responsibility for providing healthcare, but just the opposite, to eliminate the chargemaster pricing system and allow a more competitive market in healthcare to flourish, which will allow each individual to take greater responsibility for their own acquisition of healthcare goods and services. The purpose of the solution I argue for here is to empower individuals to force hospitals to compete on the basis of price and quality.