Big divergence nationally found among hospitals both in billed charges and amounts paid

• Differences of more than 200% exist nationally both in what hospitals charge and in the revenue they garner for care.
• In one local market, differences of more than 100% were seen both in what hospitals charged and in the revenue they received for MRIs.
• The analysis identified steps hospitals can take to position themselves for coming transparency mandates.

As hospitals prepare for January 2021 implementation of a controversial federal rate-transparency requirement, a new analysis has found more than 200% variation both in gross charges and in accepted amounts.

The analysis, conducted by revenue cycle firm Crowe, examined gross charges and accepted amounts for the top 100 outpatient procedures for which the charge was at least $500 at more than 1,200 hospitals in 45 states. Findings included:

• A 297% difference between the highest and lowest gross charges for each procedure
• A 236% difference between the highest and lowest amount accepted for each procedure
• A 406% difference between the highest and lowest gross charges for a high-severity, potentially life-threatening visit to the emergency department

The analysis noted that some disparities in charges and accepted amounts are common nationally because of differences in labor markets, local economics and health plan negotiations.

But a significant divergence also was seen in a single local market. Crowe reviewed charges and accepted payments for MRIs in an unnamed market of more than 3 million residents and found a 115% difference between hospitals with the highest gross charges ($4,548 among the most expensive 5%) and lowest gross charges ($2,115 among the least expensive 5%). The median gross charge for MRIs was $3,105.

Similarly, Crowe found in that market a 126% difference between the highest accepted amount ($1,390) and the lowest ($615). The median accepted amount was $917.

The significance of the spread

The findings did not surprise Brian Sanderson, managing principal of healthcare services at Crowe and the author of the analysis. The data echoed charge and revenue spreads the firm found in previous unpublished analyses, as well as academic research. However, the Crowe analysis used actual hospital revenue, instead of proxies, to identify realized income.

“We’ve known this for a long time; we look at it every day,” Sanderson said in an interview.

The firm hopes the specific data will help inform the ongoing discussion around hospital price transparency. The highest-profile transparency development is the new federal requirement that beginning in January 2021, hospitals post online all their standard charges (including gross charges, payer-specific negotiated charges, de-identified minimum and maximum negotiated charges and discounted cash prices) for all items and services.

“It’ll get them incrementally closer” to useful information for consumers, Sanderson said about the transparency requirement, which hospitals are challenging in court. However, even with the requirement, consumers “won’t have the true price.”

The rule exempts hospitals with certain types of price-listing tools, but such information is well short of what consumers are used to from other industries, he said.   

More useful price transparency has been provided by hospitals on bundles of care for cosmetic surgery and by some ambulatory surgery centers on services like elective eye surgery, he said.

What do the findings mean for providers?

Increasing attention on the large spreads in hospital charges and realized revenue for services should inspire executives to address the issue along several lines, Sanderson said.

Justifying  charges. Hospitals should identify the justification for their various charges, which could stem from geographic differences, quality outcomes or academic position.

“Providers need to articulate the justification for why they would charge for something that is commoditized or not commoditized,” Sanderson said.

He cited the example of academic medical centers, which have larger charges for their specialized services and lower charges for commoditized services.

Creating package pricing. Hospitals should start to create package pricing that includes a “not-to-exceed price,” Sanderson said.   

“That would help the consumer experience,” he said.

Focusing on marketplace differentiation. Hospitals should detail the features that set them apart in local markets and that could drive their appeal to various types of consumers.

“In a consumer-driven world, brand is everything,” Sanderson said.