A new report from the Moran Company offers important insight into hospital charge and reimbursement levels. According to Moran, hospitals are generally not paid 100% of billed charges; however, hospital outpatient departments are routinely reimbursed as a percent of billed charges by commercial payers. In the hospital outpatient setting, surveyed payers indicate that 54% of covered lives had their services reimbursed under a percent of charges model. More than half of payers surveyed (51%) indicate that percent of billed charges remains the most common reimbursement mechanism in the hospital outpatient setting for single source, brand specialty medicines.
According to the report, there is also evidence of a correlation between increased hospital charges and increased reimbursed amounts to hospitals by private payers. High hospital charges can also be passed along directly to uninsured patients and other groups who have not negotiated rates with the hospital, leading to financial hardship for patients and increased premiums for automotive and workers’ compensation insurance. Moran found that on average, hospitals charge 479% of their cost for drugs nationwide. The report suggests that most hospitals (83%) charge patients and insurers more than double their acquisition cost for medicine, marking-up the medicines 200% or more. The majority of hospitals (53%) markup medicines between 200% and 400%, on average.
A small share of hospitals (17%) charges seven times the price of the medicine. On a medicine with an average sales price of $150, a 700% markup would result in a charge of $1,050. One out of every 12 hospitals (8%) has average charge markups greater than 1000%; meaning they are charging at least 10 times their acquisition cost for medicines, on average (Figure 1). Moran used the 2016 cost reports from the Healthcare Cost Report Information System in their analysis. Hospitals with a full year of cost report data in 49 states and D.C. were included. Hospitals in Maryland were excluded since they are paid under a waiver program that is atypical from other payment systems. The four-page report is available online.
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