Use of Chargemaster Rates in Balance Billing

This study reiterates our position on the use of hospital chargemaster rates in balance billing for out-of-network charges.

What is Balance Billing?

Balance Billing is a term used when an insured patient is responsible for the balance between what their insurance company is contracted to pay and what their physician or the facility wants to charge for a service.  Balance Billing often occurs when an insured patient receives treatment from an out-of-network physician at an in-network facility.  This can be for a planned procedure or an emergency room visit.  The patient believes charges by all treating physicians will be covered by their insurance plan because the facility is in their network of providers.  But when a patient is treated by an out-of-network physician, the patient is on the hook for the difference or the balance between what the insurance plan is willing to pay and the amount charged.

Out-of-network charges often come straight from the hospital’s chargemaster which is a listing of every procedure, service or item that a hospital can charge to patients or to their insurance providers.  These highly inflated rates are used by hospitals as a starting point for negotiating pricing with patients or third party payors.

The stress and financial strain imposed on balance billed patients has garnered increased attention.  Legislators and insurance companies in various states continue to propose ways to protect consumers from balance billing for out-of-network charges.  However, nothing yet has proven to be a solid solution for every situation or for all states across the U.S.

The Study:

A study, recently published in the American Journal of Managed Care by two attorneys and two physicians, completely supports what we have been saying all along.  Uninsured patients and insured patients receiving care from an out-of-network provider should be responsible for paying a reasonable and regular rate for the services they receive.  The use of contract law eliminates chargemaster rates from being considered as they are not commonly paid by any entity.  Rudimentary contract law can be used to successfully determine a fair market price for services rendered that are acceptable by both parties.

The authors state: “Contract law offers not only a promising solution, but a better one.  It has the virtue of simplicity. It does not create a new fiduciary duty or consumer protection. It neither expands the reach of a federal statute nor limits the reach of state regulatory power. It avoids the imposition of a new regulatory apparatus. And perhaps best of all, it triggers market solutions to address healthcare costs.  A contract law solution empowers the very parties who currently are being exploited by out-of-network charges.”

Courts can sometimes be hesitant to implement contract law because of the challenging task of determining the “average negotiated price” or the “market price” providers should be paid for a service.  The authors suggest three ways courts can be assisted in determining a fair market price.

They first suggest that courts should be encouraged to utilize public or private healthcare pricing databases.  Our immense database at Chapman Consulting, LLC is a perfect tool for determining reasonable and regular healthcare market pricing and is currently used by our clients for that exact purpose.

Secondly, the authors suggest that courts should provide judges with a “special master” that is “a midcareer empirical health economist” to help determine what an average negotiated price would be for a service.  The president of our company, Marc Chapman, is exactly such a special master.  Mr. Chapman’s years of experience as an accountant in hospital finance as well as the principle at our company, Chapman Consulting, LLC, responsible for determining reasonable pricing for a wide variety of clients warrants such a title as “empirical health economist”.

The third suggestion the authors propose to assist courts in determining market prices is to calculate 125% or 150% of Medicare rates for a service.  Although Medicare rates are on the lower end of accepted payment by providers, offering a multiplier of those rates would provide “reasonable compensation while drastically reducing the costs of out-of-network care.”

Conclusion:

The study provided this conclusion: “Applying this interpretation of contract law will prevent providers from hiding behind a convoluted hospital pricing system, will encourage the development of attractive narrow network insurance offerings, and will shield urgently sick people from the dread of medical predation.”  Furthermore, the study states “Public law enforcement officials have an opportunity to give immediate relief to constituents who are routinely injured by chargemaster abuses.”

Feel free to contact us if you have any questions about this topic, would like our opinion on a case, or need assistance with a balance bill you or your client need to have reduced.  We would love to help however we can.

Link to the study:

Battling the Chargemaster: A Simple Remedy to Balance Billing for Unavoidable Out-of-Network Care

By Barak D. Richman, JD, PhD; Nick Kitzman, JD; Arnold Milstein, MD, MPH; and Kevin A. Schulman, MD

The American Journal of Managed Care

April 2017, VOL.23, NO. 4

http://www.ajmc.com/journals/issue/2017/2017-vol23-n4/battling-the-chargemaster-a-simple-remedy-to-balance-billing-for-unavoidable-out-of-network-care/P-1

 

Links to other related articles and studies:

AJMC® Authors Say Contract Law Offers a Fix for Out-of-Network Billing

Business Wire, A Berkshire Hathaway Company

May 4, 2017

http://www.businesswire.com/news/home/20170504006164/en/AJMC%C2%AE-Authors-Contract-Law-Offers-Fix-Out-of-Network

 

Is Billing Some Patients at Hospital Chargemaster Rates Legal?

RevCycle Intelligence

May 6, 2017

http://revcycleintelligence.com/news/is-billing-some-patients-at-hospital-chargemaster-rates-legal