Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Practice Management News

Is Billing Some Patients at Hospital Chargemaster Rates Legal?

A recent study claimed contract law does not support providers billing hospital chargemaster rates for uninsured patients and out-of-network services.

Collecting the hospital chargemaster rate from uninsured and out-of-network patients is not exactly legal, a new report contends

Source: Thinkstock

By Jacqueline LaPointe

- Contract law does not uphold the medical billing practice of charging uninsured or out-of-network insured patients hospital chargemaster rates that are not based on actual healthcare costs or market-negotiated prices, argued authors of a recent American Journal of Managed Care report.

“Chargemaster abuses from OON [out-of-network] and emergency care inflict serious financial harm to the most vulnerable while undercutting the functioning of healthcare markets and the creation of valuable insurance products,” the study stated. “At the same time, they present straightforward questions of contract law and lead to a simple conclusion: providers are entitled only to collect prevailing negotiated prices for OON services, and patients and payers are under no legal obligation to pay higher chargemaster charges.”

Hospital leaders are often challenged by patients who have not negotiated medical billing rates or procedure costs through a payer. Providers cannot turn to a payer to receive claims reimbursement for services rendered to uninsured or out-of-network insured patients.

In response, many hospitals bill these patients at the chargemaster rate. However, hospital chargemaster rates do not always reflect actual healthcare costs and are not based on market forces. Limited healthcare price transparency across the industry also prevents hospitals from setting competitive prices.

In addition, the authors claimed that hospital chargemaster rates frequently charge more than actual healthcare costs because executives use the rate as a starting point for payer contract negotiations.

READ MORE: Key Ways to Boost Collection of Patient Financial Responsibility

As a result, hospital chargemaster rates can be significantly greater than healthcare prices set in payer contracts. Hospital chargemaster rates were typically 2.5 times higher than what most payers received and over 3 times actual hospital costs, a cited Health Affairs study revealed.

Receiving a surprise medical bill seeking to collect the hospital chargemaster rate is also a common event for healthcare consumers. Roughly 20 percent of hospital admissions stemming from an emergency department visit in 2014 resulted in unexpected patient financial responsibility, recent research showed.

The unexpected nature and higher healthcare costs of the medical bill can put significant financial pressure on patients. Therefore, some healthcare stakeholders have tried to prevent hospitals from charging higher chargemaster rates primarily through several strategies.

First, some state policymakers and healthcare stakeholders used a healthcare price transparency approach. Some states mandate that payers inform their members of the financial consequences of going out-of-network, provide accurate network directories, publicize healthcare cost information for out-of-network services, and notify members at the point-of-service about out-of-network costs.

Some states are also developing all-payer claims databases that allow consumers to find and compare healthcare prices for common healthcare services.

READ MORE: How a Small Hospital Increased Patient Collections by 300%

However, greater healthcare price transparency does not apply to emergency situations. Healthcare consumers typically see out-of-network providers or seek healthcare services when they are uninsured in emergencies. In these cases, consumers have little time to compare prices.

Second, several balance billing laws stop out-of-network providers from directly billing patients for differences between claims reimbursement and hospital chargemaster rates. For example, New York and California recently enacted legislation that prohibited balance billing for emergency services, developed a provider-payer medical billing dispute process, and capped default out-of-network charges.

Almost one-quarter of states enacted balance billing legislation, Kaiser Health News recently reported. But the laws do not always cover every type of healthcare service, resulting in continued medical billing challenges.

Third, some state policymakers established “hold harmless” policies to combat high hospital chargemaster rates and balance billing issues. The policies require payers to absorb the surprise medical bills. Payers can either pay the hospital chargemaster rate, negotiate a lower price with the hospital, or dispute the medical bill in court.

Researchers contended that the “hold harmless” policy does not prevent patients from greater healthcare costs stemming from hospital chargemaster rates. Payers may take on the extra costs, but they are likely to pass on the financial burden to consumers through higher premiums.

READ MORE: 4 Key Ways to Boost Point-of-Service Patient Collections

Instead of the common balance billing strategies, researchers suggested that state leaders use contract law to stop hospitals from charging chargemaster rates exceeding actual healthcare costs or negotiated rates.

“Contract law offers not only a promising solution, but a better one,” the authors contended. “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.”

Under contract law, hospitals cannot legally collect chargemaster charges because the transaction lacks mutual assent. Hospital chargemaster rates are not accepted by payers or patients prior to services and the rates are not prices payers would reasonably agree to pay providers.

The law only allows providers to charge “the average amount that [the provider] would have accepted as full payment from third-party payers such as private insurers and federal healthcare programs,” according to a New England Journal of Medicine report.

Therefore, hospitals should only charge rates for out-of-network services at no more than the negotiated market prices.

Researchers added that the contract law strategy should help hospitals to set appropriate healthcare prices in their chargemasters and alleviate the financial burdens imposed on patients.

“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,” the study concluded.


Join 30,000 of your peers and get free access to all webcasts and exclusive content

Sign up for our free newsletter:

Our privacy policy

no, thanks

Continue to site...