Editor’s Note: Read Dr. Cedric Dark’s commentary on this EMRA + PolicyRx Health Policy Journal Club article.

There is no standard for how much health care services should cost nationally, so it is difficult to determine if and how much hospitals and clinics “overcharge.” Insurers do not reimburse the full charges, and health care bills may be inflated to adjust for the reduced reimbursement.

A recent study in JAMA Internal Medicine compared Medicare reimbursement to billed services.¹ Medicare provides health insurance for the elderly and reimburses hospitals with predetermined and fixed prices. These reimbursements are called “allowed charges.” Allowed charges were used as a proxy for the true price of health care services.

To determine the excess markup of health care services, this retrospective study analyzed Medicare Part B claims submitted in 2013. The study included services provided by 12,337 emergency physicians and 57,607 internal medicine physicians who were affiliated with thousands of hospitals. Markup was defined as the ratio of charges billed to Medicare compared to Medicare allowable charges. The study then compared markup between hospitals and between specialties.

The study determined that services delivered by emergency physicians were billed at 4.4 times the allowable Medicare payment, while services delivered by internists were billed at 2.1 times the allowable Medicare payment. Hospitals ranged greatly in terms of markup, with emergency services varying from 1 to 12.6 times the allowable amount. For-profit hospitals, hospitals with a high proportion of uninsured patients, and hospitals in the Southeast had greater markups.

The findings of this study must be put into context to understand their implications. This study used Medicare allowed charge as a proxy for health care prices, which represents a significant limitation. Medicare reimbursement has increased less than the inflation rate since the mid 1990s and may significantly undervalue true health care costs.

To understand the findings of the study, we need to make health care costs more transparent. The Fair Health claims database (www.fairhealth.org), for example, is dedicated to gathering independent and unbiased health care cost information. The nation should employ databases like this to advocate for less arbitrary reimbursement by insurance companies and to promote health care billing that is consistent with true cost.

Ms. Goldstein is a dual-degree student at NYU School of Medicine and the Wagner School of Public Service in New York City.

References

1. Xu T, Park A, Bai G, et al. Variation in emergency department vs internal medicine excess charges in the United States. JAMA Intern Med. 2017;177(8):1139-1145.