Facility Costs

Reducing Claim Spend

Facility Costs

Facility costs are a large component of benefit spend (40%-55%). Facility charges include: inpatient, outpatient, ER, Urgent Care Center and diagnostics. There has been a lot of press (TV, Paper, Electronic) regarding the freedom facilities have to up-charge for services. National data identifies mark ups vary from 300% up to 10,000%. Hospital billing varies wildly according to the New Your Times article. As insurance carriers negotiate contracts with facilities, the charge for services becomes a moving target. Gerard Anderson, Director of Johns Hopkins Center for Hospital Finance and Management stated, “charges that were 10%-20% over cost were reasonable. However, charging 400% more that what it costs has no rational basis at all.”

It is becoming realized that discounts are illusions. While large insurance carriers boast about their discounts, the real problem is that hospitals are at liberty to “mark up” to the point where a discount is not effective. According to Caroline Steinberg, VP Trends & Analysis of American Hospital Association, “The hospital raises its rate to cover the discount.” So therefore getting a 50% or even 60% discount off of the hospital’s charge-master price of an item that costs $13 and lists for $199.50 is still no bargain.

Consider another simple example of a CT Scan without contrast (no dye).

  • Billed: $3,037 (approximately 14.5 times Medicare)
  • Medicare Allowable: $175 (the government allowed amount and accepted by the hospital)
  • Cost: $45
  • National Average: $1,674 (national average charge for CT Scan)
  • 55% discount: $1,518
  • If reimbursement is based on a % over cost OR a % over Medicare allowable, claim costs will be reduced. We have the solution for you.

In less than a week in May 2013, there were two press releases on overcharges, improper codes, and the spiraling cost of care. In essence there is no one watching out for the member and employer/plan sponsor.

  • NBC Investigates Charges in Connecticut – view here
  • Wall Street Journal – view here
  • CNN expose from 2012 that further illustrates this problem – view here
facility costs

“The hospital raises its
rate to cover the discount”

Caroline Steinberg – Vice President for Trends Analysis
at The American Hospital Association, New York Times Article, May 8, “Hospital Billing Varies Wildly”