MedPAC explores hospital pricing practices

Healthcare Financial Management, Nov, 2004

The Medicare Payment Advisory Commission (MedPAC) is focusing on the hospital pricing issue. At its September 10 meeting, MedPAC reviewed findings of a research project that it commissioned from the Lewin Group on hospitals' charge-setting practices.

Key findings of the project, which consisted of interviews of 251 hospitals that were chosen to provide representation from across the country, included:

* Noncost data are just as important as cost data in revising charges. Noncost data include public data, market information, advice from consultants, and information from payers (including Medicare).

* Costs play a large role in setting charges for supplies and pharmaceuticals, where most hospitals use formulas or tables based on acquisition costs of the items.

* Formulas for pharmaceutical charges caused the markup to vary by the type of drug or the route of administration (oral or intravenous), or the preparation.

The survey findings are relevant to MedPAC's analyses of specialty hospitals (see "Industry Watch" story on page 23), the relative weights of DBGs that result from using charges versus using charges reduced to costs, the commission's mandates to study pharmaceutical payment, and CMS outpatient payment processes and approaches that would adjust for differences in markups.

To read the MedPAC discussion on hospital pricing practices, go to www.medpac.gov click on "Meetings," scroll to "September 9-10, 2004," and then scroll down to the transcipt under "Results of the Hospital Charging Practices Survey."

To browse related HFMA resources, go to www.hfma.org/resource/pfs1.htm.>

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