The Mysteries of the Charge Master

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. . . and other alarming tales from the world of health care – in which spiraling costs, confusing billing, and unequal access call for some strong (business) medicine. 

By David Glenn

Sometimes it takes an outside perspective to notice the obvious.

Eight years ago in Michigan, Ge Bai gave birth to a baby boy. It was the first time she’d ever spent the night in a hospital. She’d been in the United States for just a few years, having grown up in northeastern China.

The birth was uncomplicated, and the family settled in at home. Bai took a few weeks off from her doctoral studies in accounting, and her husband took a break from his own research in engineering.

Then the hospital bill arrived.

“There were gross charges, and adjustments, and then there were net prices,” Bai recalls. “And those numbers didn’t seem to have any connection to each other. I thought: I’m a CPA. If I can’t understand this bill, what must it be like for average people?”

When Bai talked to her accounting colleagues, though, many of them didn’t understand her frustration. The message she heard was: Ah, it’s just American health care. Of course it’s crazy. There’s nothing really to see here.

Bai disagreed. She felt certain that medical pricing must be fertile ground for an ambitious accounting scholar.

Her instincts turned out to be right. In the last five years, Bai has drawn national attention for a series of papers on the elaborate mechanisms that hospitals use to maximize their revenues. On the strength of those papers, Bai became a member of the Carey Business School faculty in the fall of 2016, joining a number of other scholars doing innovative health care research.

Among other topics, Bai has shed light on hospitals’ “chargemasters” – the often-sky- high price lists that hospitals use when billing uninsured and out-of-network patients. In a study that was cited before a congressional committee in 2015, Bai and her colleagues identified the 50 U.S. hospitals with the highest average markups, relative to the prices the federal government pays for Medicare patients. (Forty-nine of those 50 hospitals were for-profit, and 20 of them were located in Florida.)

“This study had a huge impact in Florida,” Bai says. “But even though there was all of this media coverage, a follow-up study a year later found that prices at those hospitals were still very high. So it seems that public shaming has its limitations.”

Several of Bai’s best-known recent papers were written in collaboration with Gerard Anderson, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health and one of the country’s foremost experts on hospital finance. “Ge is one of the hardest workers, just one of the most diligent people I know,”

Anderson says. “She’s trained herself to read a hospital balance sheet, which is a rare skill. She knows how to put numbers together accurately and to analyze them in a fair way. None of this work would have been possible without her.”

GE BAI

Growing up in China, Bai – whose name is pronounced “Jee Bye” – had no expectation of moving to the United States or becoming a scholar. As an undergraduate at the Dalian University of Technology at the turn of the century, Bai double-majored in mechanical engineering and Japanese literature. It was a common pairing among her cohort, Bai says: Students chose those two majors with the aim of being hired by Chinese firms to sell specialized equipment to Japanese clients.

For Bai, the bet paid off. “I was hired as an international sales associate, selling goods to Europe and Japan,” she says. “That was when I realized how much fun it can be to be on the business side. I loved it.”

She reluctantly gave up that job in 2004, when her husband was awarded a scholarship to study engineering at the University of Michigan. It was not an easy transition. Despite her work in international commerce, Bai and her husband had never set foot outside China. “Neither of us was comfortable speaking English,” she says. “And frankly I felt like I had nothing to do. I didn’t want to be a housewife my whole life.”

To get herself out of the house, Bai studied accounting: first a master’s degree at Eastern Michigan University, then a brief stint working for an auto-parts manufacturer, then a doctoral program at Michigan State. It was during her doctoral program that her son was born and she had her fateful encounter with hospital billing. She found one faculty member at Michigan State who shared her curiosity about health care: Ranjani Krishnan, a professor of accounting and information systems.

“I was one of the only people in the building doing empirical work in the health sector, so that’s how we wound up collaborating,” Krishnan says. “Ge is just such a joy to work with. She has this incredible enthusiasm, and she’s also extremely focused.”

“IF I GO ON VACATION IN FLORIDA AND I BREAK MY LEG, BOTH THE HOSPITAL AND THE PHYSICIANS WHO TREAT ME MIGHT NOT BE IN MY NETWORK. THIS COULD EASILY BANKRUPT ME. SO THESE HIGH GROSS PRICES ON THE CHARGEMASTER CAN AFFECT ANY OF US – EVEN THE EMPLOYED AND THE WELL-INSURED.”

— GE BAI

At Bai’s suggestion, she and Krishnan conducted an ambitious study of hospital boards of directors, using data from California. Among other things, they found that hospitals with physicians on their boards tend to deliver higher-quality care (on measures such as pneumonia management and prevention of post-surgical infection).

When Bai finished her doctorate, she was hired as an assistant professor of accounting at Washington and Lee University, in Lexington, Virginia. She hadn’t forgotten about her perplexing hospital bill, and she still wanted to probe deeper into hospital charges. “I started doing literature reviews, looking at who did serious research in this area,” she says. “One name kept coming up: Jerry Anderson.”

She sent Anderson an e-mail, and she soon drove to Baltimore to meet with him at the Bloomberg School. “I get a fair number of queries like that,” Anderson says. “And in most cases, the person never really follows up. But Ge followed up instantaneously. She had good ideas for projects, and she had clearly done her homework. We would develop a question to analyze, and she would just take off and do it.”

Bai and Anderson’s first major collaboration involved the mysteries of the chargemaster. The chargemaster is a list – often thousands of items long – that specifies prices for any service one might conceivably receive at a hospital. Those prices are often set at levels far above the price the hospital actually typically receives. For a CT scan of the head, for example, a hospital might be reimbursed $100 for Medicare patients, or a somewhat higher amount – say, $300 – for a privately insured patient. But the hospital’s official price, listed on its chargemaster, might be $600 or more.

Bai and Anderson analyzed public financial data from 4,483 U.S. hospitals for fiscal year 2012. They identified the 50 hospitals with greatest markups on the chargemaster listing – 10.1 times the Medicare price, on average.

Why hike prices so steeply? One reason is to collect as much money as possible from uninsured patients. In many cases, hospitals know that they’ll collect pennies on the dollar from uninsured patients’ bills. If the baseline prices are steep, however, even 10 cents on the dollar yields revenue equivalent to what Medicare would have paid for the same services.

Also, certain hospitals might simply want to extract money from unlucky out-of-network tourists. (Recall that 20 of the 50 hospitals on Bai’s list are in Florida.)

JEMIMA A. FRIMPONG

“In some areas of Florida, patients don’t have any option to go to a nonprofit hospital,” she says. “They’re just completely dominated by the for-profit chains. If I go on vacation in Florida and I break my leg, I’ll get taken to the nearest hospital, and that hospital will probably be a for -profit. Both the hospital and the physicians who treat me might not be in my network. So I’ll end up using a hospital out of network, seeing an emergency-medicine physician out of network, an orthopedist out of network, and I might also get a bill from a radiologist out of network. This could easily bankrupt me. Easily. So these high gross prices on the chargemaster can affect any of us – even the employed and the well-insured.”

After looking at variations among hospitals, Bai and Anderson turned to the question of variations among different medical services within hospitals. In a paper in the Journal of the American Medical Association this past January, they reported that anesthesiology is the service with the largest markups (again, relative to what Medicare is willing to pay).

“I think the heart of this is that most patients don’t have any ongoing relationship with their anesthesiologist, so the anesthesiologists don’t feel constrained,” Anderson says. “Some patients might ask what their surgeon is going to charge, but almost no one asks about the anesthesiologist. In some cases you don’t even meet your anesthesiologist until a few minutes before you go under.”

Bai and Anderson’s next frontier is pharmaceuticals. “We have exactly the same problem with drug pricing that we do with hospital bills,” Bai says. “You have gross prices and net prices and no obvious or logical connection between them.” The two researchers have begun work on a major study of the mysteries of drug pricing. In February they traveled to New York and interviewed several investment firms, hoping to gain a fuller sense of the incentives and constraints that pharmaceutical companies face.

Bai is also undertaking a catalog of the prices that various government programs – Medicare, Medicaid, the VA system, and federal prisons – actually pay for drugs. “There’s so much that’s opaque about drug prices,” Bai says. “Let’s say you have a $100 gross price for a drug. How much of that is within the supply chain? We just don’t know.”

Bai says she cannot imagine a better place to do this work than the Carey School. “Carey is the best platform imaginable for me,” Bai says. “The location is close to D.C., it’s close to the best hospitals, the best medical school, and the best public health school in the world. I have access to stakeholders in health care and in government and extremely broad research resources at Hopkins.”

Bai also says that Carey is one of the few major business schools with a well-developed interest in health care. Plenty of economists study health care, but Bai believes the sector has been badly neglected by the other disciplines represented at business schools: accounting, finance, management, marketing, and operations. “A lot of people in business schools seem to see health care as peripheral,” Bai says. “But there are so many important unanswered questions here.”

Krishnan, of Michigan State, agrees. “I think it’s because of the fascination with publicly traded firms,” she says. “People at business schools don’t tend to study non- profit entities. It’s a shame. Only around 30 percent of our GDP is actually generated by publicly traded firms.”

Carey has a number of faculty members with intense interests in health care. Jemima A. Frimpong, an assistant professor of management and organization, is leading an ambitious randomized controlled trial with life-and-death stakes: Can opioid treatment programs be persuaded to offer bundled rapid HIV and hepatitis C testing to their clients? Too many opioid treatment programs do not offer either test, much less both – even though intravenous drug users are at high risk.

The management barriers are substantial, because substance-use disorder programs are naturally organized around drug treatment and counseling, not infectious disease. “We have developed a treatment protocol that we believe will be effective and sustainable,” says Frimpong, who joined Carey at the same time as Bai, in August 2016. She hopes that her study will address several important questions: “How do you persuade the client to stay and wait 20 minutes for the rapid test results? How do you disclose the results, especially if the patient is positive for both? Telling someone that they have HIV and hepatitis C – that’s very loaded. And most importantly, how do you link them with follow-up medical care?”

Frimpong believes that the discipline of management has something vital to bring to the study of health disparities. “Scholars traditionally look at patient-level factors, including insurance status, race, and education,” she says. “Yet far less attention is given to organizational-level factors. Effective management practices, motivated staff, and a positive organizational culture and climate – those are all essential to delivering high-quality health care and reducing health disparities. Those topics are natural subjects for management theory, but they’ve been relatively neglected at business schools.”

Another Carey scholar who works on health care is Mario Macis, an associate professor of economics and academic program director of the master’s degree in health care management. Macis says Carey is ideally positioned to host such a program. “Johns Hopkins plays a major role in producing health care services, products, and innovations,” he says. “The health care sector is large and diverse, and there is an urgent need for managerial expertise in an industry plagued by spiraling costs and unequal access. We’re able to offer collaborative projects for our management students across the university.”

Macis himself is affiliated with one of Johns Hopkins’s highest-profile interdisciplinary projects: The Armstrong Institute for Patient Safety and Quality. In line with the mission of the Armstrong Institute, Macis recently helped lead a study of 80 Nigerian primary care clinics. Could a management intervention help those clinics deliver better care? Macis and his colleagues found that with the right kinds of feedback and support, clinics did indeed adopt safer standards of care.

Bai, meanwhile, is continuing to turn out research at a ferocious pace. In April, she and two colleagues published a short paper about data breaches in U.S. hospitals. (Larger hospitals, perhaps unsurprisingly, turn out to be statistically more likely to suffer breaches.) She also recently found that hospitals that invest more heavily in occupational therapy are less likely to see patients readmitted within 30 days after discharge. “That only makes sense, right?” she says. “If you’re going to send a frail elderly patient home, you want to be sure that she can safely get around her house, that she’s not going to fall.”

“FAR LESS ATTENTION IS GIVEN TO ORGANIZATIONAL-LEVEL FACTORS. EFFECTIVE MANAGEMENT PRACTICES, MOTIVATED STAFF, AND A POSITIVE ORGANIZATIONAL CULTURE AND CLIMATE ARE ALL ESSENTIAL

TO DELIVERING HIGH- QUALITY HEALTH CARE AND REDUCING HEALTH DISPARITIES. THOSE TOPICS ARE NATURAL SUBJECTS FOR MANAGEMENT THEORY, BUT THEY’VE BEEN RELATIVELY NEGLECTED AT BUSINESS SCHOOLS.”

— JEMIMA A. FRIMPONG

Bai says that she does not want her work simply to answer dry empirical questions. She also wants to influence public policy. “Jerry Anderson knows that we need to move toward actual policy options,” she says. “That’s one of the things I’ve learned through working with him.” Among other things, she believes states should consider emulating California’s Hospital Fair Pricing Act, which prohibits hospitals from charging uninsured patients more than the Medicare rate, and Maryland’s “all-payer” system, in which both public programs and private insurers pay the same rates for hospital services.

Both Bai and Anderson predict that hospital pricing will become even more complex and irrational if the Affordable Care Act is repealed. “If 20 million people lose coverage,” Anderson says, “hospitals are going to do what they can to try to recover some of that revenue. They’ll probably aggressively raise their prices.”

Bai says that the pricing system seems just as needlessly complex to her as it did when she got that first bill nearly a decade ago. “In the U.S., if you are insured, then everything is fine,” she says. “You don’t have to pay the gross price. But if you’re a vulnerable patient with no insurance, then you wind up in this horrible situation. Not only do you have this awful disease or accident, but you also have to pay higher bills than an insured patient ever would. And that’s not fair.”

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