Q&A: Does Tort Reform Affect Rates of Diagnostic Imaging Services?

August 18, 2014

Recent study examines diagnostic imaging rate differences for all states; lead author Seth Stein, MD, helps dissect the information in this Q&A.

It’s little known outside the healthcare industry that each hospital has a list of each procedure’s price tag – and no two lists, commonly called the chargemaster, are the same. Chargemaster rates are routinely higher than the reimbursement rates from Medicare, but is there a price difference between states that have tort reform regulations that cap non-economic damages?

Diagnostic Imaging recently spoke with Seth Stein, MD, a radiologist with Temple University School of Medicine, about a study that evaluated chargemaster rates for imaging services nationwide. He and his colleagues analyzed charges for six diagnostic imaging services: Level I and Level III Diagnostic and Screening Ultrasounds, Level II and Level III Echocardiograms without Contrast, MRI and Magnetic Resonance Angiography without Contrast, and Level II Cardiac Imaging. Their findings revealed surprising results.

What prompted you to look at chargemaster rates for imaging services alongside the existence or non-existence of non-economic damage caps?

We were first inspired by the Time magazine article – “The Bitter Pill” – published last March. We were fascinated by the number of people who were over-paying for medical care, and this story familiarized us with the chargemaster for the first time. We also saw a lot of data from radiology about overutilization of imaging, increasing charges for imaging and the targeting of imaging by those in the federal government who are seeking to reduce the cost of care. We thought this would be the ideal opportunity to put together the political, medical and economic issues and look at the chargemaster within our field at the governmental level.

Initially, we met with revenue cycle analysts and managers at Temple University, the University of Pennsylvania and Thomas Jefferson University. They were very difficult to get a hold of, and they weren’t very willing or forthcoming with how much they’re charging. They have agreements with individual insurance companies not to disclose information about what they charge for medical care because insurers have different contracts with each institution. It was frustrating, but that’s when the Centers for Medicare & Medicaid Services (CMS) released data on the whole country – it was a stroke of good luck. We used the CMS data to analyze charges and compare between and within states to see, in certain markets that have a high density of hospitals, if perhaps increased competition would decrease the charges. Actually, it did the opposite.[[{"type":"media","view_mode":"media_crop","fid":"27065","attributes":{"alt":"","class":"media-image media-image-right","id":"media_crop_8137073513609","media_crop_h":"0","media_crop_image_style":"-1","media_crop_instance":"2595","media_crop_rotate":"0","media_crop_scale_h":"0","media_crop_scale_w":"0","media_crop_w":"0","media_crop_x":"0","media_crop_y":"0","style":"height: 243px; width: 200px; border-width: 0px; border-style: solid; margin: 1px; float: right;","title":" ","typeof":"foaf:Image"}}]]

What did you initially think you would find?

Our initial hypothesis was that states with capped non-economic damages (NED) would have lower charges. Previous data had shown decreased hospital expenditures for acute myocardial infarction and heart failure, so we thought charges for imaging would respond in a similar way. With less capital spent on lawyers and litigation, perhaps those hospitals wouldn’t necessarily be charging the same or as high an amount as those hospitals being consistently sued and having to pay for NEDs, in addition to the amounts for which they were held liable in lawsuits.

What factors seem to play a role in the wide range of chargemaster rates for the same services?

Tort reform is difficult to quantify. Each state has its own little stipulations as to when, how and what amount of non-economic damages can be paid out to plaintiffs. Some may cap it at $250,000 or another at $500,000, and some of that may include the physician and the hospital itself. So, every hospital and state is a little different. That was something that was difficult for us to quantify, in general.

Disproportionate share payments were another factor that we looked at. Hospitals may cater to a large number of Medicaid patients or self-pay patients opposed to hospitals in wealthier areas that don’t receive disproportionate share payments. Hospitals that do may charge more to the common person who is insured as a cost-shifting measure – a lot of hospitals have cited increasing charges to account for their large patient population that doesn’t pay for medical care.

There are also hospitals increasing their charges because of the charity care they offer. A lot of hospitals will say that charges aren’t important because Medicare sets payments based on RVUs and ignores what the hospital is charging. We think charges are important because Medicaid is not universally expanding. It’s a very hot political issue – a lot of republican governors are rejecting the Affordable Care Act (ACA) Medicaid expansion. That leaves millions of Americans uninsured, and they aren’t going to be able to qualify for Medicaid. So, they are self-pay patients. What do they pay? They pay either the chargemaster rate – which is obscenely expensive and more than what Medicare reimburses – or they pay a fraction of that. In our discussions with individual hospitals, we discovered it’s a case-by-case basis. The American Hospital Association and the Affordable Care Act (ACA) stipulate that hospitals shouldn’t charge self-pay patients more than what someone who has insurance would pay. But that’s not necessarily the case thus far. As the Time article points out, people are left with medical debt for the rest of their lives.

Another aspect of why charges are important is the hospitals will use their charges to write off medical debt. For example, you’re uninsured and have $100,000 in medical care charges and the hospital decides to provide it pro bono. But I’m insured and have the same procedures done and received the same medical care, and my insurance paid the hospitals $20,000. The hospitals will still say, when they file their taxes, that they provided $100,000 worth of pro bono medical care, even though the average American insurer is paying $20,000. It’s an over-estimation, and it’s in their best interest to keep charges high for that reason.

What, if anything, do your findings say about or mean for imaging utilization?

The fact that these charges are going up at the rate they are will target radiology as one of the first things to undergo a reimbursement cut – especially if radiology has increasing charges compared to other procedural fields. This isn’t necessarily proven in our study, though we chose to look at radiology because that’s our interest and because it’s been such a hot issue in the media. We’ve learned first-hand that CMS is trying to cut reimbursement to radiology particularly because it’s an easy thing to cut.

Were there any surprises in your findings?

I was anticipating states like California that have all these laws in place to try to protect self-pay patients and healthcare consumers to have the least expensive hospital charges. After all, California was the landmark state to pass caps on non-economic damages. But it was in the top five for all the categories we looked at for mean hospital charges. Some of the other states that had lower charges don’t have caps on non-economic damages and hospitals can be sued for unlimited amounts of money. That was a surprise to me.

Tort reform has always been a factor and talking point in medicine, and a lot of people lamented it not being a greater part of the ACA. Instead, the ACA funded subsidies to different pilot programs that would research better ways to deal with medical liability as a means of reducing costs for hospitals, physicians themselves, and for reducing the cost of care for healthcare consumers. I’m a proponent of tort reform for a number of reasons, but these findings don’t show it has any effect on what hospitals are charging. That leaves the door open to look at a number of other factors in future studies. There’s just no correlation – it was the opposite. You can’t attribute it to having tort reform, so there must be other factors and the arbitrariness of chargemaster rates.

How can or should providers and facilities use these findings?

The findings show this is an obviously multi-factorial issue, and everyone looking at the data should try to see how we can use it to improve patient care. How can we use it to try to find specific things about why chargemaster rates are so high in certain areas? I think it’s also useful for the healthcare consumer. If you live on the border of two states, and one has extremely high charges, and you’re a self-pay patient, and the other state doesn’t, you’ll go to the state where charges are lower. But, this will be exceedingly rare with the passage of ACA as more people become insured.