'Unethical': Cancer Care Bills Inflated 5 to 15 Times

Neil Osterweil

February 27, 2018

Patients with cancer can get a cruel surprise when they receive unexpected bills for costly "out-of-network" services provided in their ostensibly "in-network" hospital.  

Add in high monthly insurance premiums and deductibles, substantial copays, and the euphemistically named "coinsurance," and the unsuspecting patient can get a very nasty surprise indeed, says a team of physicians and healthcare analysts.

In a study published online February 17 in The American Journal of Managed Care, they found that wide variation in markups on outpatient oncology services in the United States can impose severe financial hardships on many patients.

"What we found in the marketplace is that over one quarter of the medical centers that provide cancer services are charging more than 5.1 times the Medicare allowable amount, and in some cases the centers are charging more than 15 times the Medicare allowable amount," said lead author, Martin A. Makary, MD, MPH, a cancer surgeon at Johns Hopkins Hospital in Baltimore, Maryland.

Either this is a game that's gone awry, or it's just outright price gouging in the marketplace. Dr Martin Makary

"Either this is a game that's gone awry, or it's just outright price gouging in the marketplace, and I think it's fair to ask, in a vulnerable time in someone's life, is it fair or reasonable to inflate a bill that much without their prior consent?" he added.

In their study, the researchers reviewed Medicare Part B physician reimbursement data from 2014 and found wide swings in markup of services by hospitals in many different oncologic specialties, including radiology, hematology/oncology, medical oncology, pathology, and radiation oncology.

Medical oncology services provided in for-profit cancer centers, and radiology and pathology services provided in "prestige" institutions, were associated with higher markups, they found.

And although insurers can haggle with hospitals to agree on reimbursement levels below prices on the hospital's "chargemaster" — a comprehensive list of billable goods and services — individual patients often get stuck paying full retail prices.

On a moral level, we believe that it is unethical for a nonprofit medical center to put a patient with cancer into household bankruptcy. Makary et al.


"On a moral level, we believe that it is unethical for a nonprofit medical center to put a patient with cancer into household bankruptcy because they cannot pay a bill inflated above what Medicare would pay for the identical service," they write.

Makary said in an interview with Medscape Medical News that "the poor bystanders in this system are the out-of-network patients — a growing group in the United States — the uninsured, and those who as a part of their religious faith pay their bills in full, such as the Amish and other faith-based communities."

He likened hospital pricing practices to the car sales game, where the dealer advertises manufacturer's suggested retail price as "the sticker price," in the knowledge that only the most uninformed and gullible of car shoppers will be willing to pay that amount rather than negotiate a fair price closer to the vehicle's actual cost.

But in healthcare, "the reality is that there are groups in the United States that pay that price, and they tend to be facing those inflated bills at a very vulnerable time in their life," he said.

Ted Okon, MBA, executive director of the Washington, DC-based Community Oncology Alliance (COA), who was not involved in the study, agrees that under the current pricing regime, it's difficult, if not impossible, for patients to know what they're getting into beforehand.

"Because there's a lack of transparency in that pricing, what happens is that patients go into the hospital, and they get their bills, and they are literally having sticker shock," he said in an interview.

Wide Price Swings

Makary and colleagues looked at markup ratios — the charge billed divided by the Medicare allowable amount — for oncology services in hospitals throughout the United States, from humble community institutions to powerhouse academic medical centers considered the crème de la crème by their inclusion in the 2014 US News & World Report Hospital Honor Roll.

They found that markup ratios at individual hospitals varied widely, as shown in the table below.

Table. Markup Ratios for Oncology Services

Service Markup Ratio (Median) Interquartile Range
Radiology 3.7 3.1 - 4.5
Hematology/oncology 2.3 1.8 - 2.9
Medical oncology 2.4 1.8 - 3.0
Pathology 4.1 3.1 - 5.1
Radiation oncology 3.6 2.9 - 4.5


A multivariable analysis of markups by hospital size, profit or nonprofit status, urban vs suburban/rural location, academic vs nonteaching status, region, and prestige vs nonprestige reputation showed that for-profit institutions were associated with higher markups for medical oncology services (coefficient, 0.29; P < .01), and that "prestige" hospitals were associated higher-priced radiology (coefficient, 0.53) and pathology (coefficient, 0.65; P < .01 for both) services.

"Our findings contribute to emerging evidence that prestigious hospitals or large hospital chains use higher chargemaster pricing to 'anchor' negotiations and gain higher reimbursement from insurers. In this way, price markups contribute to the inflation of medical costs in the healthcare system and can affect patients' treatment decisions as their out-of-pocket costs increase," the authors write.

Costly Chemo

The findings by Makary et al are supported by a separate study, published online as a research letter on February 22 in JAMA Oncology. That study showed that chemotherapy provided in hospital outpatient departments is roughly twice as expensive as the same care provided in a physician's office.

The authors also found that the despite the cost differences, from 2004 to 2014 there was a distinct shift away from office-based chemotherapy to hospital-based infusions.

For example, line-item spending for drugs in office-based chemotherapy settings was $1466, compared with $3799 for hospital outpatient chemotherapy (P < .001).

Daily spending on patients was also substantially lower in offices, at $3502 vs $7973 for hospital-based chemotherapy, report Aaron N. Winn, PhD, from the Pharmacy School at the Medical College of Wisconsin in Milwaukee, and colleagues from Harvard Medical School in Boston, Massachusetts, and the University of North Carolina at Chapel Hill.

"Potential targets for reduction of excess spending and creation of a more efficient health care system can come from private insurers following Medicare's lead, which has started to equalize payments across sites of care," they write.

Mortgaging Health

Equal payments regardless of the care site appears to be one of the few options available for addressing the markup disparity, commented COA's Okon.

Although prestige hospitals often justify higher prices by claiming higher overheads and greater severity of the patient case-mix, that argument falls apart when the price disparities are for charges imposed on different patients within the same institution.

"How can you literally charge different rates to a patient who may be on Medicare or a patient who may be on private insurance, and then somebody who comes in and doesn't have insurance is getting the chargemaster rate?" he said.

Consolidation of hospital systems gives the hospitals greater power to leverage prices to their advantage, Okon said.

And in some cases, the healthcare provider and the insurer are one and the same. For example, the Boston-based Partners HealthCare system owns Massachusetts General Hospital (MGH), Brigham & Women's Hospital, and other local hospitals, and also an insurer: Neighborhood Health Plan (NHP).

In this actual example, a Partners hospital (MGH) charges for chest computed tomography (CT), billed at $1131; NHP reimburses the hospital for $295; and the hospital then bills the NHP-insured patient for the remaining $836. Patients who have not met their $2000 annual deductible (on top of $2300 monthly premiums) are then on the hook for that $836, all of which trickles into Partners' (not-for-profit) coffers.

According to the Healthcare Bluebook, a website that publishes healthcare charges for specific procedures, chest CT with contrast can cost as low as $560, with $700 considered a "fair" price.

Okon said that he has read about some hospitals that now require patients to get bank approval before a procedure, akin to a house buyer getting preapproved for a mortgage loan.

The patient basically has to get, in essence, preauthorized by the bank. Ted Okon

 "The patient basically has to get, in essence, preauthorized by the bank, and the bank basically holds the bill. This is really troubling," he said.

How to Change It?

"It's very difficult," Okon acknowledged. "I think that Congress and in some cases individual states are realizing that this is a problem, and they are taking action."

He noted that the recent White House budget calls for site-payment parity for Medicare payments.

"But it's difficult, because patients who are paying a large deductible, because of the chargemaster, get left holding the bag," Okon said.

The study by Makary et al was supported by the Alpha Omega Alpha Carolyn L. Kuckein Student Research Fellowship. The authors have disclosed no relevant financial relationships. Winn et al did not report a funding source but reported having no conflicts of interest to declare. Reporter Neil Osterweil is a patient at Massachusetts General Hospital and was formerly insured by Neighborhood Health Plan.

Am J Managed Care. Published online February 17, 2018. Full text

JAMA Oncol. Published online February 22, 2018. Abstract

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