When Big Discounts Become the Norm

As much as I love a state fair, it isn’t something I write about very often, because usually, the primary risk one would associate with the fair would be eating or spending too much.

But I understand that this year, the Minnesota Attorney General’s Office (AG) has a theme for their State Fair booth: hospital pricing.

The AG could have chosen a wide range of topics to emphasize. The selection of hospital pricing sends a clear message that scrutiny over prices, discounts, and collection issues will remain intense for the foreseeable future. 

I think it’s possible that the most frequent question I’m getting these days is “can we offer patients with a high-deductible plan a discount off of our regular prices?”

The reality is that this is one of those situations where you are a bit damned if you do, and damned if you don’t. Let me explain why, and how you can take steps to minimize risk, going forward.

It’s quite common in the healthcare industry for the chargemaster or list price for a service to be materially above the rate most third-party payers pay.

In my experience, having a private payer pay somewhere between 60 and 80 percent of the billed charge is routine.

Because such significant discounts are so common, trying to make a patient pay your full list price can cause trouble. Patients can quite reasonably argue that your stated charge isn’t your actual charge, because discounts are so widespread that almost no one is paying the full chargemaster price. Therefore, refusing to give a discount can be a problem.

But if you allow high-deductible patients to pay something less than your billed charge, you’re really undermining your ability to argue that the billed charge is real. If a patient walking in off the street gets a 40-percent discount, isn’t your real charge the amount on the bill, discounted by 40 percent?

While very few people or entities are paying your full chargemaster rate, if anyone is, that party can credibly argue that you’re misrepresenting your billed charge to them. That is why giving the discount can be a problem.

There’s really only one valid solution to this dilemma: have your billed charge be very close to the rate paid by most of your payers.

To the extent you’re negotiating discounts off your billed charges, try to keep those discounts in the 5-10 percent range, not in the 30-50 percent range. I’ll readily acknowledge that if you’ve got lots of contracts set up with big discounts, making this change will be a logistical nightmare.

But the current pricing rubric is the sort of thing that’s going to attract the attention of attorneys general across the country until we bring more intellectual consistency to pricing.