The Ramifications and Causes of Hospital Overbilling

With over $210 billion overspent annually, it’s well-known that the US has the most healthcare overbilling of any country worldwide.

The social and economic effects of hospital overbilling loom over us all like a storm cloud. Although it’s impossible to say exactly what the world would look like without overbilling, we can estimate the effects of overbilling and possible root causes that are ripe for a remedy, including:

• Medical debt

• Broader economic principles

• And the Chargemaster

Medical Debt

In the year 2021, the US spent over $10,000 dollars per person on healthcare. To be precise, they dropped $12,914 per capita on healthcare. Compounding that across all 330 million citizens, the US paid $4,261,620,000,000 on healthcare in a single year.

Four trillion, two hundred and sixty-one billion, six hundred and twenty million dollars.

Imagine how much more wealth would float around the US economy if even a quarter of that disappeared.

Still worse, these numbers, when compared to other standards of healthcare pricing, dwarf their relatives. The US spends nearly double the money of the second-most expensive country in the world. Adjusted for inflation, the US spent about 6.5 times more money on healthcare than in 1970. Worst of all, the US “Avoidable Mortality Rate”* has hardly changed since 2010, while in countries around the world, it dropped by anywhere from ten to twenty-five percent!

“The US paid $4,261,620,000,000 on healthcare in a single year.”

Medical debt is the #1 cause of bankruptcy in the United States. About a quarter of Americans have over $10,000 in medical debt, and countless more have some smaller negative sum in their bank account.

*The “Avoidable Mortality Rate” measures deaths in people aged less than 75 who could have been saved by timely and effective healthcare

Economics: Monopolies and Laws

A second key cause of hospital overbilling is economic malpractice. Hospitals disregard laws and disrespect history. Specifically, hospitals operate on a monopolistic basis and altogether ignore laws that could harm them, including the Transparency Rule.

Two thirds of hospitals do not comply with President Trump’s 2019 Transparency Rule.

A healthcare monopoly tyrannizes almost half of all metropolitan areas.

Both of these practices benefit the hospitals’ bank accounts, but wound their hapless patients. The fact that the hospitals have no incentive to do otherwise worsens the situation. As of 2024, only four hospitals had been punished for noncompliance with Trump’s Transparency Rule, and their penalty for noncompliance sat at a measly $2 million, which is feathers and peach fuzz compared to the tens of millions of dollars of dirty money hospitals rake in by breaking the rule.

• Two thirds of hospitals disregard the Transparency Rule

• These hospitals have no financial incentive to follow it

• Many metropolitan hospitals are monopolies

Just as bad, almost half of metropolitan areas are dominated by healthcare monopolies. In 1776, Adam Smith first proposed capitalism, a system we still live in today; he suggested that the highest purpose of the economic role of any government was to prevent monopolies. He knew monopolies were bad for society.

Yet today, hospitals have free reign to monopolize and tyrannize all they want.

The Chargemaster

Some suggest that unregulated Chargemasters are at the root of the problem when it comes to hospital billings. At the center of the patient financial system, the Chargemaster, also known as the Charge Description Master (CDM), contains a comprehensive database of all prices. From hospital to hospital, every Chargemaster differs.

Because the Chargemaster dictates all prices, if any procedure does not exist inside the Chargemaster, it can’t be billed. That’s why the Chargemaster database comprehensively covers various variables, including:

• Department number, a reflection of the hospital department from which the procedure came

• Charge code

• Charge description, a non-standardized text description of the charge

• Revenue code, a universal system of codes organized by the National Uniform Billing Committee

• CPT or HCPCS code

• Modifier, like left-right laterality

• Price, what the hospital bills the patient

The Chargemaster fluctuates wildly, rapidly, and unpredictably. In as little as a few hours, information can become outdated. Common causes of this include code changes, department changes, policy changes, and price changes.

“The Chargemaster fluctuates wildly, rapidly, and unpredictably.”

Since the Chargemaster exists centrally in the patient financial system, it accesses charge information, distributes charges, and prepares the patient the itemized bill. Additionally, it reports costs, allocates resources and manages budget data, and keeps an inventory of hospital supplies. It serves many roles.

The Chargemaster has diverse functions, but because its form is so fleeting, it can also be a cause of problems. Combined with the concerning lack of price transparency, the inconsistency of the Chargemaster concerns many patients because it could easily be overcharging. If it does overcharge, it would be nearly impossible to trace that root cause back to the Chargemaster, but because it stores price information, it almost indubitably does.

“Combined with the concerning lack of price transparency, the inconsistency of the Chargemaster concerns many patients because it could easily be overcharging.”

Conclusion

All told, hospital overbilling has many negative effects economically and its root causes are difficult to trace. Its worst negative effect is the fact that so much medical debt can be attributed to overbilling. The reasons overbilling remains so common are twofold: first, hospitals refuse to obey the price transparency rules, and second, the Chargemaster is unpredictable and overpowered.

We hope this article showed you why hospital overbilling is both terrible and common. At Fairdoc, we are here to inform you, assist you, and answer all your questions. If you have any inquiries for us, feel free to reach out, and stay tuned for future articles!