Association for Public Policy Analysis & Management

Hospital chargemaster prices, once opaque, are increasingly accessible to patients through price transparency rules. However, following the last two decades of research using claims data, a consensus has emerged that these charge prices are set arbitrarily and ultimately bear little relation to the rates paid by health insurers and insured patients. In this paper, we show that charge prices do, in fact, represent actual prices paid by insurers for a small, but important market segment: insured patients who obtain care at an out-of-network hospital outside of the insurer’s geographic coverage area. Using detailed charge and transaction price data from the 2009–2013 Massachusetts All-Payer Claims Database, we show that regional carriers reimburse 100 percent of a hospital’s charge price in 7 percent of admissions outside of New England, compared with only 0.3 percent of admissions in Massachusetts. By contrast, local affiliates of national insurers have considerably smaller discrepancies in these full-charge payments, paying 100 percent of a hospital’s charge price in 3 percent of cases outside New England, compared with only 0.3 percent in Massachusetts. We find evidence that these payments may influence hospitals’ ability to extract payments from these insurers. In particular, a 1 percentage point increase in the share of claims paid at full charge by Massachusetts regional carriers is associated with a $15 increase in the median charge price of hospitals outside New England. These results stand in contrast to the consensus view that chargemaster prices are irrelevant to the actual price of health care for insured patients. Rather, they are consistent with reports of some hospitals strategically inflating their charge prices and help shed light on the rapid growth of hospital charges over the last four decades.