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Understanding Facility Charge Information
The amount a facility bills for a patient’s care is known as the “charge.” This is not the same as the actual cost or amount paid for the care. The amount collected by a hospital for each service is almost always less than the amount billed. The following are common examples of why hospitals do not receive billed charges:
- Government programs such as Medicare, Medicaid and Hawk-I typically pay health care providers much less than the billed charge. These payments are determined solely by the government, and hospitals have no ability to negotiate the reimbursement rates for government-paid services.
- Commercial insurers or other purchasers of health care services usually negotiate discounts with health care facilities on behalf of the patients they represent.
- Hospitals have policies that allow low-income persons to receive reduced-charge or free care.
Negotiations between facilities and health care purchasers generally begin with the charge amount. While each facility’s charge structure may vary in important ways, charges represent a consistent, though imperfect, way to compare health care costs. (Retrieved from: Iowa Hospital Association)
When discussing hospital pricing, understanding a common set of definitions is important. Cost, charge, and price are not interchangeable terms:
- Cost varies by the party (the consumer, insurer, health care provider) incurring the expense.
- Charge is the dollar amount a health care provider (your hospital, physician or clinic) sets for services rendered before negotiating any discounts with a payer (the insurance company).
- Price is the total amount a health care provider expects to be paid by payers and patients for health care.*
*Definitions provided by the Healthcare Financial Management Association, April 2014.