There are many variables that impact hospital charges. These include:

Patient Severity: Patients that are sicker or have multiple medical conditions generally require additional services, resulting in higher hospital charges.

Payer Mix: Each hospital has a unique mix of payers. Government programs such as Medicare and Medicaid generally pay hospitals at rates less than the actual costs of providing care. Hospitals cannot remain financially viable if costs consistently exceed payments. As a result, hospitals that have a higher percentage of government-program patients must attempt to recover a greater percentage of their operational costs from privately insured and self-pay patients.

New Technology: Hospitals with new technology may have higher charges than those with older equipment. The replacement cost for new equipment is typically higher than the original cost of the old equipment. In general, new technology improves patient care outcomes. In addition, it can result in patients receiving outpatient treatment rather than inpatient treatment which allows the patient to return to home, recover and assume normal, daily activities sooner.

Labor costs: Salary and benefit costs vary by geographic region and are generally higher in urban areas. Shortages of nurses and other medical staff may increase hospital costs and impact hospital charges.

Range of Services Provided: Hospitals differ in the range of services provided to patients. Some provide a full range required for diagnosis and treatment, including very specialized services. Other hospitals may stabilize patients and then transfer them to another facility for specialized care.

Social Mission:Hospitals provide services to ensure access to health care in their community even when they lose money on those services. Rural hospitals may have lower volumes for services critical to their community. Hospitals must attempt to recover these costs from privately insured and self-pay patients through higher charges. These services vary by community, but some examples include burn centers, trauma care, obstetrics, high risk nurseries, poison control centers, medical education, services for the poor, 24 hour and 7 days a week availability, organ transplants, and other programs.

Health Care Safety Net:Hospitals provide services to all patients that access the emergency department in regardless of their ability to pay. Some patients seek treatment at the hospital emergency department when they are unable to locate any other provider who accepts their insurance or if they lack insurance. Hospitals generally have charity care policies that provide assistance to patients in need that meet the requirements established by the hospital.

Medicare payments to hospitals vary depending on the Medicare payment policy based on the unique characteristics of the hospital.

Wage Index: For both inpatient and outpatient, the national payment amount is adjusted by an area wage index to reflect regional variation in hospital salary and benefit rates. Generally hospitals located in urban areas tend to have high wage index.

Graduate Medical Education (GME): Hospitals that have residency programs to train individuals after completion of medical school receive additional payments from Medicare. These payments provide a partial offset to the hospital costs for training these future physicians (salaries and benefits for residents, faculty teaching stipends, administrative cost to operate the residency programs) Hospital residents provide services to all patients, not just Medicare patients. These payments are crucial for ensuring that patients in the future have an adequate supply of physicians to meet their medical needs.

Indirect Medical Education (IME): Medicare provides payments to teaching hospitals to reimburse the additional indirect costs of patient care associated with operating an approved teaching program. These costs include tests utilized to diagnose and treat patients.

Disproportionate Share: Hospitals that treat a large number of low-income patients receive additional Medicare payments to offset some of the losses incurred in treating these patients. Low-income patients tend to be sicker and more costly to treat than other patients with the same diagnosis. Higher costs also result from the need for additional staffing and services, such as translators and social workers, to care for low-income patients.

Critical Access Hospitals (CAH): Hospitals with fewer than 25 beds may be classified as Critical Access by Medicare. These hospitals are reimbursed at 101% of cost allowable by Medicare, which is lower than the full cost of providing care. This Medicare payment method recognizes the unique challenges CAHs face in providing health care services in rural areas. This special designation helps provide access to healthcare for all patients in rural areas.

Federal regulations require hospitals to charge all patients the same amount (with limited exeptions) for the same service. The amount collected by the hospital is almost always less than the amount billed for three main reasons:

• Government programs, such as Medicare and Medicaid, typically pay hospitals much less less than the billed charge. These payments are determined by government agencies and hospitals do not have any ability to negotiate these rates.
• Insurance companies negotiate discounts with hospitals on behalf of the patients they represent.
• Hospitals typically have policies that allow low-income persons to receive reduced-charge or free care.