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Charge Models

Standardized relativities have been developed for allowed and billed charges using Medicare data. The data is case-mix, severity and geographic (based on Medicare's allowed cost differences by Metropolitan Statistical Area) adjusted. Thus, every hospital is compared on a standardized basis to the national average, for their own cases; they are not converted to some hypothetical standard case/severity mix. So an index of 1.4 implies charges of 40% above national average for that hospitalís cases. Since all hospitals are compared to the same standard, they are also compared directly to each other through their relative charge/cost index. This analysis is done on both a per diem and per case basis. The unadjusted dollar per diems and per case charges are also included.

Also included is the Medicare allowed cost to charge ratio for each hospital used in the Medicare Pricer program to price interim outlier payments for Medicare cases. This helps provide a rough idea of the hospitals costs. This cost to charge ratio reflects various Medicare cost limits and applies to medical/surgical cases. The cost to charge ratio would typically be higher for psych/sub abuse cases because the markups are generally higher on ancillaries and these types of cases generally have much lower ancillaries. Current data is FY 2000 (10/99 to 9/2000) but 2001 data will be available by the end of the summer.

Medicare and commercial charge data have been compared from available state data sets. These are available in 18 to 20 states and comprise about two-thirds of total admissions. When compared, the state reported Medicare and commercial charges show nearly a 98% correlation between the two sets of charge per day. This gives strong credence to the assumption that the Medicare data is representative of commercial hospital charge levels.
 
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