This report also includes the average hospital charge for each of the 15 medical and surgical treatment categories. While charges are what the hospital reports on the billing form, they may not accurately represent the amount a hospital receives in payment for the services it delivers. Hospitals usually receive less in actual payments than the listed charge. Charges do represent a benchmark as negotiations between hospitals and insurers regarding payment generally begin with the charge figure. And hospital charges are used almost universally by those attempting to assess the costs of health care. Until a better method is developed, hospital charges represent a consistent, while imperfect, way to discuss the relative costs of health care.

A look at the financial data submitted by hospitals to PHC4 can shed some light on the relationship between the amount hospitals charge or bill for services, and the amount they receive in Net Patient Revenue (NPR). According to PHC4s Hospital Financial Analysis 98, Pennsylvania hospitals received, on average statewide, $.43 in NPR for every dollar that they charged in Fiscal Year 1998 (7/1/97 through 6/30/98).

Within the geographic area covered in this report, hospitals within Southwestern Pennsylvania received, on average $.45 in NPR for every dollar charged, Northwest Pennsylvania hospitals received an average of $.53 on the dollar, and hospitals in the Southern Allegheny region (Somerset, Johnstown, Altoona areas) received $.49 on the dollar, on average.

It is important to note that the regional figures provided above are aggregate only and cannot be applied to individual hospitals or individual average DRG charges to calculate actual payment figures. This is due to substantial variation in hospital charges from hospital to hospital and from insurance product line to product line. There is also substantial variation in actual payments that hospitals receive for specific services. Actual payments to hospitals are imposed by Medicare and Medicaid, or result from negotiations with insurance companies, other third-party payers, and even individual patients.

Finally, the NPR to charge figures reported here do not necessarily account for varying levels of bad debt and varying accounting practices by hospitals in recording charity care. This may understate the level of NPR to charges for the cases in which payment is actually received.