Hospital Pricing Methodology
How we analyze and grade hospital pricing transparency data.
1. Data Source
Our analysis is based on the CMS Inpatient Prospective Payment System (IPPS) Provider Summary data, published annually by the Centers for Medicare & Medicaid Services (CMS). This dataset is made available under the Hospital Price Transparency rule (45 CFR Part 180) and contains procedure-level charge and payment information for Medicare-participating hospitals across the United States.
The IPPS Provider Summary includes, for each hospital and Diagnosis-Related Group (DRG): the number of discharges, average covered charges (the hospital's chargemaster rate), average total payments (including Medicare and other payers), and average Medicare payments.
2. Markup Ratio
The markup ratio for a given procedure at a given hospital is calculated as:
The chargemaster rate is the hospital's list price for a procedure as reported in the IPPS data (average covered charges). The Medicare DRG reimbursement rate is the standardized payment amount CMS sets for that Diagnosis-Related Group (average total payments).
A hospital's average markup is the mean of its markup ratios across all reported DRGs, weighted by discharge volume.
3. How We Provide Context
To help consumers understand where a hospital's pricing falls relative to peers, we show a state context range — the minimum, median, and maximum average markup ratios across all hospitals in the same state. The hospital's position on this range is displayed visually as a gradient bar.
This approach shows statistical context without assigning editorial grades or rankings. We do not label any hospital as "good" or "bad" — we show the data and let consumers draw their own conclusions.
Example:
If hospitals in Texas have markup ratios ranging from 1.8x to 14.2x with a median of 4.5x, and Hospital A has a ratio of 6.1x, the gradient bar shows Hospital A's position between these values. No judgment is attached — the data speaks for itself.
4. Outlier Procedures
A procedure is flagged as an outlier when the hospital's markup ratio for that procedure exceeds the 90th percentile of markup ratios for all hospitals in the same state offering the same DRG. This identifies procedures where a hospital's pricing is significantly higher than its in-state peers for the same service.
5. Nearby Hospital Comparisons
When we display "nearby hospitals," we are showing other Medicare-participating hospitals located in the same city and state. This allows patients to compare pricing among hospitals that are geographically accessible to them. Nearby comparisons use the same markup ratio methodology described above.
6. Important Disclaimers
- Chargemaster rates are NOT what most patients pay. Insured patients typically pay negotiated rates that are significantly lower than the chargemaster price. The markup ratio reflects the difference between a hospital's list price and Medicare reimbursement, not the amount a patient will be billed.
- Medicare reimbursement rates are standardized payment amounts. These rates are set by CMS based on diagnosis, geography, and hospital characteristics. They are not intended to represent "fair" or "correct" prices for medical services.
- Pricing data does not reflect quality of care. A hospital's chargemaster-to-Medicare ratio does not measure quality of care, patient outcomes, patient satisfaction, or any clinical metric. A hospital with high listed prices may provide excellent care, and vice versa.
- Data is updated annually. Our analysis is refreshed each year when CMS publishes new IPPS Provider Summary data. Between updates, hospital pricing may change.
- Informational purposes only. This analysis does not constitute medical advice, financial advice, or a recommendation for or against any healthcare provider. Patients should consider all relevant factors when choosing where to receive care.
7. Request a Correction
If you represent a hospital and believe our data contains an error, we welcome corrections. Please contact us with the hospital name, CMS Certification Number (CCN), and a description of the issue:
Email: [email protected]
Please include supporting documentation. We review all submissions and update our data when warranted.
8. Data Source Reference
The underlying data is sourced from CMS and is publicly available:
Primary Source
CMS Medicare Inpatient Hospitals — Provider and Service Data
Centers for Medicare & Medicaid Services, U.S. Department of Health and Human Services. Published under 45 CFR Part 180 (Hospital Price Transparency).