GLOSSARY OF TERMS
Charge (List Price): The amount a hospital sets for services provided to the patient before
any insurance discounts. Similar to a “sticker price,” it
is usually not the final amount paid.
Commercial Insurance: Non-Medicare or Medicaid Insurance. Can be purchased individually, but
is often obtained through your employer. Rates are negotiated between
the insurance company and the hospital. These rates can differ among companies,
where larger insurers tend to demand bigger discounts. The demands for
discounts by commercial insurance companies create further complexity
for hospitals and patients to determine the true cost of any given procedure.
Commercial insurers do not pay full hospital charges. Furthermore, numerous
factors, such as the type of plan, co-pay amount, co-insurance amount,
deductible, out-of-pocket maximums and other limitations will affect the
individual’s financial responsibility to a hospital. Therefore,
it is crucial that you begin by talking to your insurance company to understand
all of the factors affecting your financial responsibility.
Commercial Reimbursement (Payment): The amount a commercial insurer pays to the hospital for inpatient stay
or outpatient services from commercial insurance provider. Rates are negotiated
between the insurance company and the hospital.
Contractual Adjustment: The adjustment made by the hospital after both insurance and patient out
of pocket is communicated from the insurance.
Cost: Amount that represents what the hospital actually spends or pays to acquire
or purchase source materials or provide services (i.e. devices, supplies,
drugs, diagnostic and therapeutic services, etc.)
Government Reimbursement (Payment): The amount/rates determined by state and federal governments that Medicaid/Medicare
would pay hospitals for a given service.
Medicare: Health insurance program for individuals 65 or older, or individuals under
the age of 65 with certain disabilities or conditions. For Medicare, hospitals
generally receive payment of only $0.86 cents for every dollar of actual
cost of providing care. (Source: American Hospital Association)
Medicaid: A joint Federal and State program that helps with medical costs for people
with low incomes. For Medicaid, hospitals generally receive payment of
only $0.89 cents for every dollar of actual cost of providing care. (Source:
American Hospital Association)
Out-of-Pocket costs (Payment): The amount a patient pays to the hospital after reimbursement from patients’
insurance provider (for example, deductible or co-pay).
Co-Pay: A fixed rate that an insured policyholder will pay for a specific type
Co-Insurance: The percentage of costs of a covered health care service you pay after
you met your deductible.
Deductible: A specified amount of money that an insured policyholder must pay before
an insurance provider will pay any expenses.
Out-of-Pocket Maximum: The maximum you have to pay for covered services in a plan year. After
you spend this amount (including deductibles, co-payments, and co-insurance),
your health plan pays 100% of the costs of covered benefits.
Self-Pay: When a patient pays for a health-related service when they do not have
insurance to cover their medical treatment or surgery. For patients who
do not have insurance, or who have limited insurance coverage, hospitals
typically have financial assistance programs for those that qualify. Please
contact the Financial Clearance department to determine if you qualify
for any programs they may offer.
Sample Charge Breakdown Scenario:
Below is an example of how the above terms are applied, the dollar amounts
are for illustrative purposes only and are not meant to reflect actual
Knee Replacement Total Charge (List Price): $38,000
Contractual adjustment: The insurance company has negotiated a 30% discount with the hospital.
This equates to an $11,400 discount off the list price.
Patient Out-of-Pocket costs: The patient’s insurance plan has a $1,000
deductible. This is the amount that patient would be responsible to pay out of pocket
for this service.
Allowed Amount (Hospital Reimbursement): This is the total amount to be paid (between insurance and patient) for
this service. (List Price - Contractual Adjustment) = $26,600. Therefore,
the hospital will receive $1,000 from the patient and $ 25,600 from the