Hospital Costs for Insured Vary Widely Statewide, Study Finds
Hospital charges vary widely across California, largely depending on the degree of competition from other facilities in the area, according to a study released Tuesday, the San Francisco Chronicle reports (Colliver, San Francisco Chronicle, 1/16). The variations remained even after adjusting for wage differences (Hogarth, East Bay Business Times, 1/15).
As a whole, the 276 hospitals examined in the report spent $13 billion on services for treating consumers with private insurance. However, the study found that charges for the services amounted to $18 billion (Chan, Sacramento Bee, 1/16).
CalPERS and the Pacific Business Group on Health commissioned the consulting firm Milliman to conduct the study (San Francisco Chronicle, 1/16). Researchers used 2005 cost data that hospitals reported to the Office of Statewide Health Planning and Development (Robertson, Sacramento Business Journal, 1/15).
To assess hospital costs and charges, researchers developed the Hospital Cost Index -- estimating the relative cost of providing hospital services -- and the Buyers Cost Index -- estimating the relative cost of hospital services for health plans and their members (East Bay Business Times, 1/15).
Peter Lee, CEO of PBGH, said that competition -- or the lack of it -- could help explain the variations in hospital costs throughout California (Sacramento Bee, 1/16).
Hospitals in large networks are more likely to be able to demand higher payments from insurers, as well as facilities in rural areas where competition is minimal, according to the Chronicle.
CalPERS and PBGH contend that the inconsistencies in actual costs versus payments demonstrates that privately insured patients are subsidizing hospitals for the low rate of reimbursements for treating beneficiaries of programs such as Medi-Cal, California's Medicaid program (San Francisco Chronicle, 1/16).
State Treasurer Bill Lockyer (D) said, "This eye-opening report shines a harsh spotlight on inefficiencies, surprising business practices, and possible abuses that contribute to the ballooning costs for individuals and insurance carriers, and make it more difficult for Californians to obtain affordable, quality health care" (Feder Ostrov, San Jose Mercury News, 1/16).
Jan Emerson, spokesperson for the California Hospital Association, said, "This assertion that hospitals are 'price gouging' commercial insurers is not accurate." She added, "Health plans clearly know that when they sit down to negotiate contracts with a given hospital, part of what the rates they are negotiating include are subsidies for the shortfalls" in reimbursements (Girion, Los Angeles Times, 1/16).
The report is available on PBGH's Web site (.pdf).