New Federal Data on Hospital Charges Show Wide Variation in Prices

Hospitals nationwide charge Medicare "wildly differing" amounts -- sometimes 10 to 20 times what Medicare typically reimburses -- for the same procedure, according to new data released Wednesday by CMS, the New York Times reports (Meier et al., New York Times, 5/8).

About the Release of the Data

The public release of the data for the 100 most common inpatient procedures at U.S. hospitals is part of an effort by the federal government to increase transparency in the health care system (Kliff/Keating, "Wonkblog," Washington Post, 5/8).

The data cover 90% of inpatient claims filed to Medicare in fiscal year 2011, including 163,065 individual charges from 3,337 hospitals located in 306 metropolitan areas. The data exclude certain institutions, such as children's hospitals and cancer centers.

CMS' Center for Medicare Director Jonathan Blum said, "Our purpose for posting this information is to shine a much stronger light on these practices."

According to the Huffington Post, it is the first time data on how much a large majority of hospitals charge for certain procedures has been revealed (Kirkham/Young, Huffington Post, 5/8). Still, Blum noted that the data do not explain why the variation exists (New York Times, 5/8). "What drives some hospitals to have significantly higher charges than their geographic peers?," Blum asked, adding, "I don't think anyone here has come up with a good economic argument" (Huffington Post, 5/8).

According to the Times, the data likely will "intensify a long debate" on how hospitals determine their pricing (New York Times, 5/8). That debate has built up over years, as hospitals charge more and more. For example, average charges billed to Medicare in 1999 were equal to 104% of the cost to provide care, according to data from the Medicare Payment Advisory Commission. In 2010, that rate had more than doubled, to 218%, according to a 2012 MedPAC report (Huffington Post, 5/8).

Data Analyses

An analysis of the data by the Times showed hospitals submitted bills to Medicare that were, on average, about three to five times higher than what the program typically reimburses to treat a condition. For example, the analysis showed the average hospital charged over four times the average Medicare payment for a cardiac procedure in which a stent is implanted to open a clogged blood vessel.

The analysis also found that Medicare claims submitted by for-profit hospitals typically were higher than those submitted by not-for-profit facilities. Meanwhile, claims submitted by government hospitals typically were less those of for-profit and not-for-profit hospitals.

The data also showed wide variations in list prices among hospitals in the same area or city (New York Times, 5/8). For example, two New York City-based hospitals 63 blocks apart differed by 321% in the prices they charged to treat complicated cases of asthma or bronchitis, with one hospital charging an average of $34,310 and the other $8,159.

Meanwhile, a Washington Post analysis of the data showed that hospitals in California, Florida, Nevada, New Jersey, Pennsylvania and Texas routinely charged the highest average prices, while those in more northern states, such as Idaho, Montana and North Dakota, charged the lowest prices.

In addition, the data showed a large variation in charges for many common procedures charged by hospitals nationwide, including:

• Complicated cases of heart failure, which ranged from $173,250 in Newark, N.J., to $7,304 in western Tennessee; and
• Joint replacements, which ranged from $223,373 in Monterey, Calif., to $5,304 in Ada, Okla. ("Wonkblog," Washington Post, 5/8).

Hospitals Weigh In

Some hospitals said that the higher bills reflect whether the facility is a teaching hospital or has a higher volume of sicker patients, the Times reports.

A spokesperson for Keck Hospital of the University of Southern California -- which charged six times the average amount Medicare reimbursed for a major artificial joint replacement -- said, "Academic medical centers have a higher cost structure, and higher acuity patients who suffer from many health complications."

Meanwhile, Caroline Steinberg of the American Hospital Association attributed the higher rates to the "cat-and-mouse" game hospitals and insurers play. Steinberg said that a "hospital raises its rate" to offset large discounts insurers request (New York Times, 5/8).

Effects on Patients

According to the Huffington Post, the data highlight "one of the most troubling characteristics of the American health care system," in which prices are set by medical providers with little oversight and with nearly no market incentive to reduce them because no one actually pays list price (Huffington Post, 5/8).

Although Medicare and private insurers typically negotiate lower prices with hospitals -- Medicare typically reimburses about 91 cents of every dollar that a hospital spends on treatment, according to Steinberg -- experts say that individuals who have "little or no insurance" will receive the "extremely high" bills. "If you're uninsured, they're going to ask you to pay," Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management, said (New York Times, 5/8).

However, "grossly inflated" hospital prices affect everyone, according to Steven Brill -- author of a recent Time magazine article about medical billing. Brill notes that an individual with private coverage that includes a 20% copayment who goes to a hospital for a knee replacement could pay significantly more, depending on what deal his or her insurer has with the hospital.

HHS Announcing Initiative

In related news, HHS Health Secretary Kathleen Sebelius on Wednesday is expected to announce $87 million in grants aimed at helping states create "health-care-data-pricing centers," Time's "Swampland" reports (Brill, "Swampland," Time, 5/8).

The centers will help local governments analyze and publish research on health care prices ("Wonkblog," Washington Post, 5/8).