U.S. hospitals are charging prices that can be thousands of dollars different for the same medical procedures, even within the same towns, according to federal data released today.
The data from more than 3,000 hospitals that take Medicare, the government’s health program for the elderly, showed that in some cases costs can drastically vary for hip replacements, bone fractures and treatments for kidney failure. Three hospitals in and around the Denver suburb of Aurora, Colorado, charged an average of $97,214, $46,457 and $28,237, respectively, to treat a respiratory infection with complications, one example showed.
The U.S. Centers for Medicare and Medicaid Services said it released the data for the first time to make the health system “more affordable and accountable.” The information adds to the scrutiny of what patients, insurers and the government pay for medical services as President Barack Obama’s 2010 Affordable Care Act aims to extend coverage to 27 million uninsured people.
“Hospital pricing is the craziest of crazy quilts,” said Ron Pollack, executive director of the Washington-based consumer advocacy group Families USA, in a phone interview. “People who wind up paying the highest prices are people who are uninsured and who can least afford bearing this unaffordable burden.”
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In New York City, the treatment of a hip or pelvis fracture without complications at Lenox Hill Hospital in Manhattan averages $38,588. Fifteen miles away at Coney Island Hospital in Brooklyn, the procedure was priced at $13,137 on average.
The Medicare agency, known as CMS, released the prices for the 100 most frequently billed in-patient services at hospitals, such as kidney and urinary tract infections, pacemaker implantations and chronic obstructive pulmonary disease, which it said comprise 60 percent of hospital Medicare billings.
Treatment of psychoses showed the greatest price discrepancies, with the most expensive hospital charging $144,523, more than 52 times its cheapest peer, according to a Bloomberg analysis of the data. The most common procedure in the data, treatment of simple pneumonia and lung inflammation with complications, had prices ranging from $5,093 to as much as $124,051.
“Consumers don’t know what a hospital is charging them or their insurance company for a given procedure,” Kathleen Sebelius, the nation’s health secretary, said in a statement. “This data and new data centers will help fill that gap.”
Todd Park, the Obama administration’s chief technology officer, said releasing the data may help reduce health costs.
“The history of marketplaces is that transparent marketplaces are more competitive, and more competitive marketplaces drive down costs, and that’s certainly the hope here,” Park said today at a White House briefing.
The American Hospital Association said insurers negotiate rates with hospitals “based on an array of factors,” and it would create antitrust risks to share that information with one another.
“The complex and bewildering interplay among ‘charges,’ ‘rates,’ ‘bills’ and ‘payments’ across dozens of payers, public and private, does not serve any stakeholder well, including hospitals,” Rich Umbdenstock, the Chicago-based association’s chief executive officer, said in a statement.
He also said hospitals support price transparency legislation that would require states to collect and disclose information on hospital charges and insurers’ payments.
The CMS data also showed that Medicare pays hospitals a fraction of what they charge. The program paid a maximum average of $23,257 for pneumonia with complications, for example.
Jonathan Blum, the deputy administrator of CMS, said Medicare payments don’t vary as much as hospital charges and that his agency could discern no business reason for wide price differences.
Pollack said the only people who face the full charges are those who aren’t represented by the government or an insurer, such as UnitedHealth Group Inc. (UNH:US), the nation’s largest for-profit health plan company.
“As we expand health coverage for people, it’s even more important to have a serious agenda that brings together the twin concerns of quality of care and cost efficiency,” Pollack said.
The U.S. Department of Health and Human Services said it would provide grants to organizations to make the hospital pricing data more accessible to the public, so that people can better understand how hospitals derive their charges. It’s not clear how many Americans may find the data useful.
“We’re talking about a pretty small number of people,” said Sherry Glied, a former Obama administration health official who is now a professor of health policy and management at Columbia University in New York.
Researchers have long known that hospital costs vary even at places just a few miles apart. The Dartmouth Atlas of Health Care has studied varying medical costs for more than 20 years. The CMS report is the first time, however, data from individual hospitals have been made available to the public at large.
Sebelius said on a conference call with reporters today that the government envisions people using the data to shop for the best-priced hospitals when they need elective surgical procedures.
“We’ll save consumers money by arming them with better information that can help them make better choices,” she said.
The pricing data is “absolutely irrelevant” to most managed-care plans, which use their own methodology to determine what to pay hospitals, said Sheryl Skolnick, an industry analyst at CRT Capital Group in Stamford, Connecticut.
Medicare bases some of its payments to hospitals on a ratio related to the so-called chargemaster prices released today, and a handful of hospitals, including Health Management Associates Inc. (HMA:US), still have contracts with managed-care plans that are based on chargemaster prices, she said.
“When was the last time you went in and paid list price for a car?” Skolnick said in a phone interview. “That’s exactly what this is, a manufacturer’s suggested retail price.”
Most large hospital systems offer discounted prices even to uninsured patients, and many have stopped billing chargemaster prices because “you want to send a realistic bill that has a realistic chance of being paid,” Skolnick said.
Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s Washington-based lobby group, said the government’s disclosure of the chargemaster prices may help turn debate to “the underlying cost of medical care.”
“This data provides needed transparency on the wide variation in prices hospitals are charging for services,” he said in an e-mail.
The federal government and states are ramping up to open insurance exchanges beginning on Oct. 1 that will offer coverage to the uninsured, in some cases with federal incentives to help pay for it. About 40 percent of the people expected to gain insurance under the Affordable Care Act will be covered by Medicaid, the U.S plan for the poor.
Republicans have faulted the law for not doing enough to tame rising health costs in the U.S. even as the growth slowed to about 3 percent a year from 2009 to 2011.
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