Government data reveals that hospitals charge wildly varying prices for similar procedures, even within the same city.
Fun Fact: If you had a heart attack and headed to Boston Medical Center where you survived with no complications, the hospital would have charged your insurer $17,044.62 (on average in the 2011 fiscal year). If you went to Brigham and Women’s, that same complication-free heart attack would have cost an average of $36,110.55—more than twice as much.
That kind of wild price discrepancy exists for plenty of other procedures across plenty of other Boston area hospitals. At Beth Israel, for instance, you’d be charged $21,678.97 on average to get a pacemaker without complications. Mass General charged $52,849.10, on average for the same procedure.
We know these figures—and a whole bunch more—thanks to a huge trove of data released this week by the U.S. Center for Medicare and Medicaid Services. For the first time, the government showed how much hospitals have asked Medicare to reimburse them for a variety of common medical procedures—the “chargemaster” prices, as they’re called—in an effort to create more transparency in health care costs. The data shows huge discrepancies in the sticker prices not only between hospitals in different regions, but between hospitals in the same city.
The government noted that prices vary from hospital to hospital in part because some patients get sicker than others or require longer hospital stays. When the New York Times asked various hospitals to explain, several also noted that it costs more to run a teaching hospital, and that’s reflected in the bills.
But Steven Brill, author of Time‘s March cover story on health care prices that partly motivated the government to release this data, wrote a blog post giving his own explanation. “[M]ost hospitals’ chargemaster prices are wildly inconsistent and seem to have no rationale.”
Hospitals note, of course, that, rational or not, the chargemaster prices don’t reflect the actual amount they receive. Both Medicare and private insurers negotiate big discounts. For Brigham and Women’s $36,110 heart attack charge, Medicare pays just $8,086, and the hospital writes off the rest. For BMC’s $17,044 heart attack treatment, Medicare actually offers the hospital slightly more: $9,594. Medicare represents enough patients that it carries a lot of leverage in its negotiations. Brill explains in his blog post how Medicare devises these prices:
Medicare uses expense data submitted by all hospitals to determine the actual cost of all treatments — including allocations of overhead such as rent or administrative salaries — and pays accordingly. In other words, Medicare takes seriously — and enforces — the idea that nonprofit hospitals should be nonprofit..
Private insurers negotiate discounts, too, but they have less leverage and typically pay far more of the sticker price than does Medicare. Not only that, they don’t all get the same discounts. It’s tough to know how different those discounts end up being, because neither the hospitals nor the insurers are anxious to say exactly what the discounts are (and the government doesn’t have access to that data, so it isn’t included in the number dump).
So the wildly different chargemaster prices don’t actually reflect what most insurers pay for your heart attack or your pacemaker. Even so, sticker prices do matter for a couple of reasons. For way more info on why, you should read Brill’s Time cover story, which is probably the only novella-length tract on U.S. health care policy that one could reasonably term a “page-turner.” But if you want to know a few reasons in less than 20,000 words:
If you’re uninsured, you’re not going to pay what Medicare pays for your heart attack. You’re going to pay the chargemaster price. (Or you’ll be billed for it, anyway.) The only people being charged full price are those without insurance. Brill focused his cover story on several people who wound up in that unfortunate and nonsensical pickle.
While private insurers do negotiate, they’re negotiating off the chargemaster price. So if that number is hugely inflated, it’ll be reflected in how much insurance pays, and eventually, it’ll be passed on to you in various ways by your insurance company.
If your insurance asks you to pay a certain percent of the bill as a co-pay, it matters which hospital is charging you, and how much of a discount your insurance provider was able to negotiate. Ten percent of a $21,000 pacemaker is way less than 10 percent of a $53,000 pacemaker.
At any rate, the government’s move toward transparency is great news. Even if a hospital has good reasons for charging twice as much as the hospital down the street for the same procedure, it’ll have to at least explain to nosy reporters and other curious parties what those reasons are. Secretary of Health and Human Services Kathleen Sebelius also announced Tuesday that the federal government would offer $87 million to the states to create what Sebelius called “health-care-data-pricing centers,” which should make all the data more navigable for the average consumer, and thus, even more transparent. Part of the reason we’ve come to this point in our health care economics is that almost no one can explain why anything costs what it does. Empowering consumers to actually ask moves us toward repairing that.
*Courtesy of Boston Magazine