New York Times
POSTED: 1:30 a.m. HST, May 8, 2013
A hospital in Livingston, N.J., charged $70,712 on average to implant a pacemaker, while a hospital in nearby Rahway, N.J., charged $101,945.
In Saint Augustine, Fla., one hospital typically billed nearly $40,000 to remove a gallbladder using minimally invasive surgery, while one in Orange Park, Fla., charged $91,000.
In one hospital in Dallas, the average bill for treating simple pneumonia was $14,610, while another in that city charged over $38,000.
Data being released for the first time by the government on Wednesday shows that hospitals charge Medicare wildly differing amounts — sometimes 10 to 20 times what Medicare typically reimburses — for the same procedure, raising questions about how hospitals determine prices and why they differ so widely.
The data for 3,300 hospitals, released by the federal Center for Medicare and Medicaid Services, shows wide variations not only regionally but among hospitals in the same area or city. Government officials said that some of the variation might reflect the fact that some patients were sicker or required longer hospitalization.
Nonetheless, the data is likely to intensify a long debate over the methods that hospitals use to determine their charges.
Medicare does not actually pay the amount a hospital charges but instead uses a system of standardized payments to reimburse hospitals for treating specific conditions. Private insurers do not pay the full charge either, but negotiate payments with hospitals for specific treatments.
Since many patients are covered by Medicare or have private insurance, they are not directly affected by what hospitals charge.
Experts say it is likely that the people who can afford it least — those with little or no insurance — are getting hit with extremely high hospital bills that may bear little connection to the cost of treatment.
"If you're uninsured, they're going to ask you to pay," said Gerard Anderson, the director of the Johns Hopkins Center for Hospital Finance and Management.
The debate over medical costs is growing louder, spurred partly by President Barack Obama's overhaul of the health insurance system.
Hospitals, in particular, have come under scrutiny for charges that are widely viewed as difficult to comprehend, even for experts. "Our goal is to make this information more transparent," Jonathan Blum, the director of the Center for Medicare, said in an interview.
The data covers bills submitted from virtually every hospital in the country in 2011 for the 100 most common treatments and procedures performed in hospitals, like hip replacements, heart operations and gallbladder removal.
The hospitals were not given the data before its release by Medicare officials.
Some hospitals contacted Tuesday said that the higher bills they sent to Medicare reflected the fact that they were either teaching hospitals or they had treated sicker patients.
For example, billing records showed that Keck Hospital of the University of Southern California charged, on average, $123,885, for a major artificial joint replacement, six times the average amount that Medicare reimbursed for the procedure and a rate significantly higher than the average for other Los Angeles area hospitals.
"Academic medical centers have a higher cost structure, and higher acuity patients who suffer from many health complications," the hospital said.
The hospital added that it wrote off any difference between what it charged and what Medicare paid, rather than seeking to collect it from patients. Centinela Hospital Medical Center, also in Los Angeles and owned by Prime Healthcare Services, charged $220,881 for the same procedure.
A spokesman said the hospital served a sicker and older patient base.
The data showing the range of hospital bills does not explain why one hospital charges significantly more for a procedure than another one. And Medicare does pay slightly higher treatment rates to certain hospitals — such as teaching facilities or hospitals in areas with high labor costs.
Blum, the Medicare official, said he would have anticipated variations of two- to threefold at the most in the difference between what hospitals charge and what the agency typically pays.
However, hospitals submitted bills to Medicare that were, on average, about three to five times what the agency typically pays to treat a condition, an analysis of the data by The indicates.
Blum said he could not explain the reasons for that large difference.
An official at the American Hospital Association, a trade group, said there was a cat-and-mouse game between hospitals and insurers that affects what hospitals charge. As insurers demand bigger discounts from a hospital, a facility may raise its charges to protect its bottom line. "The hospital raises its rate to cover the discount," said Caroline Steinberg, who is group's vice president for trend analysis.
Robert Zirkelbach, a spokesman for America's Health Insurance Plans, the nation's largest association of health insurers, said some member companies were reporting sharp price increases of 20 to 30 percent for some services. Some insurers are seeking similar price increases from policyholders.
"There's very little transparency out there about what doctors and hospitals are charging for services," Zirkelbach said. "Much of the public policy focus has been on health insurance premiums and has largely ignored what hospitals and doctors are charging."
Steinberg said that the Affordable Care Act required that hospital charges be limited for patients who qualify.
"That's driving all of the rates for uninsured patients towards the same amount that Medicare pays," she said.
That big variation in what hospitals charge Medicare exists even in procedures that are standardized and do not involve patient complications, the Times analysis of the data shows.
For a cardiac procedure in which a small tube, or stent, is implanted to open up a clogged blood vessel, the average hospital charge is more than four times the average Medicare payment.
In addition, bills submitted by profit-making hospitals to Medicare are typically higher than those submitted by nonprofit centers, the analysis found.
Government hospitals typically billed Medicare less than either nonprofit or profit-making hospitals, the data shows.
Medicare payments represent about 91 cents of every dollar that a hospital spends on treatment, Steinberg said.
Anderson, the Johns Hopkins hospital finance expert, said that private insurers negotiated rates with hospitals that were typically about 30 percent above what Medicare pays.
And while he understands that hospitals will often charge somewhat above the Medicare rate, he said, the huge premiums at some hospitals make no sense.
"If you're charging 10 percent more or 20 percent more than what it costs to deliver the service, that's an acceptable profit margin," Anderson said. "Charging 400 percent more than what it costs has no rational basis in it at all."