Data compiled from 3,300 hospitals nationwide by the Department of Health and Human Services in 2011 showed a great disparity in the actual cost of health services compared to the prices listed on hospitals’ chargemasters. The Department’s Centers for Medicare and Medicaid Services released a file Wednesday that contained the list — known as the chargemaster — of prices charged by all hospitals across the United States for the 100 most common inpatient treatment services and what Medicare paid for those same treatments. Medicare typically paid a fraction of the chargemaster prices.
Until now, those charges were competitive secrets in the industry.
The numbers reveal a healthcare system rife with tremendous, seemingly random variation in the costs of services. Take a lower joint replacement, for example; the price of that particular surgery had a $130,832 price range in 2011. In Washington D.C., a lower joint replacement cost $69,000 at George Washington University in 2011, while Sibley Memorial Hospital charged an average of $30,000. For that same surgery, CJW Medical Center in Richmond, Virginia charged $117,000 compared to Winchester Medical Center’s price of $25,600. Because Maryland has a unique system for hospital rate charges, bills tend to be lower than in any other state; the highest average charge for a lower joint replacement was $36,000 by University of Maryland Medical Center in Baltimore. Las Colinas Medical Center in Texas billed $160,832 for a lower joint replacement, far above the $42,632 charged by Baylor Medical Center, which is located five miles away on the same street. These variations characterized the prices of complex treatments as well as more simple procedures.
“There’s tremendous variation between hospitals,” Deputy Medicare Administrator Jonathan Blum said. “Geography doesn’t seem to explain it.”
But these prices are not what Medicare pays. In order to determine the real costs of all treatments, Medicare averages expense data submitted by all hospitals in the United States, including allocations for overheads like rent or salaries, and offers compensation accordingly and inline with the idea that nonprofit hospitals should be nonprofit. Private insurers also negotiate price discounts with hospitals.
“It’s true that Medicare and a lot of private insurers never pay the full charge,” Renee Hsia, an assistant professor at the University of California at San Francisco Medical School told The Washington Post. Her research focuses on price variation. “But you have a lot of private insurance companies where the consumer pays a portion of the charge. For uninsured patients, they face the full bill. In that sense, the price matters,” Hsia added. Still, hospitals argue that the prices on the chargemaster are rarely relevant to consumers.
“The chargemaster can be confusing because it’s highly variable and generally not what a consumer would pay,” Carol Steinberg, vice president at the American Hospital Association, told the publication. “Even an uninsured person isn’t always paying the chargemaster rate.” On occasion, hospitals provide assistance to uninsured patients in paying their bills.
A statement released by the Department of Health and Human Services noted that the data release is a significant cornerstone in the Obama Administration’s efforts to make the U.S. healthcare system more affordable and accountable. “Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city,” Health and Human Services Secretary Kathleen Sebelius said. “This data and new data centers will help fill that gap.”
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