After reading about the recent release of hospital charge data by CMS, I immediately thought of the “average Joe” trying to understand it. At first blush, the numbers are stunning, revealing as they do huge disparities in what hospitals charge for the same procedure. The Chicago Tribune did a great job in reporting this story, with charts and analysis galore. The Trib pointed out that the least expensive joint replacement in Illinois is served up by Iroquois Memorial Hospital in Watseka for $29,000. Now compare that to the most expensive, from Galesburg Cottage Hospital—a whopping $117,000! Here in Chicago, the list price for a major joint replacement at Mount Sinai was over $74,000, while Mercy Hospital charged less than half that.
I’ve been writing about the industry long enough to know, sadly, that these “list prices”— aka “charges” – are in some ways, all but meaningless. One finance director I spoke to recently likened them to the prices you see posted on the backs of hotel doors. “In a hospital, no one pays charges,” noted Charlton Park, finance director at the University of Utah Hospitals and Clinics. “They are fiction. Nobody pays that rate. We have rates, but everything is discounted. Even self-pay uninsured patients are given steep discounts.”
And despite how much I’ve written about the health care revenue cycle, the topic continues to confound me at every turn. When you get into the weeds, so to speak, the tangle grows evermore thick. So anything that sheds light on an opaque topic is welcome. In that vein, CMS released the data in the name of consumerism. HHS Secretary Kathleen Sibelius said such price transparency will let consumers “easily compare the prices of goods and services” and thus give providers “a strong incentive to keep those prices low.”
With all due respect to Sibelius, I think the odds of that happening are slim to none. For consumers, the listed prices have little bearing on what they will, or won’t eventually pay for a given procedure. That is driven more by the terms of the insurance plan than the hospital’s list price. And as far as incentivizing providers to keep their prices down, the same rule applies. What the provider eventually receives has marginal relationship to the list price. Oddly enough, in the Mercy-Mount Sinai comparison here in Chicago, Mount Sinai—with the higher list price—collected an average of $21,072 for the joint replacement procedure, while Mercy—with a list price half of Sinai’s—collected $36,141 on average, Tribune data notes. In other words, the hospital with the “higher price” wound up being the less expensive.
There’s a lot more to the equation than just price of course. The figures reveal nothing about the quality of care delivered. The savvy consumer is as much interested in the joint replacement outcome as the immediate out of pocket expense. What is the hospital’s track record for readmission, for example, and what is the longevity of the new hip likely to be? Does Galesburg Hospital put in a high-tech bionic joint worthy of Hollywood while others opt for a blue-light special? Those cost-quality balances to which consumers are accustomed often surface in other industries, but as they say, “this is health care.”
Merely tossing out bucket loads of charge data to consumers without attending explanation serves no one well. Problem is, explaining “hospital charges” is a subject so laden with complexity it all but defies anyone trying. The American Hospital Association hinted at this in its response to CMS: “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. This is especially true when what is most important to a patient is knowing what his or her financial responsibility will be.”
And consider this other part of the equation: when hospitals decide their charges, they typically don’t really know their own cost of providing the service. Many are flying blind when negotiating commercial insurance contracts, and when it comes to the public payers, as the AHA points out, “the Medicare program no longer negotiates hospital payment rates – it unilaterally sets them through annual regulations.”
So here’s what Secretary Sibelius could have said: “Well, these hospital charges are what a hospital bills for the service, but they have little bearing on what we will actually pay these hospitals, and the amount we pay the hospital might not cover their cost of providing the service, but don’t worry about that, because the hospital just jacks up the price for some other service paid for by a commercial payer, which by the way, is about to enroll you in a high-deductible health plan so any shortfalls are on your dime.”
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