“When the dance between hospitals and health insurers began, if a hospital’s actual cost plus reasonable profit totaled $1,000 for a given procedure and the insurer demanded a 50 percent discount, the hospitals simply negotiated towards doubling the price from $1,000 to $2,000 in order to make it all work out……”
“….today’s news is hardly going to come as a surprise to the private health insurance companies who have been complicit in this charade for so many years. Do we not have to ask why these companies would have allowed this insanity to happen? Certainly, the private insurers have more than adequate leverage in their negotiations as no hospital could hope to survive without negotiated agreements with the largest health insurance companies………………………”
By Rick Ungar
For years, there has been a general awareness that hospitals throughout the nation engage in some very peculiar pricing mechanisms. Yet, until this morning, we never knew just how outrageous hospital price disparities could be—not only when comparing prices on a regional basis but when looking at what hospitals in the same city charge for identical procedures and services.
For the very first time, the federal government is publicly releasing the “rate card” (the full charge before insurance company discounts) prices hospitals throughout the nation charge for the one hundred most common procedures and services. The huge amount of data made available covers claims filed with the Center for Medicare & Medicaid Services (CMS) in 2011 and includes 163,065 separate charges from 3,337 hospitals in 306 metropolitan areas.
Finally, the public can now review the data to learn just how these incredibly bizarre and opaque hospital billing procedures are and how these inexplicable pricing variations are hitting everyone—insured and uninsured—directly and painfully in the pocketbook.
Just how insane are these disparities for identical procedures being offered in hospitals that are sometimes just a few miles apart?
Take a look at this fascinating graphic provided by The Huffington Post showing the comparative pricing for treating chronic obstructive pulmonary disease (COPD) in the New York area. Note that the average amount charged by the Bayonne Hospital Center, located in New Jersey, for the treatment of COPD is $99,690 per patient while the Lincoln Medical and Mental Health Center in the Bronx, New York—approximately 20 miles away—charges just $7,044 per patient for the identical services and procedures (click on graphic to enlarge.)
The Washington Post has also provided a nifty tool that allows you to see the pricing disparities charged by hospitals for identical procedures in your home state. I recommend trying it out as I can pretty much guarantee that you will be amazed by what you see.
Things were not always this way.
At the outset of our current healthcare system, hospitals based their pricing on the actual costs of services, procedures and overhead while adding on some measure of profit to allow the facilities to invest in bettering their offerings or, in the case of for-profit hospitals, to create a return on investment for owners.
It is no longer that simple as hospitals now artificially raise their rate card charges as a part of the negotiation process they enter into with private, for-profit health insurers.
When the dance between hospitals and health insurers began, if a hospital’s actual cost plus reasonable profit totaled $1,000 for a given procedure and the insurer demanded a 50 percent discount, the hospitals simply negotiated towards doubling the price from $1,000 to $2,000 in order to make it all work out. But over time, hospitals began to include other charges into the cost of a procedure, including their unpaid collectibles from patients who were uninsured and could not pay, losses in unrelated hospital divisions, inefficiency in how the hospital was being operated, etc. As time has progressed, this approach has grown so out of hand that any rational explanation for pricing no longer appears to exist.
Who pays for this?
If you are insured, you are paying for these inexplicable charges through the ever-rising cost of your insurance premiums. And if you are one of the unfortunate millions of Americans who has no health insurance, you are being charged at these shamefully inflated rate card prices—virtually guaranteeing financial ruin should the uninsured experience an illness and become obligated to pay at full, rate card price.
Can there be any economic explanation for this vast chasm between the rate card charges from one hospital to the next?
Certainly, there are explanations as to why costs might be higher in one region of the country than another. Labor rates vary from region to region as can real estate prices to acquire the land and building for a hospital. One can also understand how treatment by a highly regarded physician or staff, or a hospital with dramatically higher success rates, would create price variances.
But can it really be argued that the distinctions could possibly be so severe—from region to region or from hospital to hospital—to explain a procedure costing more than 10 times the price charged for the identical service somewhere else?
And how do we possibly explain how these dramatic variance can occur between hospitals located in the same city or within so close a radius?
The wild cost differential of treating COPD at the Bayonne, New Jersey hospital cited above and the hospital in The Bronx is particularly illuminating.
COPD is not a curable disease. Thus, this cannot be a circumstance where Bayonne has some fantastic cure rate while the Bronx is lagging far behind. Indeed, the course of treatment available to treat COPD patients is designed to slow the progress of the disease and make the patient feel better as the illness progresses. A review of the National Heart, Lung and Blood Institute website makes it clear that the opportunities for one hospital to produce dramatically different results from another hospital simply do not appear to exist. Thus, one struggles to understand how there can be any economic imperative to support Bayonne Hospital Center’s $100,000 charge as compared to the $7,000 billed by the Lincoln Medical and Mental Health Center in the Bronx, New York.
Says Jonathan Blum, director of the Center for Medicare ,“What drives some hospitals to have significantly higher charges than their geographic peers? I don’t think anyone here has come up with a good economic argument.”
So, is this information proof positive of the benefits of consumer driven healthcare? Now that we see these ridiculous disparities, will consumers of healthcare be motivated to avoid hospitals that are charging grossly inflated prices in favor of lower-cost facilities, forcing the more expensive providers to lower their prices in order to compete?
Maybe. But today’s news is hardly going to come as a surprise to the private health insurance companies who have been complicit in this charade for so many years. Do we not have to ask why these companies would have allowed this insanity to happen? Certainly, the private insurers have more than adequate leverage in their negotiations as no hospital could hope to survive without negotiated agreements with the largest health insurance companies.
Yet, the private insurance companies have been all too willing to play along because the higher hospital charges support higher premium charge to customers that, in turn, allow higher gross profits for the health insurance providers.
Even if the private insurers were to get serious about this, how many of us believe that any savings would actually be passed along to insurance customers?
If you are a consumer driven health care believer who thinks that people will take these price variances into account in making medical decisions—despite saving little to nothing in their health insurance premiums which represent the overwhelming totality of the healthcare expenditures for the insured—you might also wish consider that the data makes a pretty strong argument in support of government, single-payer healthcare.
Because Medicare does not pay these ridiculous rates or even the false ‘discounts’ provided to the private insurance companies based on the rate card charges. Medicare has its own, far lower and more rational rates with these hospitals—rates that explain the much lower costs and efficiencies in the Medicare program from which our senior citizens so dramatically benefit.
The hospitals have offered up their version of a defense. However, to say that their explanations are inadequate would be to severely understate the point.
“The chargemaster (hospital list price card) can be confusing because it’s highly variable and generally not what a consumer would pay. Even an uninsured person isn’t always paying the chargemaster rate.”
In other words, pay no attention to the man behind the curtain because the consumer isn’t really being asked to pay these ridiculous prices—except that we are paying them in the guise of higher insurance premiums resulting from the perverse system of charges.
As to the uninsured, don’t worry about these people being charged at full rate card because the hospitals are going to cut these folks a break and never make them actually pay the prices—except that this is largely untrue.
Just ask anyone without health insurance who has racked up a bill at the hospital only to be hounded into bankruptcy by incredibly aggressive collection agencies acting on behalf of the hospitals. Or ask someone who is uninsured and was required to pay up in full before the hospital was willing to provide life-saving medical care only to be denied treatment when they couldn’t produce the cash.
If you want to know why healthcare costs are so much more in America than other nations—while delivering care that is statistically no better in many instances—today’s data provides you with what is likely the most significant piece of the answers you seek.