Are Hospitals Charging Whatever They Can Get Away With?

Medicare

Medicare (Photo credit: 401(K) 2013)

A federal database of hospital charges for common procedures was recently made public. The database reveals staggering differences in charges for the same treatments at various facilities, including huge disparities in charges by facilities in the same area.

For years our nation has struggled without much success to find a solution to the soaring costs of health care and health insurance. Doctors blame the sky-high cost of malpractice insurance. Insurance companies blame us attorneys for giving a voice to citizens who have claims against medical providers. Hospitals blame the many uninsured and unable-to-pay patients they treat.

Nobody has managed to sort out the health care crisis, despite decades of trying. The Affordable Care Act (“Obamacare”) was passed and signed into law in 2010 and is being implemented now. However, several recent polls show that people who support the new law are in the minority, and that up to half of Americans say they just don’t understand the law enough to have an opinion about it.

I’m not writing this article to announce that I have finally found the solution to the health care mess. But I do believe that information in that recently-made-public federal database sure floods some light on the discussion.

The database is maintained and was made public by the Centers for Medicare and Medicaid Services, part of the U.S. Department of Health and Human Services. The data, which would fill 17,511 pages if you hit “print,” shows what more than 3,000 hospitals charged in 2011 for the 100 most common inpatient procedures. The differences in what hospitals are charging for the same procedures are astounding — and raise obvious questions.

Several national news reports pointed out stark differences, such as a $7,044 cost for treating COPD at a Bronx, NY, hospital compared to $99,960 for the same treatment at a nearby New Jersey hospital. A Tulsa World analysis of the data found that hip replacement surgery costs $5,300 at an Ada hospital and $93,720 at a nearby Durant hospital. The Daily Oklahoman found that a $26,731 joint replacement surgery at a Tahlequah hospital cost $78,071 at an Oklahoma City hospital.

Why are hospitals in the same areas charging such radically different prices for the same procedures? Here are some possible answers, none of which reflect well upon the hospital industry:

• Until now, hospitals’ price lists, called “charge masters,” have been carefully guarded secrets. Without public knowledge of their pricing structure, hospitals had little market incentive to keep the costs competitive.

• Competition is further undermined by the fact that most patients are limited to the facilities their insurance companies allow them to use. Of course, those are the very facilities with which the insurance companies have beneficial contracts.

• Hospitals’ complicated contracts with insurance companies are rigged to benefit both the hospitals and the insurers, at the overwhelming expense of the average citizen.

• Maybe the pricing is purely arbitrary; some hospitals are charging whatever they believe they can get away with.

I don’t know the answer. Here’s what Jonathan Blum, deputy administrator director of the federal Center for Medicare makes of it: “”Our purpose for posting this information is to shine a much stronger light on these practices. 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.”

In a free country, a hospital should be able to charge whatever it wants, right? Maybe so. However, did you know that our nation’s 10 largest nonprofit hospitals make annual operating profits ranging from $118 million to $770 million, and their CEOs are compensated to the tune of $2.2 million to $6 million  year? While you let those figures roll around in your head, consider this: most hospitals are nonprofits. They do not pay a penny in taxes because, unlike businesses, they are charitable institutions that exist to serve the community.

You can take a look at the federal database yourself, if you want: Medicare Provider Charge Data. Meanwhile, here are a few other facts and figures I picked up while reading about the newly revealed database:

• The U.S. now spends 20% of our GDP on health care.

• Prescription drug prices in the U.S. run about 50% higher than in other developed nations.

• 62% of bankruptcies are related to illness or medical bills. And by the way, the vast majority of those bankruptcies are filed by people who have health insurance.