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Seeking Method Behind the Madness of Hospital Billing Disparities

May 8, 2013 at 12:00 AM EST
Different hospitals charge wildly different amounts for the same procedures, even in the same city. New data from the Center for Medicare and Medicaid shows a vast billing disparity between health care centers. Jeffrey Brown explores some striking examples and what these numbers mean with Barry Meier of The New York Times.
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JEFFREY BROWN: Finally tonight: How much for that surgery or this ventilator?

The government today released data showing some of these costs for the first time, targeting what hospitals bill Medicare for the 100 most common procedures. And it turns out they can vary wildly from one hospital to another.

In Florida, for example, the University of Miami Hospital charges the government more than $78,000 dollars for a major joint replacement. But the Mercy Hospital and Medical Center in Chicago charges about $36,000 dollars for a similar procedure.

Even within the same city, differences can be great. At the Advocate Illinois Masonic Medical Center, that procedure costs $73,000 dollars. The numbers are striking, but the picture is more confusing still, since Medicare, insurers and patients don’t typically pay these sticker prices.

Barry Meier of The New York Times covered the story and joins us now.

Well, Barry, welcome to you.

We gave a couple of examples. Tell us more about these disparities. What jumped out at you?

BARRY MEIER, The New York Times: Well, first of all, thanks very much for having me on.

It’s kind of like giving a group of high school kids calculators and say, OK, kids, add up these numbers as quickly as possible and make up whatever numbers you want. On the surface, it looks like madness, just a kind of chaos of numbers that don’t make sense when you look at them either directly or in comparison to each other.

So the question is, what is the method to this madness? Are these numbers driving up hospital costs? Are they costing us more as private payers, as government payers? And one has to think that higher sticker prices invariably do lead to higher costs. So the question now becomes, what is the connection between these charges and the prices we actually do pay?

JEFFREY BROWN: And before you get to that, though, what explains the great disparities between and among hospitals even within the same city?

BARRY MEIER: As far as that goes, your guess is as good as mine. I mean, these hospitals come up with charges.

They’re built on some base that they develop years and years ago. They play some cat-and-mouse game between insurers and payers like Medicare, where they keep lopping on higher and higher charges. Then they deduct something. Then they charge more. So they all have their own cost basis that they use, and that’s what you see in the wide disparity.

None of these numbers have any relationship to reality.

JEFFREY BROWN: In your reporting, I saw they responded in various ways. Some are teaching hospitals. Some are working with, I guess, poorer populations, so there was that response at least to the numbers today.

BARRY MEIER: Right.

There is some justification for variation, for the exact — for the exact reasons that you said. And so you could see variations of, say, one to two times what the average payment might be. But, on average, what we were seeing nationally when we crunched the data was a four- to five-fold increase above the average.

And when we asked experts, like the official at Medicare that we interviewed, they have no clue as to why there’s such a wide variation.

JEFFREY BROWN: Now, as we said, the government, Medicare, and insurers, they negotiate their own prices. So they’re not actually paying the kinds of numbers that come out in this, right? I mean, to what degree is it a fiction? To what degree does it have real meaning for how much is actually paid?

BARRY MEIER: Well, I — that’s the real question.

I mean, Medicare supposedly pays about 91 cents of what it cost a hospital to deliver a service. Insurers pay about 30 percent more than Medicare. So they’re paying dramatically lower than what the hospitals are sending in as bills. But the question then becomes, is the amount that they’re paying being effectively inflated because the hospitals are saying, well, it really costs us this or we charge some people this?

And are those — are those inflated bills showing up in the charges that are negotiated between Medicare or insurers and the hospitals?

JEFFREY BROWN: I see.

And what about for individuals, particularly uninsured individuals? How much would trickle down to them or would they have to pay?

BARRY MEIER: Well, they’re — you know, they’re seeing the full freight. They’re seeing what — essentially the rack rate, you know, the highest price that the hospital will charge.

In some cases, they are being struck with those bills in court proceedings. These are sort of the extraordinarily high charges that may force people into bankruptcy. Other people simply don’t pay the bill. And then the hospitals may write them down, write off those costs against their bottom line. So they’re showing up perhaps as tax write-downs, and they’re coming out of the public coffers in that way.

JEFFREY BROWN: Well, so, as you said at the outset here, this question that this plays into, of course, is the much larger issue of holding down costs. It’s a very political issue.

Why are these numbers coming out now? How do they play into the current political debate? How will they be used or seen?

BARRY MEIER: Well, I think they play very strongly into the current political debate.

And that is, they open up the door to the fundamental question, which is what is the basis for the actual charge that — or the actual bill that Medicare is paying or an insurer is paying? You know, how are hospitals and health care providers, be it drug companies, medical device companies, justifying the prices that they charge?

Don’t forget, whatever the hospital is paying is basically an accumulation of what they’re paying, say, for an artificial hip or a drug. And when you start digging down into those payments, you see that everywhere along the line, these prices are inflated. They don’t make sense.

JEFFREY BROWN: All right, Barry Meier of The New York Times, thank you so much.

BARRY MEIER: My pleasure. Thank you.

JEFFREY BROWN: And there were some technical difficulties on that audio for the interview. We apologize for those.

And an online note: There’s a $600,000 dollar discrepancy on what hospitals charge Medicare for the most expensive procedure. You can find out what that is and more on our Health page.