A new report released by the federal government raises questions about how exactly hospitals determine the cost of treatment, after it revealed that facilities across the country are charging wildly different amounts for the same medical procedures.
The Center for Medicare and Medicaid Services (CMS) compiled a report that examines the costs of 100 of the most common inpatient procedures from 3,300 hospitals nationwide. What it revealed was that in many cases, hospitals — sometimes in the same city — price treatments up to twice as much as they would in another location.
For instance, in one Miami hospital, the average cost to insert a permanent pacemaker ran a little more than $60,000 in 2011. Meanwhile, in another facility, which is less than a third of a mile away, the same procedure costs more than $127,000. The Washington Post has compiled an interactive graphic looking at these discrepancies.
Yet despite the often staggering differences in costs, experts today questioned what impact these prices really have on the average consumer — roughly 84 percent of whom had either public or private health insurance in 2011.
In theory, hospitals determine the costs of their procedures using what they call a chargemaster, which is essentially a database containing the costs of every item and procedure required at the facility. These prices vary depending on the location of the hospital and are adjusted for specific factors, including whether the hospital services low-income patients, is located in densely populated areas or is designed to be a teaching center.
Medicare payments, however, are not based on this data, but rather on a set of rates determined by the Center for Medicare and Medicaid Services, which are considerably lower. Additionally, private insurers will directly negotiate with hospitals to lower these costs for their clients. Ultimately, this means that insured patients will pay significantly less than what is being asked by these hospitals.
Based on the data from CMS, on average Medicare paid roughly 27 percent of the charges hospitals were requesting in these specific cases.
“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 Washington Post.
Still, there is some disagreement as to whether this actually occurs in practice or not. Steven Brill, who wrote extensively about ballooning medical costs for Time Magazine, explained on the PBS NewsHour how hospitals often pad the costs in their chargemasters.
“They’re typically five to 10 times what it costs the hospital to buy those items or provide those items,” he said. “And insurance companies get big discounts off of the chargemaster, but the discounts that they get are still not enough to keep these hospitals from making very high profit margins and from all the non-doctor administrators at these hospitals from making exorbitant salaries.”
Meanwhile, Jonathan Blum, the deputy administrator and director for the Center of Medicare, stressed that it is not the insured but rather the uninsured and underinsured who are most at risk, as they are the ones most likely to be faced with these charges.
“While the vast majority of patients in our country have public or private insurance there is a significant number of patients who are subject to these charges,” Blum said. “We do not see any business reason why there is so much variation in the data. We want to have that conversation, but today we have not heard a logical business reason. While we can appreciate that there are variations due to the teaching status or the health status of patients, that cannot explain 5-to-1, 10-to-1, 30-to-1, 40-to-1 variations.”
Ultimately, Blum added, the goal of the release is to better educate consumers of their options regardless of their insurance status. In addition, he said consumers can expect further releases in the future which may include more procedures.
“This is a two-goal effort,” he said. “First to help those consumers who are navigating a very complicated pricing market and second to continue and elevate conversation as to why there’s so much variation.”