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May 8, 2013

CMS pulls back the curtain on hospital 'prices'

Daily Briefing

CMS on Wednesday released billing information for the 100 most common inpatient procedures at U.S. hospitals, highlighting major variation in what different facilities charge Medicare for the same procedure.

  • Catch Chas Roades, the Advisory Board's Chief Research Officer, discussing CMS's announcement on NPR's Talk of the Nation today. Chas is scheduled to appear from 3:00 p.m. ET to 3:40 p.m. ET on the show's national broadcast; please check your local listings.

The public release is part of the federal government's effort to increase transparency in the health care system, officials say. According to the Huffington Post, it is the first time that CMS has revealed how much a large majority of hospitals charge for certain procedures.

The data cover 90% of Medicare inpatient claims filed in fiscal year (FY) 2011, including 163,065 individual charges from 3,337 hospitals located in 306 metropolitan areas. The data exclude certain institutions, such as children's hospitals and cancer centers.

CMS data shows wide, sometimes inexplicable variations

An analysis of the data by the New York Times shows that hospitals submitted bills to Medicare that were, on average, about three to five times higher than what the program typically reimburses to treat a condition. For example, the analysis showed that:

  • The average hospital charged more than four times the average Medicare payment for a cardiac procedure in which a stent is implanted to open a clogged blood vessel.
  • Medicare claims submitted by for-profit hospitals typically were higher than those submitted by not-for-profit facilities.
  • Claims submitted by government hospitals typically were less than those of for-profit and not-for-profit hospitals. 
  • There was wide variations in list prices among hospitals in the same area or city. For example, two New York City-based hospitals 63 blocks apart differed by 321% in the prices they charged to treat complicated cases of asthma or bronchitis, with one hospital charging an average of $34,310 and the other $8,159. 

Meanwhile, a Washington Post analysis of the data showed that hospitals in California, Florida, Nevada, New Jersey, Pennsylvania, and Texas routinely charged the highest average prices, while those in more northern states, such as Idaho, Montana, and North Dakota, charged the lowest prices.

CMS's Center for Medicare Director Jonathan Blum noted that the data do not explain why the variation exists. "What drives some hospitals to have significantly higher charges than their geographic peers?," Blum asked, adding, "I don't think anyone here has come up with a good economic argument."

According to the New York Times, the data likely will "intensify a long debate" on how hospitals determine their pricing. That debate has mounted over the years, as hospitals' charges have grown. For example, average charges billed to Medicare in 1999 were equal to 104% of the cost to provide care, according to data from the Medicare Payment Advisory Commission (MedPAC). In 2010, that rate had more than doubled, to 218%, according to a 2012 MedPAC report.

Hospitals, observers weigh in

However, many health care experts stressed that "prices" do not equate to what hospitals actually receive in payment from Medicare or most patients. "These are list prices," Martin Gaynor, an economist at Carnegie Mellon University, noted on Twitter. "Not what [hospitals] get paid."

Some hospitals said that their higher bills reflect whether the facility is a teaching hospital or has a higher volume of sicker patients, the Times reports. A spokesperson for Keck Hospital of the University of Southern California said, "Academic medical centers have a higher cost structure and higher acuity patients who suffer from many health complications.

Meanwhile, Caroline Steinberg of the American Hospital Association attributed the higher rates to the "cat-and-mouse" game between hospitals and insurers. Steinberg said that a "hospital raises its rate" to offset the large discounts requested by insurers.

Effects on patients

According to the Huffington Post, the data highlight "one of the most troubling characteristics of the American health care system," in which prices are set by medical providers with little oversight and with nearly no market incentive to reduce them because no one actually pays list price.

Although Medicare and private insurers typically negotiate lower prices with hospitals—Medicare typically reimburses about 91 cents of every dollar that a hospital spends on treatment, according to Steinberg—experts say that individuals who have "little or no insurance" will receive the "extremely high" bills. "If you're uninsured, they're going to ask you to pay," said Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management (Meier et al., New York Times, 5/8; Kliff/Keating, "Wonkblog," Washington Post, 5/8; Kirkham/Young, Huffington Post, 5/8).

More from today's Daily Briefing
  1. Current ArticleCMS pulls back the curtain on hospital 'prices'

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