Making sense of it

By The Gazette Editorial Board

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We've long advocated that health care reform in this country must include a major effort to curb health care cost increases, which have outpaced that of virtually every other vital service or product.

But we see no clear way of doing so as long as there is so much confusion about the cost of care.

Last week, the federal Centers for Medicare and Medicaid Services released billing data from 3,300 hospitals around the country, revealing mind-boggling discrepancies in those hospitals' charges for many common procedures - sometimes even within the same city or service area.

That reinforces the findings of University of Iowa researchers, who earlier this year published research showing hospital billing estimates for a routine hip replacement ranging from $11,000 to $126,000 for the same hypothetical patient.

We understand that costs of care can vary between regions of the country and depending on patients' particular circumstances, but there's growing evidence that something more is behind the often wild differences in hospital charges.

It's high time for more transparency and clarity about those charges and how they're determined, if for no other reason than to help consumers make informed decisions.

More transparency in billing could help stimulate healthy competition among providers, encouraging efficiencies and more consistent pricing. That's how it works with most other consumer goods and services, after all.

Why should health care should be any different?

No Rhyme or reason

As part of an ongoing push for greater health care cost transparency, the federal government recently released the average bill charged to Medicare and Medicaid by more than 3,000 hospitals for 100 common inpatient procedures.

It was the first time such information has been made publicly available, and it revealed staggering price discrepancies that cannot be fully explained by quality or regional differences in the cost of labor, equipment or other factors.

Joint replacement, for example, could cost as little as $5,300 (in Ada, Okla.), or as much as $223,000 (in Monterey Park, Calif.).

Even within the same service area, billing could vary widely. Average inpatient hospital charges for heart failure patients, for example, ranged from $21,000 at one Denver hospital to $46,000 at a hospital across town, and from $9,000 to $51,000 at hospitals in Jackson, Miss., according to a Health and Human Services news release.

“It doesn't make sense,” Centers for Medicare and Medicaid Services Director Jonathan Blum told national media when the data was released. He said it was the government's hope that publishing the billing information would put pressure on higher-billing hospitals to lower their charges.

The data from Iowa tends not to be as dramatic, but does show a noticeable difference. The average bill for inpatient treatment for major joint replacements without any other complications, for example, ranged from $29,039 at Allen Memorial Hospital in Waterloo to $52,388 at Council Bluffs' Alegent Health Mercy Hospital.

Even within the same service area, costs varied for similar treatments. Medicare data shows that in 2011, average Linn County/Johnson County Corridor hospital charges for the procedure ranged from $32,288 at Cedar Rapids' St. Luke's Hospital to $48,762 at the University of Iowa Hospitals and Clinics.

Bills for surgically inserting a drug-eluting coronary stent, a common procedure to treat narrowed or diseased arteries, ranged from an average of $28,668 at Allen Memorial Hospital in Waterloo to $71,389 at Alegent Health Mercy Hospital in Council Bluffs. Here in the Corridor, bills ranged from an average of $45,933 at Iowa City's Mercy hospital to $61,056 at Mercy Medical Center in Cedar Rapids.

billing vs. reimbursement

Just because a hospital charges a certain amount doesn't mean that's what they'll be paid. Between Medicare reimbursements, patient co-pays and third-party payments, Medicare data shows the majority of Iowa hospitals actually were paid somewhere between $11,000 and $14,500 for major joint replacements, with a couple of outliers receiving substantially more (an average of $16,342 for Trinity hospital in Muscatine and $19,804 to UIHC), for example.

Similarly, private insurance companies negotiate with hospitals the amount they'll actually pay for a service, rarely the cost quoted on the original bill.

But what of the uninsured, who don't have shrewd negotiators on staff, or the leverage to drive down their costs?

Earlier this spring, researchers with University of Iowa Health Care and the Iowa City VA Health Care System published their findings from an attempt to learn the cost for a routine hip replacement for a healthy 62-year-old woman - a procedure for which Medicare and large insurers usually pay between $10,000 and $25,000, researchers noted.

They called hospitals in every state, including the country's 20 top-ranked orthopedic hospitals according to US News and World Report rankings, in an attempt to determine the cost for a patient paying out-of pocket. Thirty six percent of the surveyed hospitals couldn't, or wouldn't, provide an estimate of the cost. Only 9 of the top-ranked hospitals could provide complete pricing information.

Of those hospitals that were able to quote a cost, the figures ranged from $11,000 to $126,000, with no easily discernible explanation for the discrepancies. Top-rated hospitals quoted costs ranging from $12,500 to $105,000. Cost estimates at the other hospitals ranged from $11,100 to $125,798.

Those researchers' findings and the recent release of Medicare data show a clear need for more information about how much hospitals charge for services and why.

What's next

As significant as Medicare's data release is to understanding health care pricing, more will be needed in order to make the information consumer-friendly. It's unlikely many people needing medical treatment will download and sift through the massive spreadsheets just to shop around for health care providers.

The Robert Wood Johnson Foundation is working on a project to make the Medicare data more accessible, according to a Department of Health and Human Services news release, but even that would present only a limited billing snapshot - leaving aside the cost of care for patients with private health insurance, or no insurance at all.

True transparency also would include information about quality of care, and control for regional cost differences, two other important considerations.

We envision the creation of a sort of medical consumer price index that would present a clear picture of medical costs for all types of patients.

Regardless of the form it takes, greater transparency and clarity is important if we are to understand and better control our runaway health care spending.

Congressmen, health care experts, Medicare officials, insurance companies and providers should collaborate on ways to make this happen.

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