Why do some hospitals in the same city or state charge thousands of dollars more for the same procedure?
Illustration by Tonwen Jones
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At a recent medical conference in Ann Arbor, the co-founder of an Oklahoma surgery center told the assembled doctors about a daring move he made a few years ago: He started a price war by making the center’s surgery prices all-inclusive, then boldly posted them online and charged patients for orthopedic spine hardware at cost instead of marking the price up.
“Why can’t we do that in Michigan?” asked someone in the audience.
That prompted a dispiriting story from another doctor, whose medical group tried to set up its own surgery center in Michigan and, as in Oklahoma, make its prices transparent.
But a nearby hospital was having none of it. It hired a “high-priced law firm” to fight every request the group filed with the state for certificates of need — approvals required to open a surgery center, buy high-priced equipment, or add more hospital beds. The hospital even sent letters with veiled threats of repercussions to doctors if they made referrals to the planned center.
The hospital and its lawyers won the battle; the entrepreneurial doctors had to scrap their plans for new operating rooms. But the heavy-handed hospital did not exactly win the war against competition and transparency, as some parts of its list of charges are now available for public scrutiny.
That’s because in May the U.S. federal agency Centers for Medicare and Medicaid Services, known as CMS, posted online charges from more than 3,000 hospitals nationwide for the 100 most common inpatient procedures and 30 common outpatient procedures paid for by Medicare. The amounts were culled from each hospital’s “charge master” — a comprehensive, legally required list detailing what the institutions charge for everything from aspirin to an artificial hip.
Almost no one ever pays the charges listed on a hospital’s charge master. Washington basically ignores charge masters and tells hospitals how much it will pay for people insured through Medicare and Medicaid; insurance companies routinely negotiate payments that are less than the listed charges — and many hospitals offer discounts to individual patients who pay directly for services.
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Although media coverage about the CMS-posted data focused on how high the charges were, and on the disparity among charges at hospitals in the same state or even the same city, the pricing situation is even murkier than that. The fact is, charges can vary widely even among hospitals within the same system.
For example, the average charge for treating a Medicare patient with a heart attack at Henry Ford Hospital in Detroit is $14,725.67, according to CMS data. However, Medicare heart attack patients treated at Henry Ford Health System’s Wyandotte Hospital save about $5,000 because Wyandotte’s average price is $9,722.51.
Henry Ford’s management declined to talk about the price discrepancy or its charge master for this article.
Experts say there are some legitimate, market-based reasons for varying charges, including patient volume, average length of stay, the cost of ancillary services and overhead, supply chain costs, bad debt, and government payment shortfalls.