When you shop for a house, or car, or just about any purchase, you know before you buy how much the item will cost.
That hasn’t been true when you enter a hospital to receive an artificial hip or treatment for pneumonia or a heart attack.
But the federal government is trying to change that. For the second year in a row, the agency that oversees Medicare is sharing a trove of data on how much 3,376 hospitals across the country charged Medicare – and how much the program paid – for 100 different procedures.
“It is remarkable that the most important service that we purchase as individuals – whether through insurance or directly ourselves – that we purchase it without often knowing the price. And that is indefensible,” said Dr. David Goodman, co-director of the Dartmouth Atlas of Health Care.
A Buffalo News analysis of the data found:
• Hospitals in Western New York have low sticker prices for the most common procedures when compared to hospitals in other parts of the country.
• Looking at how much Medicare paid the hospitals for the procedures, however, this region’s hospitals are much closer to the national average.
• Within the region, the average sticker price, or charge, for the most commonly performed procedures varies considerably. For treatment of sepsis, a severe blood infection, one hospital charged $35,000 on average while another charged $8,100.
The release of data for 2011 and, now, 2012 allows for year-over-year comparisons. For example, the overall number of procedures fell sharply at area hospitals from 2011 to 2012, but spending on Medicare cases here fell by a lesser amount.
In some ways, the sticker-price is meaningless because few people, if any, are at risk of paying that full price. Medicare and private insurers negotiate much lower rates for their members, and even people who don’t have insurance typically receive a discount on their hospital bills.
But the government released the hospital data in a bid to bring transparency to the health care market, to help patients make more-informed decisions about their treatment and to spark a public-policy debate. The idea is that publicizing this data could put pressure on outlier institutions to lower their high prices.
“It helps people understand the complexity of the health care system and how it operates. I think the more educated patients are, the better consumers they are,” said Stephen M. Gary Sr., Erie County Medical Center’s chief financial officer.
The federal government has sought for years to rein in this country’s health care costs, which are expected to grow by 5.8 percent per year over the decade between 2012 and 2022.
Medicare, the federally funded health insurance program that primarily serves people who are 65 and some younger people who are disabled, spent $572.5 billion in 2012 – a figure that accounts for 21 percent of the nation’s health spending.
Most patients are insulated from the true price of their medical care. To change that, the Centers for Medicare & Medicaid Services three times in the past 14 months have made public caches of data illuminating how much hospitals and doctors bill – and how much Medicare pays – for select procedures.
“Any economist will tell you that for markets to work efficiently, you need to know the price. Any time pricing information is secret or opaque, as it is in health care, the markets will always work against consumers and other payers,” said Bruce Boissonnault, CEO of the Niagara Health Quality Coalition.
In last month’s most recent data release, CMS collected information from more than 3,000 hospitals on the number of Medicare cases, how much the hospitals charged Medicare, how much Medicare itself paid and what, if anything, patients or third parties covered.
The 13 hospitals and hospital systems in Western New York saw a decline in patient discharges, of 8.6 percent between 2011 and 2012, while total payments for those cases fell by 3.4 percent.
The government has emphasized reducing unnecessary patient admissions, or readmissions, as part of the Affordable Care Act, but it’s too soon to say whether that initiative, or the economic retraction, is driving the decline in discharges, Dartmouth’s Goodman said.
When Western New York’s hospitals are compared to hospitals in other regions of the country, the local facilities have among the lowest average charge for the five most commonly performed Medicare procedures and closer to the national average for the amount actually paid for the procedure, according to The News’ analysis.
For example, the average charge – essentially, the manufacturer’s suggested retail price – for a hip surgery or other joint-replacement at the 13 hospitals and hospital systems here was $29,534 in 2012, well below the national average charge of $52,236. That placed the region 290th out of 307 nationwide.
Total payments for joint-replacement surgeries to the area’s hospitals averaged $14,687 in 2012, which actually exceeded the national average payment of $14,465, pushing this region up to 94th out of 307 regions nationwide.
“The charges vary widely, not only from region to region, but by hospital to hospital even within the same community. The charges are just all over the map, but Medicare payments are not. Medicare payments are steady, for the most part,” said Cristina Boccuti, a Kaiser Family Foundation senior associate.
Some patterns emerge when drilling into the Western New York hospital data to compare the local providers for the most commonly performed procedures, with certain hospitals regularly ranking near the top or bottom for highest charge.
Kaleida Health charged the highest or second-highest prices in four of the five categories. (Kaleida Health figures reflect the systemwide average because Kaleida’s Medicare data isn’t broken out by hospital.) At the bottom end, Medina Memorial Hospital had the lowest average charge in the four where it performed the procedure.
There can be a large disparity between the priciest and cheapest institution. For example, Kaleida Health hospitals charged an average of $36,966 for joint-replacement surgeries in 2012, while Medina Memorial charged $20,000 less. Kaleida Health facilities were paid an average of $16,291 that year for joint replacements, and the Medina hospital received $13,355 on average.
Some hospitals sharply raised the sticker prices for some of their common procedures, with Olean General Hospital raising its average charge for treating digestive disorders by 31 percent between 2011 and 2012. But a look at the region’s hospitals as a whole didn’t show a consistent overall increase in medical charges.
Hospital executives say the charges reflect the costs of provided medication or other technology used during the procedures, the length of the procedure, the condition of the patient and other factors.
“What has driven ours up is that we are the major teaching institution in Western New York,” and that affects everything from how long the procedure can take to the complexity of cases seen by the doctors in training, said Jonathan Swiatkowski, Kaleida Health’s executive vice president and chief financial officer. Twenty-one percent of its hospital patients rely on traditional Medicare.
Experts caution that cost isn’t a proxy for quality, and patients shouldn’t assume that the hip-replacement surgery with a $37,000 price tag at one hospital will produce a commensurately better outcome than the same surgery with a $17,000 price at another facility. “There’s never been a study that shows a correlation between higher cost and higher quality,” said Boissonnault, of the quality coalition.
Payments reflect the actual amount paid by Medicare, patients and other third parties, and the payments in some cases are substantially lower than the hospital’s sticker price. For example, the average payment to hospitals in this area for sepsis, $13,279 in 2012, was half their average charge.
Medicare sets a baseline reimbursement rate, for all of the hospitals in the same region, that is based on factors such as the local wage index.
There is some variation, however, that allows for higher payments if a hospital is home to a large number of medical residents and interns, who are expensive to train, or if the hospital serves a disproportionate number of uninsured patients.
Locally, ECMC receives the highest average payments for all five commonly performed procedures. “As that safety-net hospital, we have the great share of the uninsured, so we have higher Medicare payments associated with that than others,” said ECMC’s Gary, who noted that the medical center also trains many young doctors.
The financially troubled Lake Shore Health Care Center in Irving, operated by TLC Health Network, received the lowest local payments for three of the five procedures. Lake Shore has been targeted for closure, or sale, since the fall and remains in bankruptcy.
“That’s one of the reasons why we’re in the financial situation we’re in, because of the lower rates,” which didn’t match the system’s costs for performing the procedures, said John Galati, the network’s interim CEO.
It’s not yet clear whether the 1-year-old experiment in releasing this information has spurred greater price sensitivity or led hospitals to act any differently. Most people don’t even see – let alone pay anywhere near – a hospital’s average charge for a surgery or medical treatment, because they have Medicare or employer-provided insurance.
However, people who have no insurance, or who are insured by a carrier with low market share and little negotiating power with a local hospital, are vulnerable to paying something closer to the sticker charge.
Hospitals say they provide income-based discounts for people who can’t afford the cost, and few people pay the full charge price for a treatment or surgery. But patients can be saddled with costly bills.
“The patient is at the mercy of the health care provider,” Dartmouth’s Goodman said. “It often doesn’t feel merciful from the perspective of the patient. Medical expenses are still a common cause of bankruptcies in this country.”
Several hospitals in this area have set up, or are putting in place, a pricing guide for procedures for self-pay patients, who can call ahead or go online to get that data. “We had set that up as an item that patients and potential patients can use to shop, if you will, and get a little more clarity around what their responsibility would be,” Kaleida Health’s Swiatkowski said.
That said, health care is not a true, free market, because most patients are insulated from the full price and patients who are suffering from a stroke or a broken limb don’t have the luxury of leisurely comparison shopping. “There’s something called price insensitivity. On the scale of 1 to 10, if you’re at 9½ at the pain scale, how much will you pay for this medicine?” Boissonnault said. “Are you really going to negotiate with your doctor at that particular moment?”