This article first appeared in the St. Louis Beacon: The Centers for Medicare and Medicaid Services has released hospital data on average Medicare charges and payments for the 100 most common procedures and treatments. The data show wide variation in hospital billing across the nation, Missouri and the St. Louis area.
Average inpatient hospital charges for major joint replacement in the St. Louis area range from a high of $87,670 at St. Louis University Hospital to a low of $19,283 at St. Alexius Hospital, according to datareleased Wednesday by the Centers for Medicare and Medicaid Services. But SLU received an average Medicare payment of $18,698 for the service, substantially lower than its sticker price. St. Alexius also received less – an average of $5,058.
These are two examples of the wide variations across the region, state and nation in average hospitals charges for common inpatient services. HHS Secretary Kathleen Sebelius says the data was released to bring more transparency to hospital pricing policies.
“Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals even within the same city,” she said in a statement.
She says the data are useful in helping consumers understand the comparative price of procedures in a given region. She added that businesses and consumers can use the data to make purchasing decisions and reward cost-effective provision of care.
The data include two sets of numbers. One, listed as average covered charges, shows the average billed charge for a given procedure; the other, the total payments, shows the average Medicare payment the federal government paid for the service.
Average charges for joint replacements in the St. Louis region are neither as low nor as high as those in some other parts of the country. A hospital in Ada, Okla., for example, charges an average of $5,300, while one in Monterey Park, Calif., bills the patient as much as $223,000, according to the government data.
In addition to joint replacement, the Beacon reviewed area hospital pricing for heart failure treatment and hospitalizations for diabetes and kidney failure.
According to the data, the lowest average charge for heart failure treatment in 2011 was $10,816 at Barnes-Jewish West County Hospital, while the highest average charge was $12,954 at St. Anthony’s Medical Center. BJ West received an average payment of $5,769 from Medicare, and St. Anthony’s was paid an average of $5,272.
For diabetes treatment, the lowest average charge was $11,354, by St. Anthony’s, but it received a Medicare payment of $4,272. The most expensive diabetes treatment averaged $22,594 at SLU Hospital, which was paid an average Medicare price of $7,906.
Des Peres Hospital charged, on average, $35,629 for treating kidney failure while receiving an average Medicare payment of $6,129. The lowest local average charges for kidney failure was at Barnes-Jewish Hospital St. Peters, with average billed charges of $15,137. The hospital was paid an average of $6,174 by Medicare.
A spokeswoman for the Centers for Medicare and Medicaid Services says the agency is baffled by the wide fluctuation in prices for various services. She said the agency offers some flexibility in pricing to reflect the fact that some hospitals treat large numbers of indigent patients who might be sicker and require more care, or the hospital might be a teaching hospital and get extra fees for training medical students.
“But the point is that this doesn’t explain everything when the variation is that huge,” the spokeswoman said.
Area hospitals either did not respond by press time or referred questions to the Missouri Hospital Association. Dave Dillon, the group’s vice president for media relations, says the two sets of prices in the data are meaningless.
“Neither of these numbers is valuable to the consumer and deserves a little bit of embellishment,” he says. “We know that Medicare rates are set by the federal government. There is no negotiating on what hospitals are going to be paid.”
Why, then, do hospitals propose payment rates that they know the federal government will not agree to? The proposed rates, he says, are there for hospital negotiations with commercial insurers.
“The charge master, the average covered charges, is kind of the first point of negotiations” with insurers, Dillon says. “These aren’t the numbers we expect to get paid as hospitals. But they are a starting point for negotiations about payments.”
He likened the listed prices to “the sticker price on a car. Nobody pays those prices. That’s what the dealer would love for us to pay, but then you start negotiations.”
Dillon says a lot of variables go into pricing, including the type of community the hospital serves, the type of services provided. The prices may be higher in rural communities, he says, because it’s hard to attract physicians.
Dillon concedes that “it’s a kind of perverse system. That’s why, frankly, information like this, while interesting, isn’t helpful to the consumer. It doesn’t tell them what they have to pay.”
Referring to the sticker price approach, Dillon says, “None of this makes any sense. We know in advance (the Medicare payment rate). Why would you have a system like this because the numbers don’t make sense.”
On the other hand, he says the pricing makes sense because hospitals can bill insurance companies at a higher rate than they get from federal payers.
“Absolutely,” he says. “I am sure insurance companies would love to pay what Medicare pays -- but they can’t. Hospitals lose money on most of the federal payment programs because they are negotiated by the largest payer who can set the amount. Insurance companies essentially pay the difference to keep hospitals operating, not only for what Medicaid and Medicare don’t pay but the cost of the uninsured as well.”
He adds that hospitals don’t get the sticker price from insurance companies either. In the example of SLU Hospital seeking an excess of $87,670 for major joint replacement, Dillon says, hypothetically, the hospital “may get only $26,000. But everybody sees that as a win because the insurance company isn’t paying (the $87,670), and the hospital probably got enough to cover their losses for everything else and maybe a little bit of profit from the procedure.”
