May 12, 2013

Why do hospital costs vary so widely?

Industry leaders try to answer that question after last week’s release of new data, but they caution that ‘almost nobody pays those prices.’

By Jessica Hall
Staff Writer

Consumers gained access for the first time to the rates charged by hospitals for the most common inpatient procedures, but for the average patient the data won't matter.

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The lowest and highest hospital charges for three procedures:


The Aroostook Medical Center, Presque Isle: $55,425

Cary Medical Center, Caribou: $22,870


The Aroostook Medical Center: $62,029

Mercy Hospital, Portland: $20,496


Inland Hospital, Waterville: $18,978

Central Maine Medical Center, Lewiston: $8,720

The Maine Hospital Association estimated that fewer than 5 percent of Maine hospital patients would get bills reflecting sticker prices, which are known in the industry as "chargemaster rates." The bulk of patients get coverage through private insurance or through government programs, or qualify for free care from hospitals, the hospital association said.

The release of data from the Centers for Medicare and Medicaid Services, made public for the first time last week, listed the amounts 3,300 U.S. hospitals charged for the 100 most common inpatient procedures. The figures showed the average price charged by each hospital, as well as the lower amount actually paid by Medicare, the government program for the eldery.

"It was packaged as being helpful for consumers. But hospital prices are really the sticker price on a car. No one pays that price. It's misleading and not helpful," said Alwyn Cassil, director of public affairs for the Center for Studying Health System Change in Washington, D.C. "Some people may think if there's higher charges, that there's quality there, but there's no direct correlation."

The data showed wide swings in hospital charges in Maine and across the country.

For a major joint replacement, The Aroostook Medical Center in Presque Isle charged $55,425, above the national average and more than twice the amount charged, $22,870, by Cary Medical Center, which is just 15 miles away in Caribou. Simple pneumonia costs $20,058 to treat at York Hospital, but only $5,402 at Northern Maine Medical Center in Fort Kent.

Nationally, the range of prices was even more extreme. Average inpatient charges for a joint replacement ranged from a low of $5,300 at a hospital in Ada, Okla., to a high of $223,000 at a hospital in Monterey Park, Calif.

"It's interesting but quite irrelevant to almost anyone," said Maine Hospital Association President Steve Michaud. "People understandably get frustrated when they see the variation, but almost nobody pays those prices."

Medicare itself also doesn't pay those rates. For example, Medicare doles out just $16,342 to The Aroostook Medical Center for a major joint replacement -- far below the hospital's $55,425 charge.

But why the wide variation in hospital prices?

"They vary that widely because they can," Cassil said. "The issue isn't just that they vary so much but also that the prices are so high in absolute terms. This gets down to why you have an $80 aspirin."

Hospitals charge more for some services to offset losses in other departments or services. Hospitals, for example, can't bill for nursing labor or the cost of teaching new doctors. Some services, such as a burn unit, may not generate revenues but have high costs. For hospitals with small patient volumes, there are also fewer people to spread the costs across. So a small rural hospital that does a dozen joint replacements a year might have higher average costs than an urban hospital that does hundreds, Michaud said.

Bruce Sandstrom, vice president and chief financial officer at The Aroostook Medical Center, said having a small patient population means that even a few severe cases can trigger big swings in average charges.

Looking at one area -- respiratory infections involving major complications -- Aroostook charged $62,029, compared with a low of $28,443 at Eastern Maine Medical Center in Bangor.

Sandstrom said Aroostook had 12 cases of respiratory infection in 2011 that had wide variations in their lengths of stay. One case involved a patient who was hospitalized for 29 days at a cost of $147,000. Excluding the five longest cases, Aroostook's average cost to treat respiratory infections would have fallen to $35,000, he said.

(Continued on page 2)

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