May 14, 2013

Our View: Messy price data shows how health costs shift

Since prices are different depending on who pays, meaningful comparisons are impossible.

We are told not to pay too much attention to the hospital cost data released last week. But it speaks volumes.

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A major joint replacement at Aroostook Medical Center in Presque Isle costs $55,425, the Centers for Medicare and Medicaid Services announced last week, while the same operation at Cary Medical Center in Caribou – just 20 miles away – costs $22,870.

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The numbers show a system that is designed to shift costs between different classes of payers. It operates with a tangled mess of different prices and discounts, making it nearly impossible for any consumer to make a rational choice based on cost.

The result is a medical system so expensive it blows holes in the state and federal budgets, as well as pricing employers and individuals out of the insurance market, creating more upward pressure on prices.

The numbers released by the Centers for Medicare and Medicaid Services show vast differences in prices for the same procedure in different states, even among different hospitals in the same city. For instance, a major joint replacement would cost you $55,425 at Aroostook Medical Center in Presque Isle, but 20 miles down the road in Caribou, you could get the same procedure at Cary Medical Center for $22,870.

The hospitals say that these numbers are meaningless, because fewer than 5 percent of patients pay full price. These are just like the sticker price at a car dealership -- a point at which the negotiation begins. No one really pays it.

But some people do pay these charges, and it's important to note that there is no correlation between what a hospital charges and the quality of its service. What makes a hospital more or less expensive has a lot to do with things that have little to do with the quality of care; it's influenced by such factors as who the other patients are and how they pay for treatment.

What you pay comes down to the ultimate payer's clout. Medicare and Medicaid pay the lowest prices, then the big insurance companies bargain low prices for the people they cover.

Last come the self-payers without insurance, who are billed for what's left over. Three years ago, the federal government passed health care reform, which took important steps toward increasing access to health insurance. But aside from funding payment reform demonstration projects, the Affordable Care Act does not address rising costs that are at the heart of the health care crisis.

Health care costs are not controlled by consumer behavior like other goods and services because people don't shop around for it. The real marketplace is the negotiation between the payers, whether government or private sector. Until the cost shifting is stopped, there will never be any way to recognize the hospitals that are providing good value.

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