Hospital BillBy Peter Galuszka

It’s long been fascinating how Big Hospitals, linked with Medicare, Big Pharma and Big Managed Care, have come up with an extraordinarily convoluted system of setting prices for various hospital procedures.

There is plenty of nonsense about including on this blog about bringing “free market efficiencies” to health care, as if human health is something like a widget or a jet engine fan blade that can be made cheaper and faster if you only got the right consulting firm to hit the right formula and the right software and the right system and the right package and kept the evil government out of it, everything would come up roses.

So to see how stupid and impractical the idea is, I was amused to see the big data base release on hospital cost charges for various procedures by the federal Centers for Medicare and Medicaid Services. It covers what was billed and what was paid by hundreds of hospitals for 100 procedures.

Big Health Care did not want the data released because they prefer working in an office with the shutters drawn as they try to game the Medicare system by overbilling and then cutting secretive deals with Big Managed Care over what they’ll really charge for group policy holders and screw the rest.

President Obama had the CMMS release the data to show what a sham setting hospital prices is, although it is doubtful that ObamaCare that goes into full effect next year will change things much. I believe more and more that socialized medicine is the only way to go.

Anyway, here is a short piece I did for Style Weekly that looks at what Richmond area hospitals actually charge for Medicare and what they get:

If you’re a Medicare patient and need a major joint replaced — perhaps a hip — consider the initial cost.

In 2011, HCA Healthcare’s CJW Medical Center billed Medicare $117,477 and got about $12,926 from the government. Virginia Commonwealth University Medical Center billed $55,327 and got $20,308. Bon Secours Memorial Hospital charged $53,195, and got $12,458.

Sound screwy? It is. For all the talk about a free-market system, setting health care prices is anything but.

Instead of open bidding, think of hospital officials meeting behind closed doors, strategizing how much to charge to get reimbursed. Medicare, which usually represents about half of a hospital’s revenues, sets a fixed rate for various procedures. But hospitals can’t by law offer a specific set of prices for just Medicare.

So they factor in other price variables such as what insurance companies might pay on a percentage basis. A big insurer may pay only 20 percent of charges or what they negotiate privately. That automatically jacks up the asking price. Another variable is getting financial aid to help pick up the bill for indigents.

Moreover, higher prices don’t necessarily mean better quality, says Michael Spine, senior vice president for business development at Bon Secours Health System.

What results is an incredibly skewed set of prices for essentially the same procedures. That’s the takeaway from a survey by the federal Center for Medicare and Medicaid Services, which shows what hospitals billed Medicare — and what Medicare paid — for procedures in 100 categories in 2011. The Obama administration released the survey to drum up support for the Affordable Health Care Act, which takes full effect next year.

A glance at the survey shows that CJW Medical Center was by far the priciest on some procedures, but also reimbursed the least.

Take kidney-tract infections, for example. CJW filed $30,552 while MCV asked for $19,819. Yet MCV got more. For some heart-failure cases, HCA billed $40,274 while St. Mary’s Hospital, owned by nonprofit Bon Secours, billed $18,460. And St. Mary’s was reimbursed more. Go figure.

Because insurance companies base policies around what Medicare is billed and will pay for, just about everyone’s affected. Those without insurance could be stuck with the entire bill, although they can receive treatment free or through discounts.

“Hospital charges vary because they reflect the individual hospital’s mission, the patient population it serves and the subsidies necessary to provide essential public services,” says Anne Buckley, a spokeswoman for VCU Medical Center.

Mark Foust, a spokesman for HCA, says a “patient’s medical coverage — rather than charges — is what primarily drives what he or she pays a hospital.”

HCA and VCU help poor patients with their bills through discount or charity programs. So does Bon Secours, says Spine, who adds that releasing the results of such surveys is an important step in moving from “legacy” pricing to something more transparent.

Next on Obama’s list: releasing surveys of physicians’ fees.

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4 responses to “Data Shows Hospital Billing Outrages”

  1. Peter, I commend you for your reporting. Your post illuminates a very real problem with America’s health care system. But I mock you for your snide asides about “free markets” in health care. It is obvious that you understand nothing of the free-market critique of the health care system. It is probably a waste of my time to straighten you out, as I have tried to do so before and you continue to misrepresent my position.

    But for the sake of other readers, I will state the following: When Peter disses those who would “bring ‘free market efficiencies’ to health care,” his description of what we free-marketeers think is utterly unrecognizable.

    The system we have today does not remotely resemble a free market. It is a bastardized system with market elements (private ownership of hospitals and physician practices) molded by extensive federal and state intrusion.

    The starting point of my critique is that free markets require prices to function. Pricing for the current system of health care — as Peter very ably points out — is totally dysfunctional. There is no “market” for health care. Prices are totally opaque, if they can be said to exist at all. The way the system works is, you go get your health care and you are billed afterwards. Charges are worked out between providers and insurance companies. Individuals play no role. The number one priority of a market-based system of health care is… to create transparency for prices and quality.

    1. DJRippert Avatar

      “Charges are worked out between providers and insurance companies. Individuals play no role.”.

      Although people often work in offices the cost of the office is usually unknown to the people who inhabit the office. Why? Because the company that employs the person pays for the office and provides the office as a condition of employment to the employee.

      How big a portion of the hospital bill must be paid by patients before patients feel the need to “shop around”? Let’s use a hip replacement as an example and let’s use $15,000 as the cost. If a patient pays 10%, that’s $1,500. If competition creates a 10% differential in price the patient stands to save $150 by picking the low cost provider. Do you really think patients will pick the low cost provider to save $150 on a major operation?

  2. larryg Avatar

    here’s a new word for most: chargemaster

    with respect to “free market” – there are 170+ countries in the world that do not have govt-directed health care.

    you show me which ones have a true free-market health care system.

    The frustration I have with the “free market” types is there are 200+ countries on earth and they can find no country that provides the free market they are advocating.

    why is that?

    to me it says it must be damn near impossible.

    it also says that those with theories don’t have real world analogs to back up their theories.. they just have theories.

    go to the GOP in Congress who have spent years now saying they are going to Repeal and Replace and where the doda is their “Replace”? There is none. There are a flock of people with “theories” but there is no focus on a specific free market path…

    find me at least ONE frigging country that has free market health care or some version of it. PALEEEZE!

  3. Peter Galuszka Avatar
    Peter Galuszka

    Gee Bacon,
    I’d sure love to see you give us a brief, 100 word description about how a “free market” health care system would work. It would have to be a clear, precise explanation, not some bullshit platitudes about “principles” from some right wing think tank. If you can do that, I would commend you, but somehow I doubt you can because it doesn’t exist.

    Will you take the challenge?

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