Data released this week by the federal government that show a wide variation of what hospitals charge Medicare for everything from pacemakers to hip replacement to obstructive pulmonary disease may bolster a discussion on fair pricing but does little to help the average consumer understand what they are paying for, health policy experts said.
As part of an effort to be more transparent, the Department of Human Health Services released the massive database to show disparities across the country and within communities of what hospitals charged for common inpatient procedures in 2011. A hospital in Ada, Oklahoma, for example, has an average charge of $5,300 for a joint replacement while the same procedure costs $223,000 at Garfield Medical Center in Monterey Park.
At Cedars-Sinai Medical Center, the average charged for a pacemaker procedure was $196,377 in 2011, while at Citrus Valley Medical Center in Covina the procedure cost less than half at $64,190.
But does that information mean a patient seeking an artificial device should go to Covina or Oklahoma?
"If I'm a Medicare beneficiary, do I make a decision based on charges to Medicare? No," said Gerald Kominski, professor of Health Services and director of the UCLA Center for Health Policy Research. "Medicare is paying the bill for our hospitalization and there are generally little or no out-of-pocket expenses to the beneficiary."
Kominski said the data do show consumers the complexities and lack of regulations on what is charged to Medicare and what is reimbursed. Those discrepancies could eventually trickle down to the uninsured patient, but without data on what hospitals charge private insurers, there's no way to know for sure how it affects many consumers.
"I think it's important to release this kind of information because it also calls attention to the fact that there is a difference of what hospitals charge and what they accept as payment, but this big difference creates confusion and lack of consumer confidence in the health care that we receive," Kominski said.
Hospitals are in support of the effort to make charges easier to understand for patients.
"At Huntington Hospital we 100 percent support transparency in health care," said Kevin Andrus, spokesman for Pasadena's Huntington Hospital, a 625-bed nonprofit general hospital designated as a Level II Trauma Center. "We think sharing that information with patients only makes health care better and holds health care organizations accountable."
"People need to understand the numbers they're looking at," he added.
The numbers can be baffling.
For example, HHC's average covered charges for a procedure, which can be thought of as similar to a sticker price on a new car lot, is generally much higher than the average total payments, which are what Medicare and the patient through co-pays actually pay for the treatment.
At Loma Linda University Medical Center, the largest Medi-Cal provider in the state, the facility receives a larger reimbursement from Medicare, "because they see the value of a safety net provider," said Steven Mohr, chief financial officer.
Mohr warned that if all consumers buy from the standpoint of the cheapest commodity, then specialty services offered at many institutions will be discontinued.
But C. Duane Dauner, president of the California Hospital Association, said the data only emphasize how the federal government is at fault for much of the way billing and reimbursements are conducted.
"Federal Medicare policies have created perverse incentives for hospitals to set their charges high so that they can recoup a portion of their losses on the most complex, costly Medicare patients (known as outliers)," Dauner said in a statement.
Dauner also noted that the Center for Medicare & Medicaid Services requires that hospitals maintain a uniform set of charges to bill all patients, regardless of ability to pay. He said Medicare doesn't reimburse hospitals based on that set of charges.
Some Los Angeles-area hospitals that charged higher than others for procedures involving artificial pacemakers, joint replacement surgeries and chronic obstructive pulmonary disease, for example, said their costs are based on several factors, including if their facilities employ researchers or have specialty services such as pediatric trauma care, not found anywhere else.
At Northridge Hospital Medical Center, a Medicare patient was charged $106,174 in 2011 for major joint replacement or reattachment of a lower extremity. Kaiser Foundation Hospital in Fontana charged $35,195 for a similar procedure.
"Our pricing is set to ensure that the needs of our hospital and community are met, and represents the cost of doing business (labor, equipment, seismic improvements, pharmaceutical costs, etc.) in Northridge," said Michael Taylor, Chief Financial Officer for Northridge Hospital Medical Center, in a statement. "There are also additional costs associated with operating a Level II Trauma Center for both adult and pediatric patients at our hospital, and those costs are built into our pricing. For those patients who come to us without the means to pay for their care, we offer one of the most generous financial assistance policies in the nation. We are hopeful that the full implementation of health reform will help bring stability to the financing system."
At Providence Saint Joseph Medical Center in Burbank, Medicare was charged $54,705 for a procedure involving chronic obstrucive pulmonary disease. At Providence Holy Cross in Mission Hills, which is run by the Providence Health & Services System, Medicare was charged $48,862. At Providence Little Company of Mary Medical Center in Torrance, the hospital said the procedure cost $46,992.
Meanwhile, St. Bernadine Medical Center in San Bernardino, which is not part of Providence, charged $29,634.
"Facilities with sophisticated technologies and more specially trained providers like those found at Providence medical centers carry higher overhead costs and those costs get factored into our pricing," said Patricia Aidem, spokeswoman for Providence Health & Services, Southern California. "This high level care can be costly, but Providence provides care to anyone who walks through our doors, regardless of their ability to pay. Providence provided $272 million in free and discounted care in 2012 in the Greater San Fernando Valley and the South Bay."
In some cases, a hospital may have the highest average covered charges, or list price, and the lowest average total payments, what Medicare and the patients actually pay.
In the diagnostic category of joint replacement, for instance, PIH Health, a Whittier-based health-care network, is shown with a $107,711 average covered charge, or list price, in HHS's survey. That is substantially higher than Huntington's $84,804 or the $63,861 at Covina's Citrus Valley Health Partners, which operates three community hospitals in the east San Gabriel Valley.
But looking at the average total payments, PIH Health comes in lowest at $15,777, compared with Huntington at $16,195 or Citrus' $19,360.
Cedars-Sinai Medical Center, a nonprofit, is a 958-bed hospital and academic research facility in the heart of Los Angeles that is known worldwide. The charges to Medicare are based on maintaining that work, according to a hospital statement.
"Academic medical centers typically face higher operating costs to cover the expense of managing training and research programs, as well as handling a large volume of patients who require complex care," according to a hospital statement.
Carmen Balber, executive director of the nonprofit group Consumer Watchdog, said there is some validity to the fact that some hospitals charge more because of who is on staff and where the medical center is located.
"This is a clear indication to consumers that some hospitals are overcharging," Balber said. "This is one more tool for patients."