For a typical knee or hip replacement, Emory University Hospital billed Medicare $28,351 in 2011 — a bargain compared to the average bill for the same procedure from Atlanta Medical Center: $91,134.
In Medicare’s view, both bills were too high: it ignored the charges and paid both hospitals an average of about $16,000 to give an elderly Atlantan a new knee or hip joint.
But Medicare held onto the official bills submitted by every hospital in the nation in 2011 and decided this week to offer the public a look at the confounding world of hospital billing practices.
» Interactive: Compare metro Atlanta hospital charges
The U.S. Department of Health and Human Services, which oversees Medicare, released a massive database showing the average bill and average Medicare payment for common conditions and procedures. The database reveals that typical bills often vary wildly from one hospital to the next and that what a hospital charges has almost nothing to do with what it is paid for its work.
HHS Secretary Kathleen Sebelius said the information would help push the nation’s health care system to be more affordable and accountable.
“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,” Sebelius said in a statement.
Experts around Atlanta said consumers should be cautious when reviewing the pricing information, because only rarely does a patient pay a hospital’s “list price” for services. Insurance companies routinely negotiate deep discounts and people without insurance are generally offered a break, too.
“Take it with a grain of salt because these are not the charges that are going to come out of your pocket,” said Kevin Bloye, a spokesman for the Georgia Hospital Association.
But the prices aren’t meaningless, either.
Hospitals and insurance companies negotiate
Bill Custer, a health care expert at Georgia State University, said the charges are used when hospitals and insurance companies negotiate their pricing agreements.
“The hospitals start with the list price and the insurer will start with Medicare (pricing) and they will meet somewhere between the two,” Custer said. “So that’s how the negotiation works.”
Medicare pays hospitals what it considers to be reasonable for the services, adding extra payments for hospitals that offer special services, including academic centers that train doctors and safety-net hospitals that serve large numbers of low-income patients.
Anyone who has ever gotten a detailed hospital bill knows how confusing health care pricing can be and how inflated some undiscounted charges can seem — especially for items like a Tylenol or a gauze pad that consumers could purchase themselves for a fraction of what a hospital bills
Custer said those prices are actually tied to the massive “fixed costs” of building and running a hospital that has to care for patients on short notice.
“One reason you see seven- to eight-dollar aspirins is not because a hospital is getting a profit margin that high on an aspirin,” Custer said. “They are allocating their fixed costs in different ways, some of which go to that aspirin.”
‘A big hole to dig yourself out of’
Hospitals also say they are unlike any other industry in that they care for people who can’t pay for their services, while also serving patients covered by Medicare and Medicaid, the government health plans that hospitals say do not even cover the cost of providing care.
When a majority of patients are uninsured or covered by plans that do not cover costs, “that’s a big hole to dig yourself out of it and that’s the backdrop as to why charges are so high,” said Glenn Pearson, an executive vice president and finance expert at the Georgia Hospital Association.
While there is a push to bring greater transparency to health care billing, the industry is beginning to move to a completely different system that might eventually make the hospital bills of today obsolete.
“In health care today we get paid to treat people who are sick and in the future we will get paid to keep people healthy,” said Brian Unell of Piedmont Healthcare.
Atlanta Medical Center, which stood out in the new data for relatively high bills, said in a statement that hospital pricing is “often confusing and complex” and it supports a move to making better information about costs available to consumers. “However, it would be a mistake for any consumer to choose a provider based upon this CMS data,” the hospital said.
Bill Rencher, the Health Access Program Director at Georgia Watch, a statewide consumer organization, applauded the release of the pricing information.
“The wild disparities from one hospital to another show that hospitals are allowed to come up with any price they want and it doesn’t have to have any basis in reality or what it costs,” he said. “This lack of transparency and lack of a rational basis for charges is part of the problem we have in our country with health care costs.”
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