Breakaway Policy Healthcare Research and Strategy Firm

The BreakPoint: Obama Administration Reveals Hospital Health Care Costs, Leaves Questions Unanswered

Responding to a recent spike in questions about hospital charges, the Center for Medicare and Medicaid Services ("CMS") released data on Wednesday, May 8, 2013, that show 2011 rates and prices for 100 of the most common procedures from 3,300 hospitals in the United States. This is the first time these data have been made public and it is notable for the wide discrepancy in what hospitals charge for the same procedure, even within the same geographic region. One hospital in the DC region, for example, charged $69,000 for a lower joint replacement, while another hospital only five miles away charged just under $30,000 for the same procedure. In New Jersey, a hospital in Rahway charged $101,945 to implant a pacemaker, while a nearby hospital in Livingston charged on average $70,712.

But what do these charges represent? For many consumers, the answer to what these charges represent is not helpful. The CMS website says that the Total Payment Amount includes the MS-DRG amount, bill total per diem, beneficiary primary payer claim payment amount, beneficiary Part A coinsurance amount, beneficiary deductible amount, beneficiary blood deducible amount and DRG outlier amount. In fact, the official press release stated that HHS is providing funding to data centers to make the data useful to consumers.

CMS published these data after Steven Brill's infamous piece in TIME magazine titled "The Bitter Pill: Why Medical Bills are Killing Us." In his lengthy article, Brill honed in on the lack of transparency around the hospital "chargemaster" lists – the price list set by hospitals. These lists are the beginning point for negotiations with private insurers who receive deep discounts off of the full charges, but the full charge is often the only price offered to uninsured patients. The Medicare Program pays according to a standardized formula that does not consider the chargemaster list prices, but HHS Secretary Kathleen Sebelius stated that the data is important for uninsured patients who are responsible for their own medical bills. Brill released a response last Thursday to the CMS disclosure, stating that the transparency needs to be taken further by requiring reports on what insurance companies pay hospitals, testing clinics, and other providers.

By shining a bright spotlight on these lists and allowing consumers to be able to comparison shop for elective procedures that are not covered by insurance plans, the release of these data mark the beginning of a serious discussion about the fair market value for hospital services. This is timely, given the demonstration projects on bundling payments for episodes of care – which often requires an assessment of the average amount it costs a hospital to care for a patient presenting with a particular condition. But another key component to comparing the value of health care services from one hospital to another is the outcome of the patient: did the hospital stay improve the patient's health? In other words, if prices are not tied to quality assessments – and the quality of care delivered is often very difficult to measure – then the prices only provide a small piece of the information consumers need. The publication of pricing data alone may begin a lively discussion – but it is only the beginning.