May 12, 2014

Medical costs vary widely at central San Joaquin Valley hospitals

With higher deductibles and larger co-payments becoming the norm in insurance plans, more patients are having to shop for health care to keep out-of-pocket costs down. Within a region or even a city, hospital charges for a medical procedure can be thousands of dollars apart.

With higher deductibles and larger co-payments becoming the norm in insurance plans, more patients are having to shop for health care to keep out-of-pocket costs down.

Within a region or even a city, hospital charges for a medical procedure can be thousands of dollars apart.

Need a joint replacement? In the central San Joaquin Valley, the highest average hospital charge for a joint replacement was $122,651 at Sierra View District Hospital in Porterville; the lowest was $40,812, at Madera Community Hospital, according to the Centers for Medicare & Medicaid Services database of 100 common procedures in 2011. The government database showed that Mercy Medical Center in Merced charged $71,064 for the same procedure.

Hospital officials say they don’t get paid those retail prices. Medicare, Medi-Cal and private insurance companies all reimburse at lower amounts than hospital list prices, and patients hardly ever pay them, just as no one pays sticker price for a car. Hospitals want to do away with billed charges, but they are part of the government billing system and continue to be used for purposes of cost reports and other statistical analysis, they say.

Hospital-to-hospital variations in charges are to be expected because they reflect everything from overhead to the severity of patients’ illnesses. And prices do not indicate quality, they say.

“Looking at this data is a fine exercise in research, but it’s meaningless information,” said Jan Emerson-Shea, vice president of external affairs for the California Hospital Association.

But health economists and researchers say retail hospital charges show how prices can vary, which is important for consumers to consider as they increasingly are asked to share more of their care’s cost. The prices can affect rates that health plans, hospitals and uninsured patients negotiate. Besides, health advocates say, charges shouldn’t be a mystery to patients.

“Hopefully, people will start to pay more attention to prices,” said Glenn Melnick, a health economist and professor at the University of Southern California. The Medicare database is only a start, Melnick said. He hopes more patients will demand pricing information before they undergo procedures.

New tools for shopping

Until recently, hospital charges were largely under wraps. Health plans and government insurance programs were privy to the charges for negotiating purposes, but few others had easy access. Amid growing pressure for transparency in health care, the federal government last year opened up databases of hospital charges to the public and last month unveiled a database of Medicare payments to doctors.

California, through the Office of Statewide Health Planning and Development, has made hospital charges available, but legislation now before state lawmakers would give Californians more information about health prices.

For now, through the OSHPD, consumers can browse and compare hospital costs for common procedures. This tool can help people estimate out-of-pocket-costs and make better informed decisions when shopping for health plans.

For example, according to the office’s 2012 Common Surgery Charges at Hospital database, delivery by cesarean section at Mercy Medical Center cost $48,885; a C-section at Memorial Hospital in Los Banos cost $36,662. Consumers can also compare these charges to the statewide median of $27,504.

Other common surgeries available in Merced whose costs consumers can compare include hip replacement, gallbladder removal, thyroidectomy and gastric bypass.

More consumers have an incentive to shop for health care as high deductibles become commonplace.

People whose deductibles cost thousands of dollars “definitely are motivated to understand what the cost of care is and to get the better deal, the better value,” said Dr. Jeffrey Rice, chief executive officer of Healthcare Bluebook, an Internet guide for consumers that provides a “fair” price for medical services grouped by ZIP code.

“Prices vary a lot, and they need to find out the fair price and ask the provider their price before they get care,” Rice said.

According to the Kaiser Family Foundation 2013 Employer Health Benefits Survey, 20 percent of employees were enrolled in high-deductible plans as of 2013, up from 8 percent in 2009. And 28 percent had an annual deductible of $1,000 or more, up from 6 percent in 2006. The deductible is the amount of expenses that must be paid out of pocket before insurance coverage kicks in.

The Affordable Care Act has thrust more people into high-deductible plans. At Covered California, the state’s health insurance marketplace, the two most popular plans for 2014, the bronze and silver, have the highest deductibles. The standard bronze plan has a $5,000 deductible for medical services and drugs and a 30 percent co-insurance fee for hospital care and outpatient surgery. The silver plan has a $2,000 deductible and a 20 percent co-insurance fee for hospital care and outpatient surgery.

Those who are in most need of transparent hospital costs are the uninsured – undocumented immigrants and people who chose to take a tax penalty in 2014 rather than pay for health insurance as required under the Affordable Care Act. These consumers don’t have rates already negotiated for them.

By knowing the hospital charges, they can seek a cheaper price. The Medicare database reports what the government paid hospitals for procedures and can be a starting point in negotiations with hospitals, said George Kalogeropoulos, co-founder of OpsCost.com, which offers an online program that helps consumers search the Medicare database.

California law requires hospitals to offer charity care, either free or at a discounted rate, to the uninsured who are at 350 percent of poverty level or below, or $15,730 for a two-person household. Discounted rates are based on government insurance reimbursements.

“Knowledge is power,” Kalogeropoulos said.

Programs pay less

Hospital executives say they encourage consumers to find out how much procedures are going to cost. But, they say, it has been years since anyone has paid full hospital charges, also called “chargemaster” prices, for all services, goods and procedures.

“We don’t oppose making it public, but it’s useless information,” said Emerson-Shea of the hospital association.

The chargemaster was used in billing starting in the 1960s, but since 1983, Medicare, the federal insurance for the elderly and disabled, has paid hospitals a flat fee per case. Medi-Cal, the state-federal insurance for people with low incomes, pays hospitals a negotiated rate, Emerson-Shea said.

Both government insurance programs pay hospitals less than the actual cost of care.

Hospitals in California lose about $9 billion annually in underpayments from the two programs, Emerson-Shea said.

For example, Sierra View District Hospital got $17,441 from Medicare for the $122,651 it listed in charges for joint replacement. Madera Community, where the charges were $40,812, was reimbursed $19,256, and Mercy Medical Center received $18,650 from Medicare for the $71,064 it listed.

At Community Medical Centers, which operates Community Regional, Clovis Community and Fresno Heart and Surgical hospitals, Medicare pays roughly 29 percent of charges, Medi-Cal pays about 20 percent and private insurance contracts pay roughly 35 percent to 40 percent, said Debbie Moffett, vice president of finance.

Gary Herbst, senior vice president and chief financial officer at Kaweah Delta Medical Center in Visalia, said he’s frustrated by a “fixation” on hospital charges.

“The real story should be what hospitals get paid for real procedures and how much profit they make on procedures,” Herbst said.

He gives as an example from an open-heart surgery procedure: Medicare pays the hospital $41,485, but the procedure costs Kaweah $57,185, for a net loss of $15,700.

“Billed charges are an irrelevant number now,” Herbst said, but the public “thinks that’s what the hospitals get paid.”

Hospitals do adjust their chargemaster prices, however, and staying competitive with other hospitals is a consideration when setting prices.

Kaweah did a market study of its chargemaster last year, comparing its prices to other hospitals in California, Herbst said. The hospital was able to get prices within the statewide 60th percentile, he said. “It resulted in us lowering the retail charge on thousands of procedures where we were higher than the 60th percentile, and we increased the price on a lot of them to get to the 60th percentile.”

At Madera Community Hospital, the goal is to stay at the 25th percentile of charges, said Mark Foote, vice president of finance and chief financial officer.

The rationale for keeping Madera’s chargemaster low: to avoid the criticism higher-charging hospitals face. “We don’t want to stand out as a high-charge or high-cost hospital,” Foote said.

Transparency bills move forward

Efforts to make health care pricing more transparent are moving forward in California.

A Senate bill would throw sunshine on negotiations between hospitals and health plans, which now are largely done in private and contracts kept confidential so as to not give competitors an edge.

Under Senate Bill 1340 by Sen. Ed Hernandez, D-West Covina, health plans and hospitals could not keep negotiated rates secret and would have to make them available to patients accessing care through the plans’ networks of health care providers.

Hernandez also has written SB 1322, which would create a California Health Care Quality Improvement and Cost Containment Commission.

There has been no organized opposition to the bills, said Janet Chin, spokeswoman for the senator.

In the state Assembly, another bill would create a California Health Data Organization through the University of California system to gather pricing information from insurers and health care plans. The bill by Roger Hernandez, D-West Covina, passed the Assembly Committee on Health on April 29. Roger Hernandez is not related to Ed Hernandez.

The California Hospital Association has expressed concern about the Assembly bill. It supports transparency efforts, but the information needs to be meaningful and useful to patients and not contribute to higher health care costs, the association has said.

The payments that hospitals receive from commercial insurance companies are based on confidential contracts. Making them public “may have negative implications, including affecting competitive pricing that benefits the consumer,” the association said in an April 24 letter to Richard Pan, chairman of the Assembly Health Committee.

Two proposed ballot initiatives that addressed hospital costs and hospital executive pay were withdrawn Tuesday by the Service Employees International Union/United Health Workers West. The hospital association had said the initiatives were the union’s way of stumping to gain members. The union and association said Tuesday they have agreed to work together to contain costs, improve quality and reform Medi-Cal.

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