This morning, the federal government released Medicare data—finally—that provides a glimpse into just how much a hospital stay can cost. More importantly, this data offers some insight into what huge variation there is in hospital costs. The data provides individual hospitals’ charges and average reimbursements for the 100 most frequently billed conditions. You can find the government’s press release about it here, or an interesting Washington Post story about it here.
One of the most incredible aspects of the report is that two hospitals in the same city, in some cases less than a mile from one another, can charge wildly different amounts for the same procedure. As the Post reported, some hospitals charge as much as five times what others in the same area charge for the same procedure type. For example, a lower limb replacement at CJW Medical Center in Richmond, VA is billed at $117,000, compared to $25,600 for the same procedure in Winchester, in the same state. State-to-state differences were even wider, with joint replacements ranging from a little over $5,000 in Ada, Oklahoma, to more than $220,000 in Monterey, California.
Neither the report nor the Post article measured the quality of care at any of the hospitals, but the clear implication was that differences in quality were not the issue—although consumers may believe that more expensive care is better. Rather, because patients rarely see the bills, and because patients looking for a hospital rarely “shop around” for a deal, costs can vary wildly without attracting much attention. Medicare’s statement, in fact, claims that the agency released the information in large part to provide transparency to consumers.
The release of this data raises questions for all of us about the costs of the care we are providing, but also about the huge discrepancies between what is charged and what is actually reimbursed. Hospitals are often reimbursed as little as 1/6 of what they bill or charge. It may be that the charge rate has little to do with the real costs and that the reimbursement rate is closer to the actual value; however, many hospitals operate on increasingly thin margins even as bills become astronomical, meaning that it’s possible that neither charge nor reimbursement rates tell us much about the actual costs of care.
Emergency services—especially communications centers and EMS agencies—also operate on razor-thin margins, often receiving reimbursements that don’t cover their costs. Like private hospitals, private ambulance and emergency care services often charge, and receive, more than their municipal peers.
Maybe now is the time to consider some data mining of our own. Given that new budget cuts have hurt the medical establishment enough that chemotherapy centers are turning away Medicare patients, and given that Medicare is such a significant payer in emergency care systems as well, it is just good sense to be as informed as possible about how changing (and hugely variable) cost structures impact your center, your agency, your community, and your local hospital systems.