The cost of hospital care is difficult to pin down

By Stacey Burling
http://www.philly.com

Inspired by the story of an uninsured couple who were told they would have to pay anywhere from $15,000 to $40,000 to have a baby in various New Jersey hospitals, famed health economist Uwe Reinhardt tried an experiment.

He asked his wife to call a hospital and find out how much a normal birth costs.

“She just couldn’t weasel it out of them,” said Reinhardt, who works at Princeton University and this year chaired a high-profile commission that evaluated the financial health of New Jersey’s hospitals.

So Reinhardt tried himself. He was able to extract a number from a supervisor, but only after he had explained rather haughtily who he was.

In health-policy circles, there has been a lot of talk in recent years about “consumer-directed health care” and “price transparency,” fancy ways of saying Americans might spend a few gazillion less dollars on health care if they could figure out, in advance, how much things cost and had a reason to care. With the number of people with high-deductible insurance plans or no insurance growing, more people have a reason to care.

The Bush administration has strongly endorsed the idea that information about prices will drive Americans toward more cost-effective care. Barack Obama and John McCain are calling for greater price transparency.

Reinhardt agrees that is not too much to ask. “We know what a Chevy costs. We know what a haircut costs,” he said.

“It’s just simply bizarre. . . . I don’t have to hang forever on the phone to get the price of an iPod.”

For all the talk, though, many nascent attempts to help consumers compare prices are deeply flawed. “A lot of the price information that’s available from public sources is essentially useless,” said Paul Ginsburg, president of the Center for Studying Health System Change.

Reinhardt’s experiment helps explain why.

The quest for information

Should you attempt to do this experiment on your own, as an Inquirer reporter did with eight hospitals in the region, prepare to hear a lot of canned music and automated voices. And prepare to enter a world so Byzantine that a top Medicare administrator pronounced it impossible for a “human being of average intelligence and limited patience” to understand. The reporter, who is, at least, patient, persisted and will spare you the most painful parts of the odyssey.

When asked anonymously for their prices for either a colonoscopy or an uncomplicated vaginal birth, half the hospitals did what Reinhardt would have expected: nothing. Two – Hahnemann University and Cooper University hospitals – did not return phone messages. After several transfers, Albert Einstein Medical Center eventually sent two separate calls to a voice-mail account that was not working. Abington Memorial Hospital refused to discuss the price of a birth without detailed financial information about the caller’s income, a move an official later said was meant to avoid scaring poor, uninsured people away.

But it was the four hospitals that did provide prices – Pennsylvania, Bryn Mawr, Temple University and Virtua West Jersey – that really opened Pandora’s box. Their answers shed the most light on how absurdly complicated unearthing cost figures is and how challenging it will be to bring true price competition to health care. They also raise questions about how to treat the uninsured fairly.

The quoted prices for a colonoscopy ranged from $900 to $8,000. Pennsylvania, the only hospital that would price a delivery for the anonymous caller, said it would cost $8,500.

Most callers would not know this, but hospitals typically get less than $600 for a colonoscopy and about $1,300 for a delivery for Medicare patients. Private insurers usually pay a little more than Medicare.

It turns out that, with the exception of Temple, the prices given by the hospitals’ billing employees – who were quite helpful and courteous – were what hospitals call “charges.” These are nothing like what the grocery store charges you for milk. They are more like the sticker price on a car – if it was two, three or even four times what anyone was actually expected to pay.

In addition, the hospitals could only talk about their bills. So, they pointed out, there might also be bills from a variety of doctors. One – Virtua – it might offer discounts.

This might be a good place to step back, take a deep breath and focus.

Different insurers, different prices

First, a little background. For most people who need treatment – the ones with insurance – the hospital is like a giant airliner. The patients are all paying different prices based on what their insurance companies negotiated with the hospital. So there is no one price for, say, a knee replacement, that would be meaningful to all of them. Even if there were, insurers keep their payment rates secret and make the hospitals swear they will keep them secret too for competitive reasons. We do know that the prices insurers pay are typically much lower than charges, which hospitals insist virtually no one pays. (Why they are still around has something to do with the role charges play in important government funding formulas.)

The Pennsylvania Health Care Cost Containment Council (PHC4), a pioneer in publishing quality and cost data, has been able to compare charges with actual insurance payments for only two types of heart surgery. For bypass surgery, insurers paid, on average, less than one-third of charges.

A recent study by Johns Hopkins researcher Gerard Anderson found that Pennsylvania and New Jersey had the highest charges compared with payments in the nation. New Jersey hospitals charge almost four times what insurers and subscribers pay and their counterparts in Pennsylvania charge 3.5 times.

Yet charges are the numbers that callers get when they simply ask a hospital for a price. They are the numbers in PHC4’s reports comparing most types of hospital treatment. New Jersey’s hospital association has posted charges for many procedures.

In short, they are the numbers that the people who have the most reason to care about comparing hospital prices – the uninsured – can get most easily.

But things get even stranger. Hospitals say uninsured people rarely try to get prices in advance, although some are getting better at it. Most go to the emergency room, where hospitals are legally bound to treat them, and they take their chances with the bill. Most are then offered free or heavily discounted care, the hospitals say, and the vast majority don’t even pay their discounted bills.

At Einstein, for example, about half of uninsured patients qualify for free care. The rest are asked to pay 1.5 times what Medicaid would pay for the same care. The hospital collects only 8 percent of that expense.

Anderson, who wrote a scholarly article – “From ‘Soak the Rich’ to ‘Soak the Poor’: Recent Trends in Hospital Pricing” – about the irony that the uninsured are quoted far higher prices than the insured, is not persuaded. He said some people are indeed asked to pay charges, and high medical bills are the second most common reason for personal bankruptcies. Most uninsured people are not sophisticated enough to know they can negotiate prices, and they’re not in much of a position to argue anyway.

“If you don’t have any insurance, you’re trying to get in the door,” he said. “Now you’re going to negotiate a price?”

New data for negotiations

For those who do try, though, this is where some of the available data can come in handy. Medicare has started publishing what it pays individual hospitals, a number that can help patients get a better handle on what care actually costs. (Hospitals say Medicare pays slightly less than their costs.)

In the past year, Anderson said, he has helped an Amish leader in Iowa negotiate with a hospital that had charged $1.2 million for treating a premature baby. Armed with the Medicare data, the man got the bill lowered to $250,000, an amount the Amish community intends to pay.

To address this issue, New Jersey’s Legislature last month passed a bill that would prohibit hospitals from charging the uninsured more than 115 percent of what Medicare would pay. It still needs the governor’s signature.

Despite the obvious complexity, hospitals, insurance companies and federal and state governments are forging ahead with efforts to make price information more available.

Doylestown Hospital recently began listing a “pricing hotline” on its home page. While callers are given the list price for a service – $5,000 for a colonoscopy and $7,000 to $10,000 for a delivery – they are also referred to financial counselors to learn about discounts for the uninsured.

Ron, an uninsured man from Doylestown who did not want his full name used, called the hotline last month to ask about the price of an MRI and some blood tests. After he talked with a financial counselor, he said, the price was cut in half. “I’m perfectly content with that,” he said.

Bill DiGiorgio, who directs Doylestown’s program, said he also helps insured patients figure out their out-of-pocket costs in advance. “A lot of them want to know what they’re getting into,” he said. “A lot of them are scared.”

Exploring how to make prices meaningful for insured people just takes you deeper into Pandora’s box. People with set copayments have little incentive to use one doctor or hospital over another because of price. Even with plans under which subscribers pay a percentage of the bill or have deductibles of several thousand dollars, a subscriber can reach his or her out-of-pocket maximum with one hospitalization. As a result, insurers say patients so far are most interested in the prices of relatively inexpensive procedures such as diagnostic tests.

Philadelphia-based Cigna Corp. has a sophisticated Web site that lets its subscribers compare quality measures and costs at specific providers. For instance, in the Philadelphia area, contracted prices for a colonoscopy ranged from $600 to $3,700 and for a vaginal delivery from $2,600 to $8,300. During one recent month, about a fifth of subscribers with high-deductible plans who needed a colonoscopy or a place to deliver a baby checked the data.

The federal government recently expanded its hospitalcompare.hhs.gov Web site, which gives information about Medicare’s payments and quality measures for specific hospitals. But it recognizes that Medicare patients still don’t have much incentive to care about price. The Centers for Medicare and Medicaid Services (CMS), the agency that runs Medicare, is now piloting a program in four western states where patients will share in the program’s savings when they choose hospitals that have given Medicare discounts. If, for example, a hospital agrees to accept $2,000 less from Medicare for a heart bypass, a Medicare subscriber who chose that hospital for the procedure would get a $1,000 check.

Imperfect as price-transparency efforts are so far, Herb Kuhn, deputy administrator for CMS, said “the debate over whether this is worth doing is over. . . . We can’t let the perfect be the enemy of the good and we know that the status quo is a far more potent enemy.”

Some policy experts said that price information alone will not tame America’s health care costs because consumers are not the ones making the expensive decisions.

Mark W. Legnini, a consultant who runs the Healthcare Decisions Group in Washington, said buying a hospital stay was not like buying shoes. “You don’t know what you’re going to buy,” he said. “The doctor determines what you’re going to buy.”

Karen Davis, president of the Commonwealth Fund, which works on improving health care, wants more public information about variations in hospital prices and quality. But not for the reasons most people think. “I don’t think giving patients price information, even quality information, is going to drive the markets very much in terms of patients changing behavior,” she said. “I think it’s really important to do these things because it will change the hospitals’ behavior.”

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