Medical costs vary widely at central San Joaquin Valley hospitals

The Fresno BeeMay 10, 2014 

Operating room staffers perform brain surgery at Saint Agnes Medical Center. Hospital-to-hospital variations in charges are to be expected because they reflect everything from overhead to the severity of patients' illnesses.

FRESNO BEE FILE

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.

Even hospitals operating within miles of each other in Fresno had varied charges for joint replacement. The average at Community Regional Medical Center was $52,161, while Saint Agnes Medical Center charged $63,299, according to the government database.

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 -- similar to how no one pays full sticker price for a car. Hospitals want to do away with billed charges, but they're 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 being 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 while few others had easy access. But 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.

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% of employees were enrolled in high deductible plans as of 2013, up from 8% in 2009. And 28% had an annual deductible of $1,000 or more, up from 6% 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% co-insurance fee for hospital care and outpatient surgery. The silver plan has a $2,000 deductible and a 20% 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% of poverty or below, which is $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's been years since anyone's 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 by Medicare.

At Community Medical Centers, which operates Community Regional, Clovis Community and Fresno Heart & Surgical hospitals, Medicare pays roughly 29% of charges, Medi-Cal pays about 20% and private insurance contracts pay roughly 35%-40%, 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 an open-heart 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."

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 authored SB 1322, which would create a California Health Care Quality Improvement and Cost Containment Commission.

So far 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. While it supports transparency efforts, 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.

No wave of shoppers

Hospitals and health plans could look to New Hampshire to see how health pricing transparency affects negotiating power.

In 2003, New Hampshire was one of the first states to create an all-payer claims database, and consumers were given access in 2007 to a website that provides provider and insurer median payment amounts for about 30 common procedures.

A recent study of the New Hampshire law found that the transparency uncovered a wide variation in hospital prices and that the disclosure led to reduced rates or at least moderated rates.

Awareness of the disparity in health care prices "made it difficult for high-price hospitals to keep up their pressure for rate increases," said Ha Tu, a senior researcher at Mathematica Policy Research, a Washington, D.C., organization, and author of "Moving Markets: Lessons from New Hampshire's Health Care Price Transparency Experiment."

The report said people in New Hampshire "pointed to a very public 2010-11 showdown between the state's largest insurer, Anthem Blue Cross Blue Shield, and Exeter Hospital, the most expensive hospital in the state." Anthem was successful in getting a new contract in 2011 "that reportedly cut rates overall rather than just reducing rate hikes," the report said.

The New Hampshire experience offers lessons to other states, the report said. But it cautioned that consumers should not rely on price transparency alone for making health care decisions. Price doesn't equate to quality, the report said.

"The danger when you don't have any quality information is that some consumers tend to use high price as a proxy for quality, which we know is not right," Tu said.

But the New Hampshire transparency actions have not resulted in a wave of consumers shopping for the most affordable care, as policymakers had thought would happen, the report said.

However, consumer interest in shopping appears to be increasing since 2007, Tu said. That's likely because more consumers now have high deductibles and high co-insurance payments that give them reason to shop, she said.

Hospital officials in the Valley, however, question whether health care shopping will become widespread.

Emerson-Shea, for one, doesn't believe most patients will shop for the cheapest coverage.

"Typically, you go to your doctor and if you need to have a procedure done, the doctor is going to tell you where you are going," she said. "So shopping around is really sort of meaningless."

But consumers sometimes have little choice but to look for low-cost health care.

Carolyn Trovao, 63, of Fresno, is looking for a new primary doctor. Her doctor doesn't accept the health plan she enrolled in through Covered California, the state's insurance marketplace for the Affordable Care Act. She's been unable to work since a heart attack two years ago and can't afford the $95 the doctor would charge for an office visit.

She's sticking with her cardiologist, however, even though he is not in her health plan network and charges $195 a visit. "I'm willing to change my primary care physician, but the cardiologist?"

Trovao, who worked for an insurance company before her heart attack, questions whether consumers should be responsible for researching hospital procedure charges.

"Am I going to tell my doctor, 'This anesthesiologist is cheaper than that anesthesiologist, can you use him ... here's my shopping list of all the providers you're supposed to use to make it cheaper for me.' "

Patients shouldn't have to shop around, Trovao said. "All hospitals should just get this much for this procedure."

Herbst of Kaweah Delta agrees fully.

Hospitals want to scrap the bill-based charges, he said. "We're trying to do away with billed charges, just abandon it and go to a net payment model that everyone could understand."

The reporter can be reached at (559) 441-6310, banderson@fresnobee.com or @beehealthwriter on Twitter.

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