Ask the Experts: Why Do Health Care Costs Vary So Widely?
A report from the Centers for Medicare and Medicaid – the government agency that administers and oversees the disbursement of many federal health care benefits – has revealed that the amounts hospitals charge insurance providers often vary widely at the regional, state, and even hospital level.
The study examined the way in which more than 3,000 hospitals nationwide bill for the 100 most common types of inpatient stays – which together account for more than 60% of the market, according to the CMS.
Among the findings were some fairly stark pricing mismatches, including the following:
- The average hip replacement can cost you anywhere from $5,300 (at a hospital in Ada, Oklahoma), to $223,000 (at a hospital in Monterey Park, California).
- The average treatment for heart failure can vary by tens of thousands of dollars within the same city. For example, it can cost anywhere from $21,000 to $46,000 in Denver, Colorado and from $9,000 to $51,000 in Jackson, Mississippi.
The Goal: Transparency for Consumers
The release of this information is part of a larger push toward greater cost transparency in the health care industry. The Department of Health and Human Services announced a three-part initiative on May 8 aimed at bringing consumers better information about what hospitals charge and, ultimately, making health care more affordable. The aforementioned report on hospital charges is part of this, as is a new funding for data collection centers and a $87 million grant for states to improve their rate review procedures and contribute to the fight toward transparency
“Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city,” HHS Secretary Kathleen Sebelius said in a press release. “This data and new data centers will help fill that gap.”
This uphill battle against industry opacity is much like what the credit card industry underwent in recent years. Banks were notoriously tight-lipped about their policies prior to the Great Recession, and often resorted to shady bait-and-switch practices – advertising promotional terms and then revoking them at the drop of a hat – as well as predatory pricing. That all changed with the CARD Act of 2009, however, which revamped a number of key consumer rights.
Problems & Expectations
New legislation is unlikely when it comes to health care, at least under the current Congress, but funding and information are a good, not to mention, much-needed start. WalletHub consulted a number of leading health care policy and law experts about the current state of health care pricing in this country, and the overarching sentiment seems to be that while health care accounting is undoubtedly a mess, there are no easy solutions.
“In order to have a good regulatory structure, you need to have a good definition of what the product is,” James Blumstein, Director of the Vanderbilt University Health Policy Center, said. “It’s like on an airplane – you start billing for food, you bill for drinks, you bill for this. It’s called charging for ancillaries. … With a hospital, there’s so much more flexibility. How much of the director’s salary is going to be allocated to a particular matter and what is the matter? How many gauze bandages can you bill for? Can you bill for extra time for electricity?”
With that said, let’s turn things over to the experts in earnest. You can check out what they have to say on matters ranging from what to make of the new CMS data to what the future holds for healthcare pricing and, ultimately your wallet below. After all, “the issues eventually always come back to the patients,” according to Blumstein.
You can also read the Takeaways section that follows for a quick synopsis of the CMS findings and experts; opinions.
Expert Opinions – Health Care Costs and Transparency
- While differences in the prices that hospitals charge for certain services are revealing, the average person typically doesn't pay anywhere close to full freight.
- The health care industry is, however, marred by important underlying accounting issues.
- Initiatives led by the U.S. Department of Health and Human Services will help provide the information necessary to evaluate pricing practices as well as devise a solution for making the industry both more transparent and less expensive.
Image: Marynchenko Oleksandr/Shutterstock
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