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CMS Releases Hospital Pricing Data

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   May 09, 2013

For the first time, the federal government has made public chargemaster data for the 100 most common Medicare inpatient diagnostic related groups or DRGs. Hospital prices vary widely even within the same within the same city or region.

In an unprecedented move Wednesday, the Centers for Medicare & Medicaid Services made public extensive hospital cost data, jolting healthcare providers, payers, and consumers alike.

How much hospitals charge for the same procedures (source: The New York Times)

The massive file contains chargemaster data or what some call the "sticker price" for the 100 most common Medicare inpatient diagnostic related groups or DRGs. The data does not include physician costs. But it does provide an inside look at how average covered Medicare charges can significantly vary from hospital to hospital within the same city or geographic area.

The data is for 3,400 hospitals and represent 92% of all hospital inpatient charges in fiscal year 2011. Here's a sampling:

  • In Birmingham, AL, the charges for of a hospital stay to treat chronic obstructive pulmonary disease with major complications range from $23,245 at St. Vincent's Birmingham to $87,065 at Brookwood Medical Center.
  • In Jacksonville, FL, the charges for treating simple pneumonia and pleurisy range from $13,923 at St. Vincent's Medical Center to $41,411 at Memorial Hospital.
  • In Seattle, WA, average covered Medicare charges for joint replacement with major complications range from $44,328 at the University of Washington Medical Center to $92,165 at Swedish Medical Center.

The public release of the chargemaster rates, or what Health and Human Services Department Secretary Kathleen Sebelius terms "a key piece of the [healthcare] cost puzzle, is the latest federal effort to "bring more transparency" to the healthcare market as well as "empower consumers, create competition, and help hold down costs. When consumers can easily compare the price of goods and services, producers have strong incentives to keep those prices low. That's how markets work," states Sebelius.

HHS officials note that Medicare—and most private health insurers don't actually pay Swedish Medical Center more than $92,000 for joint replacement. Medicare applies a system of standardized payments based on the DRG. At Swedish the average total Medicare payment for the joint procedure was $22,824.

Sebelius stressed the value of the data to the uninsured and underinsured, who she says are often expected to pay the full chargemaster rate. For elective procedures those consumers can "easily compare average prices" at local hospitals and factor those costs into their decision on where to have a procedure performed.

Exactly why hospital costs have such a wide variance remains a mystery according to Jonathan Blum, the deputy administrator and director for the Center for Medicare at CMS. "Some speculate that the difference is driven by patient health status or the teaching status of the hospital facility or the higher capital costs of some hospitals."

But Blum says there is no relationship. "We cannot see any business reason why for so much variation." He hopes the data release will help community leaders and consumer activists engage stakeholders in a more public discussion of the variations and perhaps help identify the contributing factors.

In a statement released late Wednesday by the American Hospital Association, Rich Umbdenstock, AHA president and CEO said "there are many parts of the healthcare delivery and financing systems that urgently need updating, and the matter of 'charges' is among those at the top of the list."

The Medicare program "no longer negotiates hospital payment rates—it unilaterally sets them through annual regulations, resulting in payments that now average about 95 cents on the dollar of Medicare-allowable costs," he added.

Umbdenstock says large insurance companies "negotiate rates…based on an array of factors, including each hospital's proposed rates, scope of services…accessibility and [community] reputation within the community. It would create serious antitrust risks for hospitals to share the proposed or negotiated rates with each other. Variation in charges, therefore, is a byproduct of the marketplace so all parties must be involved in a solution, including the government."

In addition to the unprecedented data release, Sebelius announced that HHS has made $87 million available to states to enhance rate review programs and to create a more transparent health insurance markets for their residents.

States may use the monies to fund pricing data centers to collect, analyze, and publish health pricing and medical reimbursement data in their area. Sebelius pointed to New Hampshire, where the state has a website of healthcare costs for a variety of procedures. "Residents can find the cheapest CT scan or MRI in their area in less than a minute."

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.

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