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A new federal report confirms US hospitals are billing wildly varying amounts for the same medical procedures, even within the same locality.

By Louise Kelly on May 10, 2013

In an effort to improve transparency and foster trust in the healthcare system at large, the Centers for Medicare & Medicaid Services (CMS) has, for the first time, published price information for 100 of the most frequently billed hospital discharges for Medicare patients at 3,000 health care facilities around the country. Treatment costs for common ailments (60 percent of hospital Medicare billings) like pneumonia, chest pain, diabetes or urinary tract infections are examined in the report.

The report, released 8^thMay, has exposed significant price jumps in the same medical treatments which raises questions as to how the hospitals are determining their price scales. For example, the average charges for joint replacement range from about $5,300 at a hospital in Oklahoma to $223,000 in Monterey Park, California.  And treatment of psychoses apparently showed the greatest price discrepancies (the max cost more than 52 times its cheapest comparison) while prices for treatment of simple pneumonia and lung inflammation with complications ranged from $5,093 to as much as $124,051.

But it’s not simply geography that differentiates the costs as hospitals within the same city also vary greatly. The average charge to treat a blood clot in a lung at Beth Israel Medical Center in New York is $51,580 but you might be better off attending nearby NYU Hospitals Center where you would pay just over half the price at $29,869.

Power to the patients

Medicare and private insurers typically negotiate lower charges with hospitals, so the list price isn't necessarily what will be paid. But those who are unlucky enough to be uninsured when ill are often landed with the full amount. And some privately insured US citizens will suffer a larger bill as a direct result of a hospital's seemingly random charges. The American Hospital Association said insurers negotiate rates with hospitals “based on an array of factors,” and it would leave the door open for antitrust risks if that information was shared.

Nevertheless, the deputy administrator of CMS, Jonathan Blum, said Medicare payments don’t vary near as much as hospital charges and that the wide price differences are a mystery to himself and his colleagues. Unable to discern any legitimate reason for the large discrepancies, Blum says obvious differences in healthcare facilities, such as a more expensive regional economy, older or sicker patients, or the extra costs of running an academic hospital cannot explain the price gaps.

The Obama administration hopes that releasing this information will pressure some hospitals to lower their charges and indeed inspire answers to the hospital pricing puzzle.  Regardless, consumers are now in a better position as a result of this name and shame tactic. Even if a significant number of patients do not pay the full rates, this data can help drive their medical-decision making and encourage them to shop around for healthcare.

Fuel to the fire

Some of the variations might be attributed to the fact that some hospitals treated sicker patients who required longer hospitalization but this recently public data is likely to add to the on-going debate around the methods that hospitals employ to determine their respective charges.  As part of the announcement Wednesday, government officials stated that $87 million would be made available to encourage further transparency of health care pricing.

These latest results only increase the scrutiny on Obama’s proposed extension of his healthcare plan nationwide and the price patients, insurers and the government will subsequently pay for medical services.