Houston and Miami are expensive markets for hospital patients while Anaheim and Oakland, Calif., are low-cost havens.
That's the conclusion of KPMG Peat Marwick's ranking of the top 50 metropolitan statistical areas by hospital costs. The survey ordered MSAs by how much they vary from the national average in costs that hospitals can control. Factors out of their control such as cost of living and patient severity were left out of the calculations.
Why are costs so much higher in some metro areas? KPMG believes it hinges on managed care. Simply put, discretionary hospital costs are lower in highly managed-care markets, the accounting and consulting firm concludes.
However, the answer isn't always that simple.
"Excess capacity," answered Linda Quick, president of the South Florida Hospital Association, when asked why Miami hospitals ranked second most costly, behind only Houston. Although Miami has a significant amount of managed care, it still has too many hospital beds and physicians, she said.
Trying to fill excess beds and cover the fixed costs of hospital operations forces hospitals to incur even more costs. Miami hospitals probably spend more on marketing and advertising than hospitals in low-cost markets, Quick said.
In addition, Miami hospitals probably spend more "on foreign trade exhibitions and trips to Caribbean companies to develop relationships," she noted.
Miami's 30 area hospitals, which historically have had occupancy rates of less than 50% of licensed beds, see importing foreign patients as "an alternative to a shrinking inpatient market," Quick said.
As for Houston and San Antonio, which ranked costliest and third-costliest, respectively, hospital council executives declined to say why their facilities have such a high cost structure.
The Orange County, Calif., area ranked as the lowest-cost metro region. David Langness, vice president of communications for the Hospital Association of Southern California, credits Optima, a Medi-Cal managed-care system, with helping the area's hospitals manage their costs. Through Optima, Orange County hospitals share the burden of indigent care, and that has disciplined them to manage their costs well, he said.
In Northern California, Oakland's 22 area hospitals ranked No. 4 in terms of cost control. Many of those facilities have reformed through work redesign and patient-focused care.
"It hasn't been easy, but the lessons they've learned are going to be models for the country," said J. Michael Gallagher, president of the Hospital Council of Northern and Central California. One hospital that has encountered difficulties has been Alta Bates Medical Center, Berkeley, Calif., which was sued by a nurses' union over its work redesign program.
"There is tremendous payer pressure to lower costs," Langness said. However, he said area hospitals don't scrimp on marketing costs. As consumers make decisions on managed-care networks, hospitals must tell their "story on a daily and weekly basis," he said.
Not surprisingly, Portland, Ore., hospitals ranked third in their ability to control costs. That market was recently featured in MODERN HEALTHCARE as one of the most efficient in the nation (June 19, p. 118). For example, it has the lowest inpatient hospital days per thousand of population in the country, according to the Oregon Association of Hospitals and Health Systems.