Across town at Foothill Presbyterian Hospital, Medicare paid an average of $15,804 for the procedure after receiving an undiscounted charge of $59,416. In other words, though the basic charge at Keck was more than twice as high as at Foothill, its actual reimbursement was only 23% more. “Keck Hospital accepts patients that other hospitals do not, including patients who need revision surgery,” Keck officials said in a written statement. “These cases take longer to complete and may involve lengthy hospital stays.”
The stark differences in charges put hospital officials on the defensive, and most contacted by Modern Healthcare refused to discuss the frequently wide differences in both what Medicare pays and what hospitals in the same markets charge. Carol Farron, community development director at Lodi (Calif.) Memorial Hospital, called it “a convoluted system with no logical solution.”
“It's such a complicated issue, and I think the problem is there's a difference between charges and costs, and that's driven by the federal government,” Farron said.
For their part, federal officials took aim at the yawning gap between their DRG payment rates and the charges submitted by the nation's hospitals. “These rates can vary massively in ways that cannot be easily explained,” HHS Secretary Kathleen Sebelius said in a call with reporters.
Overall, the 100 DRGs reflected $66.7 billion in payments for 7 million discharges or 60% of Medicare's IPPS discharges in fiscal 2011.
Hospital officials were quick to point out that the vast majority of patients never see or pay the undiscounted rates. Private insurers negotiate steep discounts based on their ability to drive patient volume to hospitals. The newly revealed data showed Medicare paying rates that were usually a third or less of the charged rates. And Medicaid pays the lowest rates of all.
But that doesn't mean the chargemaster rates have no impact. People without insurance used to be charged the undiscounted rates, although that practice was ended by the Patient Protection and Affordable Care Act. They now must be charged an average of the hospital's three lowest rates. Insurers whose patients require out-of-network care in another city can sometimes be charged the undiscounted rate as can foreigners coming to the U.S. for treatment.
And none of that explains the vast differences in the top rates, which are unique to each hospital. Their specific costs are added to the charge for each procedure, according to hospital advocates and former hospital officials. For instance, some hospitals not only add in their teaching, uncompensated care and capital costs to each procedure, they offset losses from some procedures with higher profit margins on others.
At Centinela Hospital Medical Center in Inglewood, Calif., where the undiscounted price for a major joint replacement was $220,881, spokesman Steven Brand said the high charge was due to the hospital's treatment of a “higher risk, more senior population.” Such explanations have met with skepticism from federal healthcare officials, who said it defied logic to suggest such huge charges could be due to any hospital cost or the quality of care provided.
“To date, we have not heard any logical reason why there is a 20 times and 40 times variation in chargemaster prices” compared to Medicare payments, Jonathan Blum, director of Medicare for the CMS, said in a call with reporters.