Hospitals say outpatient list prices irrelevant

The latest release of CMS charges and payments—this time for hospital outpatient services—drew renewed scorn last week from hospital officials, who continue to question the relevance of list prices that the vast majority of patients never see and payers never pay. But like much of the information being released through the Obama administration's healthcare transparency initiative, the wide disparities in outpatient charges likely will be used by insurers and consumer groups to seek a better deal on what they pay.

Why, they might ask, does Medicare receive an average bill for Level 1 ultrasound services of $3,037 from Capital Health Medical Center-Hopewell in Pennington, N.J., while nearby Hunterdon Medical Center in Flemington charges only $482? In central New Jersey, hospitals received an average of about $66 in 2011 for performing the service on Medicare patients.

Hospitals “are going to get a lot more pressure,” said Alyssa Martin, a vice president at William Gallagher Associates, which provides insurance brokerage, risk management and employee benefits services. Of course, the heightened transparency will also challenge payers to increase their own transparency on payments to hospitals and copayments charged to beneficiaries, which could result in their losing negotiating power.

A Modern Healthcare analysis of the data found not only wide variation between what different hospitals charge for the same procedure, but also vastly different markups depending on the service. For instance, ultrasounds and pulmonary testing tended to have some of the highest ratios of charges to Medicare payments, while hospital clinic visits tended to have the lowest.

Paul Ginsburg, president of the Center for Studying Health System Change, suggested that the difference might reflect the degree to which hospitals are competing with other physicians in the community.

The outpatient release comes one month after Medicare published similar information about inpatient charges and payments. A Modern Healthcare analysis found that while hospitals charged an average of 380% more for impatient services than what Medicare reimbursed, outpatient services had an average list price that was 520% more than what Medicare paid.

For instance, at the high-end, 213-bed Delaware County Memorial Hospital, in Drexel Hill, Pa., submitted an average charge of $6,729 for a Level 3 pulmonary treatment in 2011—or more than 65 times the $103 that Medicare eventually paid. But in Buffalo, N.Y., 352-bed Mercy Hospital, part of Catholic Health System, charged $125 and was reimbursed $94, for a ratio of just 1.3-to-1.

A spokesman at Springfield, Pa.-based Crozer-Keystone Health System, which owns Delaware County Memorial, did not respond to a request for comment by deadline. Dennis Dooley, vice president of planning and development at Capital Health, noted that its high ultrasound prices may reflect the high burden of charity care, especially at urban hospitals. “The fact of the matter is that safety net hospitals are bearing an enormous amount of unpaid care,” he said. “That's sort of the unresolved issue here.”

HHS Secretary Kathleen Sebelius unveiled the 2011 data on June 3 as part of Health Datapalooza IV, an annual conference on data transparency. The pricing information for 30 hospital outpatient procedures was released alongside county-level data on Medicare expenditures and rates of electronic health records' adoption by brands.

As the CMS releases even more data about what hospitals charge for various procedures—and this latest bombshell was particularly sensitive since outpatient services are an increasingly important piece of hospital revenue—hospitals are continuing to question what purpose the data serve and how they might be used.

Dooley of Capital Health noted that despite billing higher charges for some services, its hospitals collect a lower average payment than their neighbors. “Our percentage of collection relative to charges is less than others in our region,” he said. He added that only 4.5% of consumers are affected by the list prices, and even then, the system will work with those who don't have the means to pay.

“The charges are an artifact of a broken system,” he said, noting that they were developed as a method for entering into negotiations with third-party payers and will become even less relevant under healthcare reform's new payment models. “How does this improve the conversation about healthcare costs in this country? ... I'm not aware of anyone who pays 100% of charges.”

Still, the differences in the way inpatient and outpatient services are paid for could trigger a broader discussion than the previous release on inpatient charges. For instance, while Medicare uses diagnosis-related groups to pay for inpatient care, outpatient care is paid per procedure. “It's more accessible to consumers, to the media,” Ginsburg said.

Critics of the data release say the figures aren't meaningful, at least as presented, because they're only the jumping-off point for negotiation. And, as payers and providers duke it out over which is more responsible for rising healthcare costs, hospitals want insurance companies to similarly publicize cost-sharing information that more accurately reflects what patients owe.

Chip Kahn, president and CEO of the Federation of American Hospitals, which represents for-profit systems, said in a statement that the latest data release “again misses the mark in providing price transparency to help consumers.” Consumers need information that helps them make better decisions, “which in most cases will be what it costs them out of pocket for their care,” he said.

There are some patients who do get charged exactly what the hospitals charge—many of the uninsured, for instance. Yet Ginsburg noted that much advocacy work has been done around preventing uninsured patients from being hit with the highest prices.

A report last month from Moody's Investors Service similarly found that data doesn't allow consumers to do true comparison shopping—although price transparency could one day be a marketing strategy for some hospitals. The greater risk, according to the report, is that persistent pricing disparities will invite greater scrutiny and regulation, which could require even more disclosures from hospitals and force them to rationalize the prices they charge.

Of course, that doesn't apply when insurers have no negotiating power, which they discover when they pay for out-of-network inpatient services. Some private equity-owned hospital groups are employing a strategy of severing contracts with payers—leaving health plans on the hook for the charged price when one of their beneficiaries ends up in the now out-of-network emergency room.

The issue triggered a lawsuit by California's Prime Healthcare Services against Kaiser Permanente, which is fighting payment on $25 million in claims for emergency services provided at out-of-network Prime facilities, according to court documents.

“This (strategy) is somewhat on the fringe of these hospitals,” Ginsburg noted.

Nevertheless, the same issues can arise on the outpatient side when patients elect to go to an out-of-network provider and then are stuck with the balance of a bill after a health plan pays what it sees as “usual and customary” charges.

Greater awareness of discrepancies in charges and payments for outpatient services could also be useful to people involved in setting up health insurance exchanges or shared-savings programs, such as accountable care organizations. “These are tools for those who are taking responsibility for defined populations, because they can now see what the costs are,” said Fred Entin, a corporate compliance and regulatory specialist at Polsinelli's healthcare law practice. “There's clearly an opportunity now to be more targeted and more precise.”

Casey Schwarz, client services counsel at the Medicare Rights Center, which provides advocacy services for Medicare beneficiaries, noted that the data could help control costs on a populationwide basis. “I think it's good that it's out there for people who have the ability to translate it into more useful information.”

“It's probably too early to really know what the impact is,” Entin said, “but the fact that this information is out there is probably going to drive more changes in how procedures are priced, how they're paid for and how decisions are made.”

Follow Beth Kutscher on Twitter: @MHbkutscher