Few people are able to look under the hood of the healthcare system's price structure, but one of the nation's largest private health insurers has given the public a chance to do so.
The Blue Cross and Blue Shield Association, the parent organization of 37 independent Blue Cross and Blue Shield insurers, released a study (PDF) this week that detailed the costs of knee and hip replacement surgeries across the U.S. And the results mirror what other studies have shown: There is wild variation in the prices paid for medical procedures.
For example, Blue Cross paid $11,317 for total knee replacements in Montgomery, Ala., but the same procedure cost the payer $69,654 in New York City, according to the report. Huge differences also existed in the same metropolitan markets. For a total hip replacement in the Boston area, Blue Cross paid providers anywhere from $17,910 to almost $74,000—a 313% difference.
Even markets with little price variation showed how expensive U.S. healthcare could be. In the Fort Collins-Loveland, Colo., area, the prices for knee replacements only varied 0.3%. But those prices still reached more than $55,600 on average, the second-highest total in the 64 markets studied.
What's significant—and unusual—about the data is that the numbers represent prices that Blues plans pay hospitals, not the hospitals' charges. Hospital charges are generally considered less useful because they don't reflect what Medicare, Medicaid and private payers actually pay. But charges are not irrelevant either, as they still signal a starting point for rate negotiations. The CMS released inpatient and outpatient hospital charge data for the first time last year.
Richard Raskin, an attorney at Sidley Austin who focuses on healthcare, said the Blue Cross report overall wasn't that surprising. Many differences are due to geographic wage rates and higher regional standards of living. New York City, for instance, is a pricey city for most things, not just elective surgeries.
Individual hospitals also have to barter for higher prices in some areas depending on their payer mix and teaching status, said Caroline Steinberg, a vice president at the American Hospital Association. A hospital with high rates of Medicare and Medicaid patients is more likely to ask for higher rates from private payers to offset underpayments from government payers. “Each hospital has its own mission, and each hospital must cover its costs,” Steinberg said.
Raskin said the report raised a big question about the insurers' reimbursement rates. “Why is a Blues plan paying such variable amounts for the same procedure in a geographic area?” said Raskin, who served as an adviser on the Healthcare Financial Management Association's price transparency task force last year.
Maureen Sullivan, chief strategy officer of the Blue Cross and Blue Shield Association, said in an interview that the study didn't specifically address why payment amounts varied so much in markets. The study was more about “increasing awareness” among its members who have been asking for more information on prices, she said.
“To really understand variation … you have to go in and look at the hospitals and understand the contracts,” Sullivan said.
The costs of procedures such as knee and hip surgeries should not be the only part of the growing price transparency movement, cautioned Erica Mobley, director of communications at the Leapfrog Group, an employer-backed organization that promotes healthcare quality and safety. More consumers are enrolling in high-deductible health plans, which require them to pay for more of their healthcare costs out of pocket. Price transparency will help consumers who are shopping for maternity care and these types of scheduled treatments, Mobley said, but quality and safety measures have to be released in conjunction.
“Displaying cost information is great,” Mobley said. “But it really is important that people and organizations who display this information think more than just cost.” For its part, Blue Cross does rate higher quality providers for a handful of procedures, including knee and hip replacements.
More of these price reports from payers are expected in the near future. Some of the nation's largest insurers—including Aetna, Assurant Health, Harvard Pilgrim Health Care, Health Net, Humana, Kaiser Permanente and UnitedHealthcare—have partnered with the not-for-profit Health Care Cost Institute to create a database of claims payments, which is expected to be available early this year. Blue Cross and Blue Shield of North Carolina has recently published prices of what it pays providers for several non-emergency services.
Follow Bob Herman on Twitter: @MHbherman
