Hospitals have been under intense scrutiny for their billing practices, often triggered by extremely high charges—or sticker prices—for common procedures. Consumer groups and patient advocates argue hospital pricing is shrouded in secrecy, which has put patients on the hook for costly bills. But hospitals have said the listed charges are irrelevant because they only serve as a starting point for negotiations with insurers and that patients rarely, if ever, pay those prices.
The CMS data is shining a light on the process. The agency has now released data from 2011, 2012 and 2013. Charges for various inpatient and outpatient procedures differed significantly again in 2013 as they did in prior years. In many instances, charges fluctuated greatly among hospitals in the same region.
A Modern Healthcare analysis of the inpatient payment data shows Philadelphia, Los Angeles and Newark, N.J., had the largest gulfs in charges between the top and bottom hospitals. For example, in Philadelphia, the average difference in average hospital charges across all procedures was $123,847. In Los Angeles—an area rife with academic medical centers such as Cedars-Sinai Medical Center—the average difference between the highest-charging hospital and the lowest-charging hospital was about $112,000.
Major joint replacement surgeries remained the most common inpatient discharge, costing Medicare more than $6.6 billion in 2013. Kaiser Permanente's hospital in Baldwin Park, Calif., had an average list price of $36,887.27 for joint replacements, and Medicare covered about $12,500 of that sum. By comparison, Centinela Hospital Medical Center, a facility owned by Prime Healthcare Services and located 30 miles away in Inglewood, Calif., billed Medicare $237,062.95—six times as much as the Kaiser hospital—for the same procedure. Medicare paid Centinela an average of $17,609.86 for the procedures.
In 2013, Medicare generally paid about $420 for a level II echocardiogram, an ultrasound of the heart. Crozer-Chester Medical Center in Upland, Pa., billed the government an average of $11,451.32 for the outpatient procedure. St. Joseph's Hospital in Philadelphia, about 19 miles away from Crozer-Chester, billed only $732.56.
The American Hospital Association, which has criticized Medicare for not fully covering the cost of care, said it supports further price and quality transparency but wants the data to be useful for patients.
“We believe that it will take everyone—providers, insurers, employers and government—working together to provide patients with the information they need,” Caroline Steinberg, AHA's vice president of trends analysis, said in a statement. “What is helpful for consumers is to know what their financial obligation will be.”
Payments to hospitals in the CMS dataset reflect the cost to provide care as well as other ancillary costs, such as teaching subsidies for academic facilities and disproportionate share funds for safety net providers. What Medicare actually pays to hospitals varies little because Medicare uses a scheduled prospective payment system. Unlike negotiations with private insurers, Medicare offers no room for bargaining.
“It speaks to Medicare's ability to determine the (hospital) prices based on other factors, which include the geographic location and the type of hospital,” said Cristina Boccuti, a senior associate at the Kaiser Family Foundation who studies Medicare policy.
The data on physician services, like last year, reveal how much how much the program paid to individual provider numbers. The data set also includes payments made to large diagnostic lab companies, such as Laboratory Corporation of America and Quest Diagnostics.
Dr. Anne Greist, an oncologist and director of the Indiana Hemophilia & Thrombosis Center in Indianapolis, received $28 million from Medicare in 2013, the most of any physician. However, almost all of that—more than $27.9 million—went toward the purchase of Part B drugs, meaning most of that money went to drugmakers rather than the medical group.
The distinction between total Medicare payments and Medicare payments related to drugs was one of the primary, new features in the CMS' data release. The American Medical Association praised the CMS for separating Part B drugs and physician services, “thus eliminating the misleading perception that drug reimbursement was physician income.”
Medicare reimburses physicians for drugs that are administered in their offices by paying for the drug's average sales price plus 6% to cover overhead costs. Many physicians were unhappy with the CMS last year when it released physician payment data because it did not distinguish what payments went toward Part B drugs. Expensive chemotherapy drugs, for example, could have made doctors look as though they were pocketing large amounts of money when they were mostly covering pharmaceutical costs.
“By separating that, doctors with higher amounts of spending per patient could be in a group where that's more easily explained by the drugs that they need to be administering in their office,” Boccuti said.
Paul Ginsburg, a health economist at the University of Southern California, thought it was beneficial the government parsed out the drug data. But he said physicians still may be inclined to buy the highest-cost drugs if they are guaranteed full reimbursement as well as a baked-in profit.
“The incentives for the physicians to use the more expensive drugs are very large,” Ginsburg said. “To me, these data will help show the lack of a system to attempt to contain costs for physician-administered drugs.”
The most common procedure physicians billed for Medicare was the 15-minute office visit, which cost about $72 on average. A 25-minute office visit cost Medicare about $106 on average. Dermatologists were far more likely to bill Medicare for the quicker, lower-level office visits than other specialties.
More than half of office visits for cardiologists and cancer physicians went longer than 25 minutes and consequently cost more money. Cancer physicians billed Medicare almost $809,000 on average, the most of any physician specialty, but most of that total came from drug costs.
Despite the more granular data points, the AMA cautioned the latest release still has “significant shortcomings,” namely that the numbers don't provide context. “We continue to urge CMS to improve upon its data releases so that patients and physicians can actually use the information to better work together to improve quality, improve health outcomes and reduce costs,” AMA President Dr. Robert Wah said in a statement.
—Data analysis by Art Golab
