Here's something hospitals would prefer you didn't know: The average price private insurers pay for a major hip replacement surgery at Northwestern Memorial Hospital in Streeterville is $39,897—32 percent more than the average price of the same procedure at Amita Health St. Joseph Hospital 3 miles away in Lakeview.
A peek behind the curtain on hospital prices
This information became publicly available for the first time under a new law requiring hospitals to disclose the rates they negotiate with private insurers. Disclosures trickling out from Chicago-area hospitals offer a glimpse at the wide range of prices charged for the same medical services.
The law aims to increase market competition through price transparency, ultimately making health care more affordable.
"The problem with health care is that there's no market check on charges," says Sara Rosenbaum, a health policy expert at George Washington University.
Hospitals have long sought to keep the prices they negotiate with insurers private, arguing that disclosing such rates could harm competition and prevent more innovative payment models. But advocates say price secrecy contributes to rising health care costs.
The price disclosures could shake the industry, equipping insurers to drive harder bargains with hospitals. Savings eventually could filter down to patients through lower health insurance premiums and out-of-pocket costs.
The rule provides "a lot more insight into just how much certain payers in certain markets may be overpaying for a service," Rosenbaum says.
Prices for common procedures vary widely among hospitals across the Chicago area, and even within the same hospital. At Northwestern, a Health Alliance plan pays $53,236 for hip replacement surgery that costs a Blue Cross & Blue Shield plan only $30,382, or 43 percent less. Sometimes, prices even differ for separate health plans from the same insurer.
Since Jan. 1, hospitals have been required to publish the rates they negotiate with specific health insurers in a "machine-readable" format. They also must use a "consumer-friendly" format to disclose prices for 300 services that patients can schedule in advance, or offer a tool that uses patients' insurance information to estimate out-of-pocket costs. While most of the largest local hospitals offer a price estimator tool, not all have fully complied with the new rule, which carries a fine of up to $300 per day.
As of Jan. 14, some of the area's largest chains, including Advocate Aurora Health, University of Chicago Medicine and Edward-Elmhurst Health, have yet to publish their rates. Hospitals like Rush University Medical Center and Loyola University Medical Center have published only maximum and minimum rates, without naming insurers, as well as list prices for services. Northwestern Medicine, NorthShore University HealthSystem, Cook County Health, the University of Illinois Hospital and many of Amita Health's 19 hospitals appear to be in full compliance.
The push for transparency comes at a tough time for hospitals, which are treating COVID-19 patients while also managing a logistically challenging vaccine rollout. Both 26-hospital Advocate Aurora and four-hospital UChicago Medicine say they're committed to complying with the new rule, but that they've been focused on their pandemic response.
NorthShore, Amita, Edward-Elmhurst and UI Health say they support price transparency and encourage patients to use price estimator tools or contact a hospital-based financial counselor for information on out-of-pocket costs.
And transparency isn't free. The Centers for Medicare & Medicaid Services estimates that implementation could cost hospitals nearly $12,000.
"Rush is continuing to review and work on its compliance with all aspects of the price transparency rule, which has taken a significant amount of resources and time away from Rush's normal business operations, especially in light of the pandemic," the chain says in an emailed statement. "The new rule puts an extraordinary burden on hospitals while failing to achieve the underlying objective of promoting clarity for patients with respect to their health care expenses."
Northwestern, Loyola and Cook County Health didn't respond to requests for comment.
Since health care doesn't operate under normal market mechanics, advocates say the new rule is necessary to help balance the scales. The industry relies on third-party payers, rather than consumers, to determine reasonable costs and utilization. Regulatory requirements—such as one requiring that hospitals treat all patients in need of emergency care regardless of ability to pay—add more complexity.
Critics warn of unintended consequences. For example, hospitals with lower prices could raise their rates to match competitors. But giving payers more information about rates could lead to lower prices across the board, altering a process that has long been shrouded in secrecy.
"We're going to see use of the data by research groups and others who can shine a bright light for payers," Rosenbaum says. "That's what the hospitals are really scared of."
That bright light illuminates hospitals' most lucrative revenue streams. Private insurers pay an estimated 51 percent to 122 percent more than the federal Medicare program, according to a recent Health Care Cost Institute analysis.
Experts say more information is needed to truly make sense of the price variation. For example, higher patient volumes could help explain why NorthShore charges Aetna $166,995 for heart surgery (with catheterization and major complications), but Humana pays $204,176.
There are a number of possible reasons why some insurers get charged more than others. Insurers that send more patients to a hospital might get lower prices. Hospitals also may take into account how fast a payer is, as well as prior-authorization requirements and other red tape they say can delay patient care, experts say.
Pricing is becoming even more controversial as hospitals continue consolidating, giving them more leverage over insurers. And while research shows mergers have little impact on quality of care, they've been known to drive up prices. Likewise, insurance industry consolidation gives payers more power to negotiate lower rates, which don't necessarily equate to lower premiums for enrollees.
"Prices ultimately rest on the indispensability of each party to the other," says Alan Sager, a professor at Boston University's school of public health. "This isn't competition. This is the smoke screen behind which hospitals and doctors and insurance companies can continue to play games in a $4 trillion U.S. health care world without the ability for cost containment, appropriate care or affordable coverage for everybody."
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