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CMS Publicly Releases Hospital Charge Information, with Resulting Media Attention to Charges

May 8, 2013
by Mark Hagland
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A first-ever public release of hospital charges unleashes a wave of media coverage—and an AHA response

For the first time on May 8, the federal Centers for Medicare & Medicaid Services publicly released hospital charge information from hospitals across the U.S., unleashing a wave of mainstream news media coverage, with media outlets such as The New York Times, the Washington Post, and National Public Radio all producing articles and broadcast segments highlighting the dramatic variation in prices between and among different hospitals, for the very same procedures.

In releasing the data, an announcement on the CMS website said this: “As part of the Obama administration’s work to make our healthcare system more affordable and accountable, data are being released that show significant variation across the country and within communities in what hospitals charge for common inpatient services. The data provided here,” the announcement said, “include hospital-specific charges for the more than 3,000 U.S. hospitals that received  Medicare Inpatient Prospective Payment System (IPPS) payments for the top 100 most frequently billed discharges, paid under Medicare based on a rate per discharge using the Medicare Severity Diagnosis related Group (MS-DRG) for Fiscal Year (FY) 20-11. These DRGs represent almost 7 million discharges or 60 percent of total Medicare IPPS discharges.”

Not surprisingly, the mainstream media reports focused strongly on the wide range of prices for the same procedures. For example, under the headline “Hospital Billing Varies Wildly, Government Data Shows,” the New York Times’ article, by Barry Meier, Jo Craven McGinty, and Julie Creswell, began as follows: “A hospital in Livingston, N.J., charged $70,712 on average to implant a pacemaker, while a hospital in nearby Rahway, N.J., charged $101,945. In Saint Augustine, Fla., one hospital typically billed nearly $40,000 to remove a gallbladder using minimally invasive surgery, while one in Orange Park, Fla., charges $91,000.”

The Times article did point out that “Medicare does not actually pay the amount a hospital charges, but instead uses a system of standardized payments to reimburse hospitals for treating specific conditions. Private insurers,” the Times report went on to note, “do not pay the full charge either, but negotiate payments with hospitals for specific treatments. Since many patients are covered by Medicare or have private insurance, they are not directly affected by what hospitals charge.’

Meanwhile, under the headline “One hospital charges $8,000—another, $38,000,” an article in the Washington Post by Sarah Kliff and Dan Keating, began thus: “Consumers on Wednesday will finally get some answers about one of modern life’s most persistent mysteries: How much  medical care actually costs. For the first time,” the article goes on to say, “the federal government will release the prices that hospitals charge for the 100 most common inpatient procedures. Until now, these charges have been closely held by facilities that see a competitive advantage in shielding their fees from competitors. What the numbers reveal is a healthcare system with tremendous, seemingly random variation in the costs of services.”

The Post’s story, too, provided some balance, by noting that “The hospital charges being released Wednesday—all from 2011—show the hospitals’ average list prices. Adding another layer of opacity, Medicare and private insurance companies typically negotiate lower charges with hospitals. But,” the article notes, “the data shed light on fees that the uninsured could pay.”

And a USA Today report by Kelly Kennedy, under the headline “New data show price differences for health procedures,” began thus: “Hospitals will now be required to tell patients how much they charge for procedures, a move federal officials said Wednesday should spark competition and lower costs.”

In the broadcast field, Scott Hensley of National Public Radio said this: “So, it’s kind of a big deal when the government releases what individual hospitals charge Medicare—and what they actually get paid—for the most common diagnoses and treatments."

And a brief segment on the ABC Evening news pointed out a dramatic difference between two Los Angeles hospitals for joint replacement ($32,000 versus $88,000), and encouraged healthcare consumers to “shop around.”




This report should be filed under the heading “we have seen the enemy and it is US!”…Pogo, circa 1960.

If there was ever a report that was self-indicting this is it. Yes hospital charges are non-sense, all over the map, not based on logic, etc. All true. But how’d that happen. As a former CFO I can tell you it was all done via the Medicare Cost Report, the core basis of Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals. So over the decades any good CFO would make sure that his charges maximized his governmental payments. And Medicare and Medicaid usually make up 60% of the total payments.

Some fifty years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That’s the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report. One of the most insane ways of ‘identifying’ costs ever cooked up. And it’s still used today!

Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost report…and here we are 30 years later- with both!

If you want to know why charges are a mess…just look at the Cost Report, and ask who created that monster?
Frank Poggio
The Kelzon Group