The Confusion of Hospital Pricing

From New York Times article By Roni Caryn Rabin, April 23, 2012

When Augie Hong awoke with severe abdominal pain nearly two years ago, he went to the hospital emergency room closest to his home in San Francisco. The diagnosis was acute and doctors removed his inflamed appendix.

Mr. Hong had health insurance, so he wasn’t too worried about paying. Then the bills started to arrive.

“That’s when I got nervous,” said Mr. Hong, 36, who has insurance through his job at an investment firm.

In all, Mr. Hong was charged $59,283, including $5,264 for the doctors. According to the Healthcare Blue Book, that amount is six times the fair price for an appendectomy in Northern California, which is $8,309 (including a four-day admission) for the hospital and an additional $1,325 for the doctor. Even after Mr. Hong’s insurer paid the hospital $31,409 and Mr. Hong paid the doctors $4,034, the bills kept coming.

A new study suggests that Mr. Hong’s experience is not unusual. Hospital charges are all over the map: according to the report published Monday in the Archives of Internal Medicine, fees for a routine appendectomy in California can range from $1,500 to — in one extreme case — $182,955. Researchers found wide variations in charges even among appendectomy patients treated at the same hospital.

“We expected to see variations of two or three times the amount, but this is ridiculous,” said Dr. Renee Y. Hsia, the study’s lead author and an assistant professor of emergency medicine at the University of California, San Francisco. “There’s no rhyme or reason for how patients are charged or how hospitals come up with charges.

“There’s no other industry where you get charged 100 times the same amount, or 121 times, for the same product,” she said.

Though she is an emergency room doctor herself, Dr. Hsia said, she has no idea what the hospital charges for various procedures. When patients ask her, she has to tell them she doesn’t know.

“It’s heartbreaking for me” to know people can be bankrupted by medical bills, she said, when “so many are struggling to get by already.”

Hospital charges appear on patients’ bills, but they often bear no relation to the discounted fees that an insurer will end up paying. Still, some patients do get stuck paying the retail price. They include the uninsured, those with bare-bones or high-deductible plans, and even some fully insured people like Mr. Hong.

Some providers who have agreed to discounted payments from insurers may try to bill insured patients for additional fees, a practice called balance billing.

Mr. Hong’s mistake, it turned out, was to have sought emergency care at the hospital closest to his home. His insurer did not have a contract with the hospital, and no one there informed him of this, even though he provided his insurance card and waited 30 hours for surgery — ample time to have been transferred.

Dr. Hsia, whose research was supported by the Robert Wood Johnson Foundation and the National Institutes of Health, reviewed charges for 19,368 California adults under age 60 who had had uncomplicated emergency appendectomies in 2009 and were sent home after hospital stays of fewer than four days. She and colleagues found huge variations in price, even within the same county. In Fresno County, for instance, the researchers found the smallest range of charges, but there was still a difference of $46,204 between the highest and lowest hospital appendectomy charge.

For-profit hospitals tended to charge more than county hospitals, and charges increased with a patient’s age. Charges were also higher for Medicaid patients and the uninsured, and for patients with other health problems like diabetes and congestive heart failure.

The patient whose appendectomy cost a whopping $182,955 also had cancer, Dr. Hsia said. But that patient did not receive cancer treatment during the hospital stay in which her appendix was removed.

After reviewing all the cases and accounting for individual variations in health, Dr. Hsia said one-third of the variation in charges still could not be explained.

The wide range of hospital prices isn’t limited to appendectomy. In 2007, researchers at the University of Pittsburgh and elsewhere posed as patients trying to get pricing information from hospitals in advance of a procedure, a right under California state law. Hospital hysterectomy charges ranged from $3,500 to $65,300, the researchers found. Gallbladder removal charges ranged from $2,700 to $36,000, and a colonoscopy screening might cost anywhere from $350 to $5,805.

Fewer than one-third of the 353 hospitals that were queried even responded to requests for pricing information. Those that did often did not provide all the information requested or say whether physician fees were included, said Dr. Ateev Mehrotra, an assistant professor of medicine at University of Pittsburgh School of Medicine and a RAND policy analyst who was the senior author of that study.

“In the past decade, there has been an aggressive push to make the patient a more active consumer who shops around for care,” Dr. Mehrotra said. “The question is, can they do it?”

He does not think so. “The current process does not facilitate that by any means,” he said. “It’s a crazy process. If we want consumers to play this role, we need to fix this system.”

Until that happens, consumers will continue to struggle with hospital charges that can seem completely arbitrary. Some advice from experts:

HOSPITALS IN NETWORK When you purchase or renew a health insurance policy, learn which local hospitals are in your network and when pre-approval is required. Inquire about out-of-network coverage in advance of travel. If possible, avoid plans that base out-of-network reimbursement on Medicare rates, which are comparatively low.

INSURANCE COVERAGE If you need an elective procedure and are insured, ask your insurer for an E.O.B. — an explanation of benefits — before the treatment. If you have insurance and the procedure is pre-approved, get it in writing.

PRICING INFORMATION If you’re uninsured or have a high-deductible policy, and if your state has hospital pricing transparency laws, contact the appropriate person at each hospital for pricing information. State hospital associations may help. Consult the Healthcare Blue Book to get an idea of fair prices, but remember that’s no guarantee.

Under the Affordable Care Act, all hospitals are supposed to publish their prices for common services by 2014. If you manage get an estimate of charges from a hospital, make sure you know exactly what services are included. Physician fees are billed separately, for instance — an anesthesiologist’s charges are separate from a surgeon’s. Having medical billing codes is helpful.

PHYSICIANS’ FEES Broach the subject of charges with your doctor, even if it’s uncomfortable. FairHealth, an independent nonprofit corporation, provides medical pricing information. Healthcare Blue Book suggests asking your doctor to sign a binding price estimate in advance and suggests language. An example is at