The mysterious pricing of medical services -- the government reveals what it is charged and what it pays for a variety of medical services

The Centers for Medicare & Medicaid Services (CMS), f/k/a the Health Care Financing Administration (HCFA), recently released a massive report on health care costs comparing, according to the agency's press release, "comparing the charges for services that may be provided during the 100 most common Medicare inpatient stays" that hospitals bill to the government.

Quoting from the CMS press release:

These amounts can vary widely. For example, average inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Okla., to a high of $223,000 at a hospital in Monterey Park, Calif.

Even within the same geographic area, hospital charges for similar services can vary significantly. For example, average inpatient hospital charges for services that may be provided to treat heart failure range from a low of $21,000 to a high of $46,000 in Denver, Colo., and from a low of $9,000 to a high of $51,000 in Jackson, Miss.

Just for fun, I looked at the report and selected a number of Chicago area hospitals comparing prices billed for treatment of chest pains. Interestingly, at least in this miniscule sample, the amounts paid are not necessarily proportionate to the amounts billed. These are my notes:

Treatment for "Chest Pain"
Hospital Name	Amt. Billed	Amt. Paid
Swedish Covenant	$23,159	$4,229
Jackson Park	$22,150	$5,023
Resurrection Medical Center	$20,641	$3,679
Mt. Sinai	$17,735	$5,671
Little Company of Mary	$17,392	$4,042
Advocate Christ Medical Center	$16,155	$4,843
Mercy Hospital	$10,553	$5,040
Stroger (Cook County) Hospital	$7,616	$4,229

Now the CMS press release suggests (but, in fairness, does not claim) that the amounts billed to the government are also the amounts billed to private insurers for the same services. I don't believe that to be the case. Based on my experience in handling injury claims, it seems to me that hospitals bill one price to Medicare and Medicaid but a different (and lower) price to private insurers. The amounts billed may even vary from insurer to insurer. It seems to me that Blue Cross might negotiate a different rate for (say) an overnight hospital stay than United Health, while the government receives still a third figure for the overnight stay of a Medicare or Medicaid recipient. Perhaps someone with knowledge on this point might leave a comment -- although I'd bet that hard data on every hospital's private insurer billing is guarded like the Colonel's original recipe or the formula for Coca-Cola.

I can understand how a service might be priced differently from hospital to hospital: One hospital's treatment philosophy might differ from another. Hospital A may have more experienced (older and pricier) physicians on staff than Hospital B. One can imagine all sorts of reasons -- although some of the variances revealed by this report seem rather extreme.

Still, for me, the real question is how the health industry gets away with no-set-price pricing for the same service at the same hospital. Can you imagine going into your neighborhood Jewel and finding that the same box of one dozen eggs or gallon of 2% milk might have three or four different prices depending on who brings it to the checkout line?

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HT to the ISBA listserv, where I first saw a discussion of this report.

For further reading, see the Washington Post Wonkblog, One hospital charges $8,000 — another, $38,000