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Variations in Hospital Pricing

April 21, 2014

There is more evidence that a large source of wasteful spending in the U.S. healthcare system comes from hospitals.

The National Institute for Health Care Reform worked with the Center for Studying Health System Change to look at the variation of hospital pricing across the country. Their recent report focused exclusively on private sector spending.

One of the assumptions of the report, which I agree with, is that an elective procedure such as a knee replacement should not cost that much different from location to another. The procedural steps are routine and few clinical factors should cause the expected outcomes and related expenses to change.

The researchers found that spending varied more than 200%, from $17,500 to $37,000 for all costs within 30 days of discharge. This held true for service lines other than orthopedics, such as cardiology and gastroenterology services. And this is the money that actually changed hands, not the ridiculous inflated charges all hospitals initially bill.

As other observers have concluded, the much larger explanation for price variation is not the quality of care delivered, but the clout of the hospital in its local market. Hospitals with high-cost orthopedic services tended to have high-cost cardiology services, and so on.

To fight these excesses means local payers must fight back. I’m not talking about Aetna or Blue Cross. I’m talking about the Fortune 500 companies and their employees that actually pay for this waste through their insurance plans.

Can you imagine a major local employer through its health plan telling a big-name private hospital system or prestigious medical school-associated hospital to take a hike because their prices are exorbitant. This exactly what it will take to start to bring U.S. healthcare costs out of the stratosphere.

One Response to Variations in Hospital Pricing

  1. R Watkins on April 22, 2014 at 10:51 am

    So let me get this straight.

    On the one hand, we have for-profit insurers and for-profit hospital corporations colluding to pocket money that should be going into workers’ paychecks.

    And on the other hand, we have the AAFP telling its members (who did not cause this problem, did not profit from it, and have no ability to solve it) that they have to: assume financial risk for their patients’ lousy life-styles, achieve the mythical “triple aim,” and be penalized for their inevitable failure to do so. And, where will any “savings” that are achieved wind up? In the pockets of the for-profit insurers and hospitals, of course.

    Something is really messed up here . .

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