New report on hospital sticker prices reveals tremendous variation among hospitals for similar procedures and treatments

Fourfold differences in prices are common

The Washington Health Alliance (the Alliance) announced today the publication of a new report that details tremendous variation in billing prices for common procedures among hospitals in Washington. The analysis, Hospital sticker shock: A report on hospital price variation in Washington state, finds that price variations from 200% to 400% and more are common, putting some consumers at financial risk. The report relies upon data released in April 2014 by the Center for Medicare and Medicaid Services (CMS).

“Reducing the cost of health care is a top priority of our organization,” said Nancy A. Giunto, executive director of the Alliance. “But as a community, we cannot reduce costs if we don’t know them. The results of this report confirm what the Alliance and others in the health care community have always suspected: just as there is with quality, there is significant variation in pricing among hospitals.”

Hospitals billings, also known as retail fees, facility fees, list prices or “sticker prices,” are analogous to the price appearing in the window of a new car in the sales lot. Unlike a new car, however, the health care consumer won’t see the price until after the hospital treatment.

The report examines hospital sticker price variation by looking at the average amounts billed to Medicare by hospitals for twelve common, uncomplicated inpatient procedures upon conclusion of the hospital stay, as well as the amount that Medicare paid. The report addresses only the hospital facility fee, or the price for using the hospital premises. It does not include professional services fees, which cover the services of doctors, surgeons, anesthesiologists or other practitioners, or other downstream costs—such as further testing, follow-up care and possible readmissions―associated with the initial hospital stay.

For example,  for uncomplicated stroke care at 35 hospitals statewide, a hospital’s average bill was as low as $10,835 and as high as $37,066, a 342 percent fluctuation. Medicare’s average payment to these hospitals, however, shows a much narrower range: $3,703 to $7,583 per discharged patient, a divergence of 205 percent. Medicare pays hospitals according to a separate, pre-arranged formula, adjusting its reimbursement to recognize drivers of operating costs that can vary between hospitals.

Billed amounts are potentially payable by certain patients in particular circumstances. Depending on the design of their health insurance plan, or if they are uninsured, consumers may be hit with large, unexpected medical bills after receiving treatment in a hospital.

Understanding hospital sticker prices in advance of a hospital stay can help both insured and uninsured patients reduce sticker shock. Because more out-of-pocket costs are being shifted to consumers and because unpaid medical bills have become a leading reason for personal bankruptcy, it’s important for health consumers to understand the financial risks they might face as patients―whether they have insurance or not.

The report and an accompanying infographic give tips for consumers to reduce hospital sticker shock. These include knowing exactly which hospitals are in your plan’s network, using your health plan’s cost calculator to anticipate out-of-pocket costs for non-urgent services, and checking that you can afford to pay your plan’s deductible in full on short notice.

The billing and payment data in this report are not indicators of clinical quality. The information released by Medicare does not indicate how patients fared during or after their hospitalizations. When evaluating their options, consumers should not look at price without also looking at quality.

The report is the first public report on prices that the Alliance has released. “This report, paired with reports on quality like you can find on our Community Checkup website, is important information for health plans, employers, providers and consumers,” said Ms. Giunto. “Still, while this Medicare claims data can be used as proxy for health care sticker prices, they don’t provide a complete picture. We need to continue to work together to support true price transparency via an all-payer claims database, private-public partnerships and market-based solutions.”

About the Washington Health Alliance

As a purchaser-led, multi-stakeholder collaborative with more than 165 participants, the Washington Health Alliance is committed to leading health system change in Washington state. The Alliance has a bold vision: by 2017 physicians, other providers and hospitals in the region will achieve the top 10 percent in performance nationally in the delivery of quality, evidence-based care and in the reduction of unwarranted variation, resulting in a significant reduction in medical cost trends. To achieve this goal, it will require the aligned efforts of those who give, get and pay for health care. A cornerstone of the Alliance’s work is the Community Checkup, a regional report to the public comparing the performance of clinics and hospitals for basic measures of quality care (www.wacommunitycheckup.org). The Alliance is a member of the Robert Wood Johnson Foundation’s Aligning Forces for Quality communities.

This report is part of a project funded under a Health Insurance Rate Review Cycle III grant from the U.S. Department of Health and Human Services, Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight awarded to the state of Washington’s Office of Financial Management. One hundred percent (100%) of the project’s $3,407,553.00 cost is funded by the Federal grant. There are no non-governmental funds being used to support this project. The project described was supported by Funding Opportunity Number PR-PRP-13-001 from the U.S Department of Health and Human Services, Centers for Medicare & Medicaid Services. The contents provided are solely the responsibility of the authors and do not necessarily represent the official views of HHS or any of its agencies.

Media Contact

John Gallagher, 206.454.2957, jgallagher@wahealthalliance.org.

Issued October 1, 2014.