Trying to diagnose different hospital prices
Transparency movement in many cases doesn’t do much to clear up confusion

By Cindy Bevington

One hospital in northeast Indiana charges $4,500 for a gall-bladder surgery. Down the road about 30 miles, a different one quotes its charge for the same procedure as $9,364. Yet a third hospital, about the same distance away in another direction, says its gall-bladder operations are $7,500 to $11,250.

So why the difference? What factors could cause a nearly $7,000 disparity between hospital No. 1 and hospital No. 3? And how does a potential patient “shop” for the best price — or is it even possible?

Proponents of transparency, a term that refers to the medical profession’s efforts to be more up-front about charges for procedures, services and pharmaceuticals, say it will make medical costs more competitive and, ultimately, will help lower the costs.

As a result of a push for transparency by government officials and medical watchdogs, some health-care providers, including a few in Indiana, are posting prices on their Web sites. It would seem then as more and more providers publicize their prices, it should be fairly easy to shop for a non-emergency procedure.

But in reality, it’s not that simple.

The reason is because prices are determined by a range of factors, from the wholesale cost of materials or supplies used in the operating room, to the amount of time an ER doctor spends with a patient, to the number of charity cases a hospitals accepts each year.

Write-offs — unpaid patient bills — the number of beds in a hospital, geographic proximity to a competing hospital and the bottom-line negotiation price with insurance companies all figure in to overall costs.

The amount the government pays through Medicare, a federal program to help the elderly, and Medicaid, a government entitlement program for low-income citizens, affects a hospital’s overall prices, too. Private-pay insurance reimbursement is higher than Medicare, which pays 80 percent of a hospital’s cost, and Medicaid, which pays 50 percent of the cost.

Therefore, if one hospital has more Medicare and Medicaid patients than another, its overall procedure and services costs possibly may be higher in order to compensate for the loss as compared to a hospital that services a higher number of private-pay patients.

If that’s not confusing enough when you’re thinking of shopping for a surgery, when you add in the fact that some surgeries cost more simply because they use a different O.R. — for example, a cardiology surgery room can cost more than a room used for an appendectomy — then it becomes clear why it’s difficult for a hospital to quote a definitive price on any surgery before it’s happened.

“It’s very much an a-la-carte system,” said Terri Christensen, marketing director for DeKalb Memorial Hospital in Auburn. “For example, in an ER, an extra shot of morphine or even a Tylenol can change the price.”

A December 2005 study of hospital charges conducted by the Lewin Group for the Medicare Payment Advisory Commission helps explain why it’s so hard for hospitals to quote set prices on any given procedure.

First, the study found that depending on a hospital’s size and services, a facility could be looking at between 12,000 and 45,000 different items for pricing. That’s thousands of charges with dozens of variables all affected by such things as time, labor, equipment and room costs, even before other variables such as insurance negotiations are factored in.

In northeast Indiana, an ER visit can vary from $85 to more than $1,000, depending on which hospital is doing the billing. The range for a no-complications childbirth goes from $3,287 at one hospital to as much as $6,000 at another hospital.

But even then, the costs are just ballpark figures; the $6,000 could be as low as $4,000 at the same hospital, or the $3,287 at the other hospital can shoot up with every shot of Demerol pain medication for the mother.

“With a gall bladder, hernia or delivery, I can quote a price, but if the mother ends up staying an extra day or the gall-bladder surgery has a complication, that can drive up the cost,” said Craig Polkow, chief financial officer for DeKalb Memorial.

“I know some hospitals (such as Clarian Health in Indianapolis) are posting prices on the Internet. But even if you see the price, that doesn’t tell the whole picture. I think it’s very difficult to tell a patient the price of a service.”

Like other hospitals, Cameron Memorial Community Hospital in Angola has a full-time auditing staff that does nothing but monitor charges and outgoing bills, so the hospital can constantly be aware of what the going fee for a procedure is locally, and to be sure that Cameron gives a good value for the price, according to its president and CEO, Dennis Knapp.

“We have software that will tell you the average regional price for a procedure,” Knapp said. “But what people don’t realize with transparency is that when you have certain procedures, such as an X-ray, that they’ll have additional charges that aren’t included in the price. For example, with an X-ray you have a doctor that interprets it, who assesses a fee on top of what the hospital charges.”

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