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'Funny Money' Makes Comparing Hospital Costs Complex

OPB | May 27, 2013 6:39 p.m. | Updated: June 7, 2013 10:16 a.m. | Portland

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The federal government recently released a list of what hospitals around the nation charge for various procedures — like hip replacements and gall bladder removals.

Some surgeries were 20 times more expensive at one hospital than another. 

Within Oregon, the differences weren’t as extreme.  But the charges were often several times higher than what hospitals actually receive from insurers. 

Kristian Foden-Vencil talked to one hospital to try and understand out how it sets prices. 

The federal Centers for Medicare and Medicaid Services has had data on what hospitals charge — and how much they collect — for years. 

Pat Zimmerman thinks patients are more concerned with quality of care than price. Her husband Paul Dinu recently underwent a hernia operation.

Pat Zimmerman thinks patients are more concerned with quality of care than price. Her husband Paul Dinu recently underwent a hernia operation.

Kristian Foden-Vencil / OPB

But anyone who wanted to see that data, had to pay for it.  Now, under the new health care law, t he government released the data for everyone to see.  So it’s a lot easier to compare what one local hospital charges for say a hip replacement, with another hospital’s prices. 

Sounds simple, right?

“For me, gross charges are just like funny money,” says Dan Ordyna

Ordyna is the CEO of Willamette Valley Medical Center in McMinnville. And the way he explains it, those cost comparisons aren’t so simple after all. 

His hospital has the highest cost in the state for a hip replacement — $55,000. The new data show that 35 miles away at Kaiser Sunnyside, a hip replacement is listed at $28,000. So, without regard to quality, a patient might decide to have the procedure at Sunnyside and save themselves $27,000. Right?

Not necessarily, says Ordyna. He  says charges have turned into “funny money” for many reasons. For example, at his hospital, prices were set decades ago, then automatic cost adjustments of 4, 5 or 6 percent added each year. 

Ordyna explained, “So over time, what was once established maybe 20 years ago as a $4 charge for a Tylenol pill, now can be up to $50 and to a lot of folks that’s sticker shock.”

Martin Gaynor is a health policy professor at Carnegie Mellon University. He says you have to look beyond the sticker price to get the real picture on health care costs.

Gaynor said, “These prices do not reflect reality in terms of true transaction prices.” 

In fact, if you look at the revenue hospitals receive — not what they charge — a very different picture emerges. 

For example: for that $55,000r hip replacement at Willamette Valley?  The hospital only actually gets $13,800 from Medicare — and that’s what Sunnyside gets as a Medicare reimbursement too. Medicaid pays even less — about $9,400. And private insurers pay whatever they can negotiate. Willamette Valley CEO Dan Ordyna says confidentiality agreements won’t allow him to say  how much.

Sloan Chambers / OPB

On top of that, he says, to be fair, every patient has to be charged the same amount.  

He said, “We’ve got to make sure that we don’t give anybody who’s not a Medicare beneficiary a deal, otherwise that could be construed as Medicare fraud.” 

Caroline Steinberg, of the American Hospital Association, says all of this negotiating reflects a constant cat-and-mouse game going on between insurers and hospitals

She explained, “So basically each year an insurance company will come to a hospital and they will demand a greater discount.  The hospital on the other hand needs to retain the amount that they were getting from the insurer last year plus a little bit to cover inflation, so in order to do that the hospital needs to raise it’s prices.”

Another cost driver, she says, is that hospitals need to cover a greater amount of uncompensated care each year — that is care for people who don’t have insurance.  And hospitals also face growing shortfalls from government payers. 

Steinberg said, “We’ve been experiencing cuts in Medicare and Medicaid and that underfunding gets passed on to private payers.” 

So all of those factors help explain why a hospital like Willamette Valley sets the price for a hip replacement at $55,000.

But imagine if you don’t have insurance — like half a million Oregonians. They’re faced with that “funny money” price. The hospital Ordyna explains.

He said, “We recognize that they … need the help and so our policy starts with an automatic 60 percent reduction…. And then what we do is try to go into payment plans.” 

Ordyna says the hospital has agreements with local banks who offer special loans to patients who need such assistance.  

Armed with discount figures and loan details, patients can also shop around, he says.  Ordyna also points out that a hip replacement is usually an elective surgery, so people without insurance don’t normally elect to have such an expensive operation.  But he says, Willamette Valley has worked with people in that position. 

Ordyna said, “We’ve done it and we’ve done it because we know that it’s going to help them get back to work. So there is that social responsibility that community hospitals have … to take the facts and circumstances of any particular case and see what you can do to create the best outcome.” 

What about people who not only don’t have insurance, but don’t have much money at all?

Ordyna said, “If they demonstrate, I think it’s 200 percent of the federal poverty line, with very limited assets … That if they come in and they need health services, we’ll provide that absolutely free. …  But there is a burden on the patient to demonstrate that they’re in that condition…. and the only that way we can figure that out is using some kind of objective data to make that call. To be fair.”

So that would be a copy of a tax return or some other kind of financial documentation.    Health experts aren’t sure exactly what effect publishing hospital charges might have on the marketplace. 

Pat Zimmerman is a long-term volunteer with Columbia County SHIBA, or State of Oregon Senior Health Insurance Benefits Assistance program.   It’s a group that helps seniors gain access to health insurance benefits. She says she’s never had someone call her to find out the cost of a hip replacement or any other operation. 

Zimmerman said, “I don’t think I’ve ever had one and I’ve been doing this close to 10 years.” 

She says that’s because her clients know that Medicare or Medicaid will pick up the cost.  In fact, Zimmerman’s husband just went in for a hernia operation. She says she checked the quality of care at his hospital, but not the price.  

She explained, “People in these situations are not going to make these decisions based on costs, unless they have fee-for-service insurance…where they are going to be paying a certain percentage and so it’s worth their while to find out how much it’s going to cost.” 

How about her husband, Paul Dinu. Did he check the price?

He said, “I know roughly what my co-pay is.”

So that would be a no.

The map below shows costs of major joint replacement around the state.


On the Web

CMS data for Oregon hospitals

CMS data for procedure 470 major joint replacement for Oregon hospitals

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