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How much do hospitals charge?

Last month the Centers for Medicare and Medicaid Services released the amounts that hospitals charge for common inpatient services. This has obviously received a lot of attention in the press, from the national newspapers to the local outlets, each describing price discrepancies between local hospitals.

For instance, the Washington Post states: "George Washington University’s average bill for a patient on a ventilator was $115,000, while Providence Hospital’s average charge for the same service was just under $53,000. For a lower joint replacement, George Washington University charged almost $69,000 compared with Sibley Memorial Hospital’s average of just under $30,000."

This begs for the following comments. First of all, the numbers are the averages of what the hospitals charge, not the averages of what Medicare pays them. (Which is a much small number number, also included in the data released by CMS but not as headline-grabbing by far.)

Second, the fact that we're talking about averages means they will be skewed by outlier points (patients whose care costs an enormous amount of money). George Washington University is a well-known teaching hospital with a first-rate reputation, while I'd never heard of the other two until I read the WaPo article.

Patients pay not only for the procedure, but for the peace of mind that comes with being treated by first-rate specialists who have completed enough procedures to know exactly what to do if something goes wrong. This is even more relevant if you know you're a complicated case (for instance due to multiple chronic conditions). Then it makes sense that the hospital would charge you more - you're also paying for the knowledge the physicians will draw upon in case of complications.

What's not normal is for lesser-known hospitals to charge a lot of money when they bring little added value. But unless this is quantified properly, publishing these numbers without putting them in context only belittles the experience of doctors who have built their career on a specialization, leading to more procedures and more training, and have so far taken pride (one assumes) in the price premium their expertise was able to bring to their hospital, in addition to their own salary.

It is also important to remember that what is shown is the average list price, while Medicare typically negotiates lower rates. But an increase in transparency in the system can only be a good thing. It is up to the hospitals now to make the case that their product is not just a procedure or an episode of care, but also the context in which this procedure or episode of care takes place, especially if something goes wrong. If they can't, then they should decrease their prices very quickly, before finding themselves covered with ridicule and in the middle of a public relations nightmare.

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