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Your Price May Vary:Geographic Variations in Hospital Charges in California
by Elizabeth Ridlington and Travis Madsen, Frontier Group; Mike Russo and Emily Rusch, CALPIRG Education Fund
The cost of health care has increased faster than inflation for years, consuming a growing share of household, business and government spending. Research shows that not all increases in health care costs translate into better outcomes for patients. The price charged for common surgeries varies dramatically from one region to another within California. By examining why charges for surgeries vary from place to place, state officials, health insurers and advocates may be able to identify opportunities for cost savings that can benefit Californians statewide.
Since 2009, hospitals in California have provided information on how much they charge for common, elective, inpatient surgeries, revealing immense variation between different facilities. Hospitals in California’s highest-priced hospital region charge 2.7 times as much for surgery as do hospitals in the lowest-priced region. These high hospital charges add to the financial burden of health care.
Health care costs are taking up an ever-growing percentage of California families’ budgets.
- In 2009, health care spending per Californian was $6,238, 79 percent more than just 10 years earlier. Family insurance premiums rose by 113 percent from 2001 to 2009.
- Employers who provide insurance to their employees now spend 12 percent of employee compensation costs providing health insurance. Growing health care costs have added to the financial troubles of government: California spent 19 percent of its general fund monies on health care in 2009.
The prices charged for surgery in California vary from one geographic region to another. We analyzed hospital charge information provided in the California Common Surgery Cost Comparison database—a record of the prices charged for common, elective, inpatient surgeries performed at hospitals across the state—and created a charge index that can be used to compare charges for the 12 most common surgeries, such as Cesarean births, knee replacements and angioplasty. Though the database includes information on how much hospitals charged, not on how much they were ultimately paid, the observed variation in prices suggests important differences in surgery pricing.
- Hospitals in the hospital region with the highest prices charged 2.7 times as much as hospitals in the lowest-priced region in 2010, according to our charge index.
- Surgery charges were highest in the Alameda and San Mateo areas. The Fresno and Orange County regions charged the least.
Hospitals in some regions charge far more for specific surgeries than hospitals in other regions. The typical patient in the San Mateo region was charged nearly $48,000 for a Cesarean section. For the same surgery, the typical patient in Fresno was charged less than $13,000.
- The typical knee replacement surgery performed in a Fresno-area hospital in 2010 was charged at $46,800, versus $127,500 in an Alameda-region hospital.
- In the Sacramento area, the charge for a typical patient having a hysterectomy through the abdomen was $47,500, compared to $34,400 for a typical patient in the Orange County area.
- San Jose-area hospitals listed the charge for angioplasty for a typical patient at $144,900, while hospitals in the Bakersfield region listed the charge at $44,400.
Even within regions, some hospitals charge far more for specific surgeries than others.
- In the Orange County region, which has relatively low surgery charges, the typical charge for a Cesarean section birth at the most expensive hospital, Saddleback Memorial Medical Center, was $31,000 in 2010, whereas it was less than half that at Hoag Memorial Hospital Presbyterian.
- The typical charge for knee replacement surgery in the Alameda County area, which has high surgery charges, ranged from $59,800 at Alameda County Medical Center—Highland Campus to $164,400 at Washington Hospital—Fremont.
General research into variations in health care costs can help shed light on the wide variation in charges for common surgeries in California, first by ruling out a number of potential explanations.
- Higher payments per patient are not necessarily driven by higher quality care, according to research in Massachusetts. A study of per-patient hospital payments by insurers concluded that payment variation between Massachusetts hospitals had no correlation with the quality of care provided by those hospitals.
- Patient income and health status do not explain variations in price. In California, regional patterns of high spending do not follow regional income and health patterns.
- Regional differences in the cost of living only partially explain the regional variations in common surgery charges. Whereas the cost of living in the San Francisco–San Mateo–Redwood City area is 46 percent higher than in the Fresno region, hospitals in the San Mateo and San Francisco regions charge 2.1 to 2.7 times as much as in Fresno.
Research suggests that variation in charges for common surgeries in California may have little to do with the quality of care or patient outcomes.
- Hospitals with greater market power can charge more. When dealing with insurers, for example, hospitals that serve the most patients and that are part of large hospital networks have more leverage when negotiating with health insurers on prices, who are willing to pay more to retain a key health care provider in their network.
- Within hospital regions, hospital nonprofit versus for-profit status may influence how much hospitals charge.
- Other factors not fully explored by researchers may also be influencing variations in charges.
The differences in common surgery charges around California suggest several avenues for how to help control health care costs in the state.
- California needs better information about the reasons for charge variation. Several of the possible explanations identified in this report are worth further study to reveal the extent to which they affect prices and might be addressed to help control costs.
- Building upon the best practices of regions with lower charges could help lower charges in high-cost regions. Learning more about the reasons for charge discrepancies would enable hospitals and networks of health care providers to improve their practices, providing quality care at reasonable cost.
- Patients need information on the quality of care provided by different hospitals to help ensure the best outcomes. Reliable information about hospital quality will avoid a situation where patients use price as a proxy for quality and gravitate toward hospitals that charge more.
- Better transparency of hospital discounts and accepted payments would improve patients’ ability to choose a facility based on price and would allow researchers and policymakers to better understand how California might control the cost of providing quality health care.