New data released by Medicare reveal immense variation in the amount charged by hospitals for treatment of the 100 most common inpatient stays. Information from more than 3,000 hospitals around the country shows that, for the same procedure, charges vary as much as 42-fold—from $5,300 to $223,000 for joint replacement. The variation in charges is greater than the variation we observed in our analysis of charges by California hospitals for the 12 most common surgeries.
As with our California analysis, the new national figures show that, within a single metropolitan area, hospitals charge very different amounts for the same procedures. For example, hospitals in Denver charged Medicare as little as $21,000 to as much as $46,000 for treatment of patients with heart failure. Our examination of California data, which included younger patients, found that the typical charge for a Cesarean section birth at the most expensive hospital in one region was $31,000 in 2010, more than twice as much as the least expensive hospital in the same region.
Both the new Medicare data and our California analysis deal with what hospitals charge, not what they are paid. Independent of what hospitals charge, Medicare calculates how much it is willing to pay. Private insurers negotiate discounts with hospitals, ultimately paying more than Medicare but far less than what hospitals charge. Only uninsured patients are on the hook for the full, billed amount.
To the extent that the amounts charged by hospitals reflect true variations in their cost of providing care, understanding why some hospitals charge less may offer insights into how to better address the high and rising cost of health care.
In our efforts to understand the charge variation we observed in California, we learned what doesn’t explain charge variations. First, there is no clear correlation between the cost of care and the quality of care provided. Nor does variation in patient health or income explain much of the variation.
Other factors are more influential. There is a connection (see here and here) between the market power exercised by a hospital or a hospital chain and the amount that the hospital charges for care. Another factor explaining charge variation is the financial status of the hospital: government-operated hospitals charge the least, followed by non-profit hospitals. For-profit institutions charge the most.
The data released by Medicare today provide a new opportunity for researchers to investigate the variations in health care charges and suggest policies for addressing the high cost of care.
Associate Director and Senior Policy Analyst, Frontier Group
Elizabeth Ridlington is associate director and senior policy analyst with Frontier Group. She focuses primarily on global warming, toxics, health care and clean vehicles, and has written dozens of reports on these and other subjects. Elizabeth graduated with honors from Harvard with a degree in government. She joined Frontier Group in 2002. She lives in Northern California with her husband and son.