August 11, 2005
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COST OF CARE:
New law lets patients examine hospital price lists
"Watch the pennies and
the dollars will take care of themselves."
-- BENJAMIN FRANKLIN
MAKING A MAJOR PURCHASE, LIKE
BUYING A CAR, most people price different dealers and do some
research. Even small budget items, like dining out, are sometimes
dictated by cost. So why shouldn't we do the same for health
care? After all, for health care consumers -- particularly the
uninsured -- a medical bill might be one of the biggest tabs
they will ever get.
Until recently, hospital price
lists -- known in the industry as chargemasters -- have been
closely guarded from competitors and consumers. But even with
a new state law that opens the books to the public, few patients,
both statewide and locally, are taking the opportunity to study
them. It could be that many people do not know that the lists
are available. More likely, most of us don't anticipate getting
sick, so don't bother looking into those expenses. But it's too
late when we're riding in the back of an ambulance, clutching
our chest, to think, "How much is this going to cost?"
for those who would like to skim over a hospital's "menu,"
all its medical jargon can make it more daunting than translating
a French carte du jour.
Still, with health care expenses
climbing, and 20 percent of the population uninsured -- a growing
number of whom are middle-income adults, according to a U.S.
Census Bureau study -- it's good to have an idea of what
hospitals charge for services.
For example, at St. Joseph Hospital
in Eureka, a CT scan of the brain costs $1,383. Just 10 miles
away at Mad River Community Hospital, a CT scan of the brain
For other procedures, such as
a basic metabolic panel (a common blood test) Mad River's price
($106) is higher than at St. Joe's and Redwood Memorial ($89).
(According to their chargemasters, prices at St. Joseph and Redwood
Memorial in Fortuna are often identical. Both hospitals are part
of a nonprofit Catholic chain -- the St. Joseph Health System,
based in Orange County.)
Across the state, price discrepancies
ranging thousands of dollars from hospital to hospital are common.
That was part of the logic that motivated Assemblyman
Dario Frommer (D-Los Angeles) to author 2003's Assembly Bill
1627, which mandated all acute care hospitals in California
-- 420 of them -- to reveal their price lists. That's thousands
of items per hospital, everything from an aspirin to an MRI.
This way the public can comparison shop to see if a hospital
is overcharging. More importantly, it may increase competition
between hospitals, bringing costs down in areas of the state
where more than one hospital exists such as Humboldt County.
The bill, which was signed into
law in September 2003, went into effect in July 2004. Last month
marked a milestone in the implementation of the new law; hospitals
were required to hand over electronic copies of their lists to
the state. Those chargemasters have since been compiled onto
CD-ROMs and made available to the public for $10 from
the Office of Statewide Health Planning and Development. Also
on the disc is a list of each hospital's top 25 most commonly
Many hospitals opposed the bill,
saying that chargemasters, with their complicated pricing formulas,
were not going to help consumers comparison shop. They point
out that insurance companies and Medicare cover most hospital
charges, and they do not pay full price. Supporters admit that
the information is not easy to decipher, but contend that public
disclosure is at least a step in the right direction.
Anthony Wright, director of Health Access California,
a consumer advocacy group that backed Frommer's bill, said that
chargemasters reveal wide disparities in prices, not only between
regions, but from hospital to hospital. The divergent numbers,
he said, suggest an opportunity to fix a health care system that
is obviously broken.
"We have to recognize that
some patients have to pay out of pocket," he said. "Uninsured
or self-paid patients get billed these charges which are often
five, six, seven times what the insurance company pays for exactly
the same service."
Wright said that patients mystified
by medical bills have come to Health Access California, which
has offices in Sacramento, Los Angeles and Oakland, hoping the
chargemaster will give them some answers.
"These are folks who get
this bill, the largest bill they've ever seen," he said.
"They want to figure out, `Why am I being billed $10 for
a Tylenol -- does this make sense? Let me look at what other
hospitals in the area are charging.'"
Jay Davis, a physician who works
at the Humboldt State University Health Center and the express
care unit of Mad River Hospital, said that in the past the only
time he would see price discrepancies between Mad River and St.
Joseph was when patients from his hospital had to be sent to
Eureka for treatment.
our CT scanner broke down we would ship [patients] over to the
other hospital and then say, `God, look what they charged!'"
he recalled of his time as director of the emergency department.
"Usually hospitals won't tell you -- at least they won't
tell their competition."
Even now that hospitals are
required by law to tell, figuring out how they arrive at those
numbers is another matter. Pricing formulas are complex and vary
from hospital to hospital.
For patients at least, knowing
the price discrepancies can serve as leverage when attempting
to negotiate with a hospital to lower a medical bill, Wright
Pending legislation guarantees
that uninsured or self-paid patients would not have to pay more
than they would if they had Medi-Cal, Medicare or Workers' Compensation.
Local hospitals already have
similar programs in place. Uninsured patients at St. Joseph can
receive financial assistance based on their inability to pay;
this includes people who can't qualify for Medi-Cal. At Mad River,
all uninsured patients receive an automatic 30 percent deduction
from their fee and in certain cases can get as much as 40 percent
Measures like this are important,
Wright said, citing a recent Harvard study that found that unpaid
medical bills account for half of all personal bankruptcy claims
in the country, edging out divorce as the No. 1 reason people
And while price lists can help
consumers make informed decisions about health care, chargemasters
are not light reading. St. Joseph's list includes 9,666 items,
which amounts to over 200 pages. Mad River's runs just over 100
who sits down with St. Joseph personnel to look over the price
list is first handed a disclaimer that, in essence, says that
the chargemaster is not the best source for "apples to apples"
The document reads: "Factors
considered in setting our prices include prevailing market rates
for hospitals of similar size; and overall mix of services. For
example, the high costs associated with providing critical care
services such as emergency medical care and urgent care, can
result in higher overall costs."
It goes on to point out that,
"Charges are not the same as reimbursement. We have contracted
rates with health plans that reimburse us at far lower rates
than the actual charges."
That means that the patient
may never have to pay the entire list cost and that St. Joe's,
like most hospitals, is rarely, if ever, reimbursed the chargemaster
price from insurance companies.
(Reimbursement rates are another
hot topic locally, with Mad River currently sparring with Blue
Cross over its contract. The independent, for-profit Arcata hospital
fumed all summer, claiming that the insurance giant -- which
accounts for 18 percent of the hospital's business -- reimburses
Mad River just half what it pays St. Joseph. If the inequitable
reimbursement continues, Mad River officials warn, the hospital
may be forced to close. Negotiations with Blue Cross have been
extended through August. In the meantime, Mad River administrators
have been instructed by Blue Cross officials not to talk to the
media about the situation.)
Though no one at St. Joseph
was available to speak about its chargemaster last week, Chief
Financial Officer Galen Gorman was able to answer some of the
Journal's questions over e-mail while he was on vacation
Gorman shied away from questions
about the direct cost of certain procedures at St. Joe's. He
restated points made in the disclaimer -- that the chargemaster
has very little to do with what the hospital actually receives,
and that the hospital business is a difficult one, financially.
"Charges are irrelevant
to most discussions related to costs of hospital services,"
he wrote. "What we are paid is the issue. With reimbursement
hovering around 31 cents on the dollar on our entire book of
business, it needs to be everyone's concern that all hospitals
are not reimbursed nearly enough to facilitate purchases of equipment
and new construction. Seventy percent of all rural hospitals
in the state are losing money."
When asked about the difficulty
of interpreting a hospital's chargemaster -- there are 58 separate
listings for the price of an overnight stay at St. Joe's. Gorman
indicated that he was less worried about the readability of the
hospital's list of prices than of the bill patients receive afterward.
"We continue to strive
in improving the readability and clarity of our hospital bills,"
he wrote. "Normally, most patients will never see an insurance
breakdown of payments from their insurance carrier. Our billing
department is always available to go over any charges or billing
inquiries a patient may have."
Gordon Bingham is the "revenue
cycle manager" for Mad River, the person in charge of keeping
and maintaining the hospital's chargemaster. He spends almost
half of his time at Mad River maintaining the list, regularly
meeting with each hospital department to sit down and talk pricing.
Bingham's system is apparently
working well. So well, in fact, that he has recently tracked
down thousands of dollars that were mistakenly not charged to
patients and insurers. For instance, when doctors need to hook
a patient up to an intravenous drip during a procedure where
an IV would not normally be routine, patients should be billed
for it. The ER department was aware of that, but obstetrics was
"We're trying to capture
revenue that we legitimately should be charging for," Bingham
Mad River administrators are
also rethinking how some items are charged -- itemizing a toothbrush
($8) and slippers ($11). For item like these and others in the
central supply department of the hospital, there is a standard
markup rate from wholesale cost. Bingham said that as the chargemaster
is updated, these types of costs will be taken off the list and
included in the cost of room and board.
"I relate it to a hotel,"
Bingham said. "You might not open the shampoo but you still
have to pay for it."
Bundling those prices into room
and board costs, Bingham said, will save staff the time it takes
to separately place a sticker price and catalog each item for
every patient, in effect reducing costs of delivering care.
While no one from the public
has yet to sit down with Bingham to go over the chargemaster,
it is not uncommon for patients to call the hospital in advance
of a procedure. For instance, if a person inquires about the
cost of a hysterectomy, hospital staff gives them a price range.
"We would guesstimate that
it would be between $3,000 and $6,000," Bingham said. "The
formula is easy. The computer would look up every person who
had a hysterectomy within the past six months and find the lowest
and highest range."
Higher costs might come with
complications, like an infection. Also, different doctors have
different treatment methods, some of which might cost more than
others. And the hospital always reminds people that hospital
charges are separate from what doctors charge for their services.
Though laypersons would still
find it difficult to read Mad River's chargemaster, it is easier
to understand than those of other hospitals. One way the list
is made more readable is by including a corresponding column
of the department for each service. For example, the listing
"LEVEL 3 OUTPTNT SERVE" ($410) is cataloged beside
the "operating room" column.
Bingham is trying to make Mad
River's chargemaster even more "mom-friendly" -- a
term he picked up at a conference, meaning anyone's mother should
be able to understand the list. For example, hospitals call eyes
"orbits," something the average consumer might not
comprehend. Bingham said that a revamped chargemaster would include
clarifications like these.
As for pricing, the rule of
thumb is to be able to justify the price of a procedure to anyone
who wishes to call it into question. Bingham said that Mad River
considers competition when pricing their services, but as of
last week, he had still not seen St. Joseph's chargemaster.
Bingham said that in general,
the price of a procedure is its cost to the hospital plus a reasonable
profit that allows Mad River to survive.
"A reasonable profit is
to make enough money to maintain our facility, upgrade equipment,
buy new technology and offer competitive wages and benefits."
But as St. Joe's Galen Gorman
noted, what hospitals are paid has only a slight resemblance
to its own pricing scheme, in the end. Much of Mad River's future
is out of Bingham's hands -- it is the ongoing negotiations with
Blue Cross that may determine the fate of the hospital.
"When you're an independent
hospital," Bingham said, "you have little bargaining
power. You're at the mercy of the big boys."
|Basic metabolic panel
|Complete blood count [cbc]
|Comprehensive metabolic panel
|CT brain w/contrast
|CT pelvis w/contrast
|Ibuprofen 200 mg tab
|ICU room charge
|Med/surg room charge
|MRI brain w/contrast
|MRI pelvis w/contrast
|X-ray, ankle 2 views
* Procedure is
smong the hospital's top 25 most commonly charged services.
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