August 11, 2005

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COST OF CARE: New law lets patients examine hospital price lists

by HELEN SANDERSON

"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?"

Even 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 is $1,075.

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 charged services.

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.

"When 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 said.

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 removed.

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 go broke.

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 pages.

Anyone 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" comparison shopping.

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 last week.

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 not.

"We're trying to capture revenue that we legitimately should be charging for," Bingham explained.

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."

Chargemaster
Service	St. Joseph	Mad River
Basic metabolic panel	*$89	$106
Complete blood count [cbc]	*$110	$98
Comprehensive metabolic panel	*$110	$133
CT brain w/contrast	$1,622	$1,230
CT pelvis w/contrast	$2,016	*$1,470
Ibuprofen 200 mg tab	$5.01	$12
ICU room charge	$2,890	*$1,900
Lipid panel	*$120	*$168
Med/surg room charge	$1,447-$1,727	*$940
MRI brain w/contrast	$2,477	$1,455
MRI pelvis w/contrast	$1,777	$1,455
Vaginal delivery	$2,837	$763
Venipuncture	*$36	$27
X-ray, ankle 2 views	$311	$220
* Procedure is smong the hospital's top 25 most commonly charged services.

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