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The Consumer's Ongoing Dilemma: Making Sense of Hospital Prices

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Recently the Washington Post's health policy columnist Sarah Kliff waded into the muddy waters of hospital disclosures. Kliff had heard that North Carolina Gov. Pat McCrory had signed legislation requiring the state's hospitals to publish the rates for the services they've negotiated with insurance companies.

That indeed would be a big step and builds on Medicare's release earlier this year of what hospitals charge the government to treat Medicare beneficiaries. Surprise, surprise! The data show huge differences among hospitals even in the same city, a phenomenon well documented in the academic literature.

Hospital charges are essentially like car sticker prices. Insurers use them as a starting point to negotiate what they actually will pay providers on their policyholders' behalf. Depending on their market clout, individual insurers arrive at a price they'll pay which usually is much lower than the hospital's published rates.

Each carrier settles on its own set of prices so in a given community there may be many different amounts paid for the same service. Dr. Todd Sorensen, the CEO of Regional West Medical Center in Scottsbluff, Nebraska, once told me his hospital had to negotiate with about 250 different payers serving an area of around 90,000 people.

Kliff argues, in her Washington Post piece, that the North Carolina data "has the potential to be significantly more useful for consumers" than the hospital charges that Medicare released. Yes, on one level. However, consumer advocates, along with journalist/entrepreneur Stephen Brill, have argued that what consumers really need to know is the discount price hospitals have negotiated with insurers.

Knowing that price would allow patients to go from hospital to hospital and choose the one with the cheapest price for hip surgery, pneumonia care or whatever the patient needed. Kliff concludes, "North Carolina is about to make data like that a whole lot more accessible, possibly changing the way that people there seek health care treatments."

Will it really change the way we seek health care treatments? Probably not for most people. Here's why. Most people are insured by one carrier that has negotiated discounted prices with providers in their networks. They are not insured by multiple carriers that would allow them to really shop around.

Suppose you find a hospital for hip replacement surgery — a costly procedure, for sure — and start comparing hospitals' negotiated rates. But the cheapest hospital is not in your insurer's network. Perhaps the insurer believes its quality is not so hot, or the parties couldn't agree on prices. Your choice is to go to a more expensive place where your insurance pays or go out of network to the cheapie facility and pay what's likely to be very high cost sharing. These days that cost sharing comes in the form of coinsurance of 30, 40 or 50 percent of a bill. How many people can pay 40 or 50 percent of the cost of hip surgery or a less costly procedure for that matter? Not many.

Furthermore the shopping-around advice omits the role of the doctor. Doctors still choose the hospitals for their patients for reasons that usually make clinical sense to them. And how many patients are willing to buck their doctor's recommendation? Not many. Doctors' advice — whether good or bad — still trumps data in the minds of most patients.

We are still a long way from a marketplace where consumers shop for hospitals like canned peas, if we ever get there. But the larger question is do we want to? If a hospital offers bad quality care — and even some of our now imperfect measures indicate they do — would we want hip surgery at a cheap hospital or one that gives quality care?

More Blog Posts by Trudy Lieberman

author bio

Trudy Lieberman, a journalist for more than 40 years, is an adjunct associate professor of public health at Hunter College in New York City. She had a long career at Consumer Reports specializing in insurance, health care, health care financing and long-term care. She is a longtime contributor to the Columbia Journalism Review and blogs for its website, CJR.org, about media coverage of health care, Social Security and retirement. As a William Ziff Fellow at the Center for Advancing Health, she contributes regularly to the Prepared Patient Blog. Follow her on twitter @Trudy_Lieberman.


Tags for this article:
Health Insurance   Health Care Cost   Pay for your Health Care  


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jim jaffe says
September 11, 2013 at 8:34 PM

checked my United Health coverage in the DC area and found as I suspected that every hospital is in network. believe that's also the case with the Blues and perhaps other plans. that means that shopping can work in instances where I'm responsible for a 20% in-network copay. the sad fact is that most networks are very broad when it comes to hospitals, which may make consumers very happy, but isn't terribly helpful in pushing patients toward best providers