State releases shock hospital-pricing data, calls for action

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Dan Goldberg

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The state's Department of Health has released hospital charges and costs for more than 1,400 medical conditions, revealing extraordinary discrepancies between hospitals across the state.

The release is part of state health commissioner Nirav Shah's pledge to provide greater transparency in health care costs, and an effort to begin a conversation over how hospitals arrive at their charges.

The hope, Shah said, is that consumers, insurers and employers call for more clarity and logic in a system lacking in both.

“Why does it cost $4,000 to get a C-section, severity adjusted at Hospital A, and $12,000 for a C-section across the street at Hospital B,” said Shah, during an interview with Capital New York two days before the data was made public. “I don't have a good answer for that and I don't think hospitals do either.”

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As an example, the data revealed when a woman arrives at Lutheran Medical Center in Brooklyn in need of a Caesarean section, she can expect an official charge of $8,000. Not a bad markup for the hospital where it costs about $4,400 to perform the surgery.

Walk a mile west, however, and the same C-section at New York Methodist carries a price tag of $19,000, though it only costs Methodist $5,900 to perform.

The disparity between the two Brooklyn hospitals is as wide for vaginal births, and was one of the many highlights found in trove of data released by the state's department of health.

Most New Yorkers don't pay anything close to these exorbitant sums. Medicare, Medicaid and private insurance companies all pay set rates, which they negotiate in advance, far below these charges. Even the uninsured – expected to be about 1.6 million New Yorkers after the implementation of the Affordable Care Act – are shielded from these astronomical charges.

The Hospital Financial Assistance Law, passed in 2007, limits the amount anyone who earns up to 300 percent of the poverty level will pay toward their hospital bill, and that applies regardless of a patient's immigration status. That means there are only a handful of patients expected to pay anything close to the prices that hospitals officially charge.

“For a given transaction, for a given consumer, it doesn't matter,” said Fred Hyde, a clinical professor in the department of health policy and management at Columbia's Mailman School of Public Health. “It really isn't relevant.”

Perhaps not by itself, but state health officials hope that greater transparency serves to begin a conversation over why hospital prices rise so much faster than inflation.

“One way to have the cost curve bent is a by having it as a constant background discussion and noise,” Hyde said. Shah briefly talked about the need for greater transparency at a health forum last week in Manhattan. He was asked about hospital pricing following a story in The New York Times.

The data, while more extensive than anything ever before released, lacks context. In health care, cost does not always correlate with value, and few people would bargain hunt when they need a life-saving procedure.

That makes it hard for the average person to know what to do with all this information.

State officials acknowledged the data could even have the opposite of its intended effect. It could encourage people to choose a more expensive hospital, assuming that higher price equates to higher quality. 

But Shah said the key to rational decision making must start with an openness that has never existed in the opaque world of hospital financing.

“Certainly consumers need this information to make more informed decisions,” Shah said. “Frankly, this is New York State citizens' data. It is hospitals' decision on how they want to price and how they want to market but there can't be a block box around cost and charges.”

In May, the Obama administration released similar data for 100 of the most common diagnoses. The goal there, too, was to shed light on one of the least transparent areas of health care costs. Shah said this effort expands upon what the federal government did in the spring, and the move was applauded by the trade group representing New York's insurers.

“It is important first step in peeling back the curtain so that people understand there are cost differences between facilities and consumers can question why,” said Leslie Moran, spokeswoman for The New York Health Plan Association. “It's kind of a poke in our butts for people to take some proactive measures.”

The state's data also revealed the median cost of a treatment - what it costs a hospital to provide - varies even among hospitals in the same neighborhood, though the discrepancies are far less than those found in what hospitals charge. That can have a far greater impact on the average New Yorker because its by those measures hospitals calculate their bottom lines, and with an eye toward those metrics that they must negotiate with private insurance companies, who pass on any additional costs to consumers.

Uwe Reinhardt, a Princeton professor of health economics, suggested that one reason for the variation might be because the costs include fixed overhead that is then pro-rated for individuals. "That allocation is always arbitrary and along can introduce variance in reported unit costs," he said. "Furthermore, some hospitals may have old, energy-ineffecient facilities or an older workforce. And, let's be frank, some hospitals are more effeciently managed than others."

The Greater New York Hospital Association released a statment explaining that costs are impacted by many factors "including a hospital's location, the skill mix of its workforce, it teaching status, and its mission-related activities."

The missing piece, everyone acknowledges, is price – or what a procedure costs the consumer at varyiong hospitals. That data isn't available yet but Shah promised the state will get there.

“We are ultimately going to get toward true price transparency,” Shah said. “We will get there.”