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There is little rationale for variations in hospital charges

CHARLESTON, W.Va. -- A distance of three miles between competing hospitals in downtown Huntington means nearly $24,000 in added charges for a patient needing a bowel procedure.For a patient in Morgantown, the one mile between Mon General Hospital and the main facility of West Virginia University Hospitals means an extra $28,000 in charges for a bowel procedure.In Beckley, four days on a ventilator costs $54,000 more at Raleigh General Hospital than it does four miles away at Beckley ARH Hospital.These numbers come from Medicare data, released for the first time last week, which shows that hospital charges fluctuate wildly, not just in different regions of the country, but within cities.West Virginia hospitals are hardly alone in their price disparities, they can be found all over the country -- and almost every hospital in West Virginia charges below national averages.There is a big difference between the prices a hospital charges, the figures cited above, and the amount that Medicare pays hospitals -- almost always a fraction of what the hospital requests.That's because Medicare, unlike private insurers or the uninsured, does not negotiate with hospitals over prices. Medicare collects cost data from each hospital and then estimates what it costs the hospital to perform a procedure and reimburses it at that rate.So, even though St. Mary's Medical Center charges $34,000 for that bowel procedure and Cabell Huntington Hospital charges $58,000, Medicare won't pay either of them more than about $21,000.Hospitals are not obligated to accept Medicare patients, but if they do accept them, they also accept Medicare's lower rates.Joe Letnaunchyn, president of the West Virginia Hospital Association, said hospitals that provide a wider variety of services -- burn wards, trauma units, teaching hospitals -- have to charge more. That might explain why Charleston Area Medical Center -- a teaching hospital with a burn ward, cancer center and trauma unit -- charges an average of 45 percent more than Saint Francis Hospital, a much smaller hospital five blocks away in downtown Charleston.Larry Hudson, chief financial officer at CAMC, said those costly services are built into the rate structure across the hospital.However, Cabell Huntington and St. Mary's have between 300 and 400 beds each, they both have trauma centers and cancer centers and they both are teaching hospitals, affiliated with Marshall University. Cabell Huntington has a neonatal intensive-care unit and a burn unit, which are very expensive, while Huntington has a neuroscience center.Cabell Huntington charges more for 59 of the 63 conditions that were reported for both hospitals in the Medicare data. Cabell Huntington charges an average of 25 percent more than St. Mary's for comparable conditions.In an email statement, Charles Shumaker, a spokesman for Cabell Huntington said, "When comparing hospital charges and payments, the only way to make accurate 'apples to apples' comparisons is to compare hospitals with similar missions and cost structures."
If the charges seem arbitrary, some health-policy analysts say, it's because they are.
"I think they're completely made up. They don't bear any relationship to underlying costs," said Dr. Robert Berenson, a health-policy expert at the Urban Institute and a former director of Medicare payment policy in the Clinton administration. "Medicare bases its reimbursement on cost reports that the hospital has to send, so Medicare is paying costs. The charges are a marketplace function of what hospitals think they can get from the market."Perry Bryant, the executive director of West Virginians for Affordable Health Care, was a bit more diplomatic in his assessment. He said hospitals with expensive services like NICUs spread those costs across the board."There is some rhyme or reason, but not a lot," Bryant said. "They don't charge the parents of premature babies all the costs, some of that gets shifted. But does that account for this wide variation? No it does not."In Beckley, Raleigh General charges 29 percent more on average than Beckley ARH, despite the fact that Medicare judges their costs to be almost equal. Medicare pays Raleigh General less than 1 percent more, on average, than Beckley ARH.In Morgantown, this situation is reversed. WVU Hospitals charges an average of 23 percent more than Mon General, but based on Medicare's evaluation of the hospitals' costs, it might be Mon General that is overcharging. Medicare reimburses WVU at rates 36 percent higher than Mon General.
Nancy Chockley, the president of the National Institute of Health Care Management, a nonprofit, said the most important factor in pricing could be a hospital's size. Larger hospitals can exert more pressure on insurance companies to pay higher prices."We all are looking for logic behind the pricing, and the logic that applies the most is the market power of the hospital," Chockley said. "Health care is almost 18 percent of GDP, and to have such dysfunctional pricing is pretty shocking."Private insurers don't pay the hospital charges -- collected on a document called a chargemaster -- they negotiate individually with hospitals to arrive at the prices that they pay. And they try not to use chargemaster prices as a starting point."Our approach is not to start from their charges because they're not a good representation of costs," said Fred Earley, president of Highmark Blue Cross Blue Shield West Virginia. "There's not a whole lot of rationality across the chargemaster."The charges vary widely, not only within cities, but also within individual hospital companies.Saint Francis Hospital in Charleston and Thomas Memorial Hospital in South Charleston are both owned by Thomas Health System. They are about six miles apart in Kanawha County. However, Thomas Memorial charges an average of $7,000 more for the same conditions than its sister hospital.A Thomas Health System spokeswoman did not reply to repeated requests for comment.Ultimately, only a tiny percentage of patients -- the uninsured who do not apply for or qualify for charity care -- are presented with a bill for these hospital charges.The charges still can affect what private insurers pay, though, particularly smaller insurers with less bargaining power."There are still insurers that negotiate based on charges, so some hospitals still see chargemasters as important," Berenson said. "Even if you're insured, these variations in charges are not irrelevant."Reach David Gutman at or 304-348-5119.
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