Revealing how irrelevant market forces are to the U.S. health care system, the Obama administration last week released data on how much hospitals charge for the 100 most common inpatient procedures billed to Medicare. The numbers show the hospitals charge Medicare wildly varying amounts—often 10 to 20 times the amount Medicare actually reimburses—that bear little relation to the actual costs of providing care. The database--which includes claims filed in fiscal year 2011--holds 163,065 individual charges made at 3,337 hospitals located in 306 metropolitan areas.

The worst overcharging hospital was Bayonne Medical Center in New Jersey, which charged the highest amounts for almost one-quarter of the treatments. Bayonne Medical typically charged $99,689 for treating a case of chronic obstructive pulmonary disease (COPD), 5.5 times more than other hospitals and 17.5 times more than Medicare paid in reimbursement. Neither Bayonne's costs nor its outcomes justified such a price premium. Even within the same metropolitan area, hospitals charge prices that differ enormously from one another, with Bayonne charging $155,769 for major joint replacement surgery, more than nine times the price at Lincoln Medical and Mental Health Center in the Bronx.  

As Jonathan Blum, Deputy Administrator and Director for the Center of Medicare at the Centers for Medicare and Medicaid Services, explains, “Our purpose for posting this information is to shine a much stronger light on these practices. What drives some hospitals to have significantly higher charges than their geographic peers? I don't think anyone here has come up with a good economic argument.”

As health care economists have long pointed out, the fact that most Americans have health care coverage that insulates them from health care costs means that price has little real meaning. Neither Medicare, nor Medicaid, nor private insurance actually pay the amounts listed on a hospital bill, instead using systems of standardized payments for treating specific conditions. Despite their unreality, hospital list prices help determine the level of those standardized payments, and in turn the level of insurance premiums paid by consumers.

-Matt Bewig

To Learn More:

New Jersey Hospital Has Highest Billing Rates in the Nation (by Julie Creswell, Barry Meier and Jo Craven McGinty, New York Times)

Hospital Prices No Longer Secret As New Data Reveals Bewildering System, Staggering Cost Differences (by Jeffrey Young and Chris Kirkham, Huffington Post)

Hospital Billing Varies Wildly, Government Data Shows (by Barry Meier, Jo Craven McGinty and Julie Creswell, New York Times)

Hospitals Forced to Reveal Their Most Privileged Information: The Cost of Care (by Ken Broder, AllGov California)