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2019

Cost : Price Variation for Inpatient Treatments in Washington State

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Introduction

Unlike other industries where consumers have a general idea of how much a service or product will cost and can get estimates beforehand – such as repairing a car or replacing the roof – patients and employers find it almost impossible to determine the total cost of medical care ahead of time. If they do find price information, they often discover that the price for a treatment can vary by tens of thousands of dollars between geographic regions and hospitals, and sometimes even within the same health system or hospital.

Price variation for medical procedures is nothing new. National studies have shown wide differences throughout the country in hospital prices. Washington state is no exception. Our previous reports have found that the prices for specific treatments can vary more than 500%. In other words, for the same procedure, the highest price tag is five times that for the lowest price.

There are a number of factors that contribute to the sometimes mind-boggling differences in case prices. One of the main reasons stems from negotiations between insurers, hospitals, and medical groups. Larger hospitals and medical groups often have an advantage over smaller ones in negotiating higher fees. Likewise, insurers with a larger market share often have an advantage over insurers with a smaller market share in negotiating lower fees. Knowing this does nothing to help those shopping for the best value. Price variation and the lack of transparency in pricing make it difficult for patients and purchasers to find high-value health care, and are also factors in the rising costs of care.

This report looks at 171 common inpatient treatments during the one-year period from January 1 through December 31, 2016 and marks the first time the Alliance has reported publicly on variation in case prices, using data from the Alliance’s All-Payer Claims Database (APCD). We report the median price per treatment and give a range of prices from lowest to highest for each hospital in Washington state.

About this Report

Definitions

The case price is the total of all the negotiated fees involved during a particular inpatient treatment and includes all professional services during the inpatient stay. The case price represents not only the contractual fees due to the hospital, but also captures what is owed to doctors, surgeons, anesthesiologists, and other providers involved in the patient’s hospital stay. Case prices are derived from so-called “allowed fees,” which includes what the insurer is obliged to pay, plus any cost-sharing obligations borne by the patient. Prices in this report represent real transaction amounts, not the retail fees sometimes referred to as “gross charges.”

We analyzed all case prices in each hospital to show the median case price. That is the price that would be exactly halfway down a list of sorted case prices. To eliminate outliers, we excluded 5% of cases with the highest prices, and 5% of the cases with the lowest prices.

Source of Data

The data comes from commercial insurers and self-insured employers that provide their information voluntarily to the Alliance’s APCD.

Limitations

This analysis addresses price only and is not a report on quality or outcomes. It is limited to common inpatient treatments and is further limited to only so-called “minor severity” inpatient treatments, meaning those that have few or no clinical complications. The data analyzed does not include Medicaid and Medicare. Therefore, these results do not represent the entire Washington state health care market.

Summary of Results

This report analyzed 171 distinct inpatient treatments during a one-year period from January 1 through December 31, 2016 and provides the median price per treatment in addition to a range of prices from low to high by facility.

We expected to find a great deal of variation in prices between admitting hospitals and we did. For example, the median price for a dorsal and lumbar fusion in Washington state is $60,620. The highest price is $118,375 and the lowest is $30,897 – the highest price is almost four times the lowest price. For a vaginal delivery, one of the most common treatments, there is still also a wide range, with the highest cost being three times more than the lowest.

This report illuminates not only the great deal of variation between providers but, for the first time, within the facilities themselves. There are many reasons for this. Hospitals may have different contracts with different insurers, each with a different negotiated fee. Or the number of medical groups with admitting privileges may vary and these medical groups, in turn, may have different insurer contracts. Insurers, hospitals and medical groups can all vary in the strength of their relative contracting advantages and that all results in different prices.

The bottom line is that it is the purchaser (employer or union trust) and consumer who pay the price for variation that they cannot control and usually do not see until it is too late. But there is some good news with this report.

  • Purchasers can now compare their prices to multi-payer results to see if they are getting favorable pricing with their current health insurance coverage.
  • Some purchasers will see these results as useful for exploring alternative contracting and benefits design strategies such as bundled payments or reference pricing.
  • Consumers can grasp the dollar price variation for treatments they are considering, and will hopefully be motivated to use their health plans’ online price search tools to get a better sense of their personal financial obligations and risk – before they seek treatment.

How to Use This Report

Purchasers and Employers: These results show how price varies when multiple insurers’ data are mixed together. Most often, employers are made aware of prevailing transaction prices by the insurer that administers the employer’s benefit plan. With a multi-payer perspective, employers get a better sense of how prices vary in the broader market. They can then engage in a more focused and prioritized dialogue with their existing plan. For example, an employer who is concerned about spending for Cesarean section deliveries may not only try to reduce unnecessary C-sections, but may find this report very helpful. If the employer knows from data supplied by its plan that it typically pays over $21,000 per case, but the Alliance report shows the median price in Washington state is about $16,500, the employer may be able to use that information to negotiate a lower price.

Providers: These reports give hospitals and doctors a more complete understanding of how competitive they are. This is because hospitals are often unaware of the fees that the physicians have negotiated, and vice versa. Because these case prices include both hospital and professional fees, both parties can see the combined prices and how much they vary. We hope this report will motivate providers to discuss ways to address price variation.

Consumers: People tend to think of hospitalizations as urgent events for which planning is out of the question. However, many of the treatments in this analysis can be planned. For consumers with high or unused deductibles, these results offer insight into the range of prices they might face if they were to schedule one of these procedures. Both the dollar amount and the range of case prices have implications for how much the consumer’s out-of-pocket liability could be. For example, suppose your doctor suggests a knee replacement for you. Using this report, you discover the case prices for uncomplicated knee replacements at your favorite hospital ranged from around $15,000 to over $50,000, with a median price of $28,000. You know you will be responsible for some portion of the total bill. Because you have limited cash savings, you contact your health plan to learn how much you will need to pay based on your specific health plan if you go through with the surgery at this hospital and, perhaps, whether you want to explore having the procedure at an alternative facility.

In short, we hope that by drawing attention to price variation, we will help consumers be better informed and engaged to get more affordable medical treatment.

 

In the table above, we include results for only those facilities that had sufficient case volumes to meet the Alliance’s threshold requirements for public reporting. If a hospital had insufficient volume for a particular treatment, it was not included. Likewise, we have not included results for inpatient treatments with results for only one or two facilities.

This report was produced using proprietary computer software created, owned and licensed by the 3M Company. All copyrights in and to the 3M [APRTM] Software, and to the 3M [APRTM DRG] classification system(s) (including the selection, coordination and arrangement of all codes) are owned by 3M. All rights reserved.