Groups Trying to Make Hospital Prices Clear

In order to help patients comparison shop for health care procedures, hospitals are being pushed to be clearer about pricing.

“Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city,” U.S. Health & Human Services Secretary Kathleen Sebelius said in a May news release.

HHS and other health care organizations are working on releasing hospital prices and charges in an attempt to inform patients of the cost of medical procedures at hospitals.

And recent accounting changes also are trying to make it easier to determine how much revenue a hospital receives. The accounting changes require hospitals to use net revenue as their main revenue figure rather than the much higher gross revenue figure that can include inflated patient charges — “sticker prices” that a hospital never expects to receive from private or public insurance payers.

The impact of the accounting change is “a clearer picture of what the receivables are and what the net patient services revenue are,” said Sandra Wolfskill, director of health care finance policy at the Healthcare Financial Management Association in Westchester, Ill.

The biggest splash in price transparency came in May when HHS released a spreadsheet on the Centers of Medicare & Medicaid Services website that compared the average charges and average total payments made to thousands of hospitals for the 100 most common Medicare inpatient procedures in 2011.

“Transformation of the health care delivery system cannot occur without greater price transparency,” Risa Lavizzo-Mourey, president and CEO of the Robert Wood Johnson Foundation, said in the May news release. “While more work lies ahead, the release of these hospital price data will allow us to shine a light on the often vast variations in hospital charges.”

Still, it’s unclear whether the information is actually being used by the patients to shop around. Edward Anderson, chief financial officer of Johnson Regional Medical Center in Clarksville, said some patients have been quizzing the hospital on the price of procedures.

“With the higher deductible plans coming out, people have to pay more of their own care,” Anderson said. “They are starting to pay attention to those things, and they are starting to shop a little bit. We’re seeing them calling and doing some shopping.”

Other hospitals in Arkansas, though, haven’t had patients call looking for price quotes as a result of HHS’s spreadsheet.

“I don’t think we’ve seen anything different as a result of the [HHS] reporting,” said Bob Roberts, chief financial officer at Baptist Health of Little Rock. “Patients with insurance or Medicare, … they’re much more concerned with what their out-of-pocket cost is going to be than the contract amount that the insurance is going to pay for the service.”

And Roberts said it’s difficult for a hospital to release a one-size-fits all price for a procedure because each patient is different.

“We try to help a patient individually estimate the cost, … based on what they’re having done,” Roberts said. “It tends to be pretty specific to each individual.”

He said a range of prices is usually quoted to a patient, not a specific price.

Hospital Charges

The idea behind HHS releasing the financial numbers in May was to promote price transparency.

Critics, however, blasted the information because the numbers did little to help consumers determine what they might have to pay for a given procedure.

“The way they put it out, characterizing it as something that would be useful to consumers in shopping for health care, was nonsensical because it bares … little relationship to what people actually pay for care,” said Alwyn Cassil, a spokesman for Center for Studying Health System Change of Washington, D.C.

Wolfskill, of the Healthcare Finance Practice, compared the hospital charges listed in the report to sticker prices on cars.

“Nobody in their right mind pays sticker price,” she said. “It’s exactly the same concept with [hospital] charges.”

In Arkansas, prices charged for a kidney and urinary tract infection without major complications were all over the map. At Johnson Regional Medical Center in Clarksville it was $5,808; at National Park Medical Center in Hot Springs, the charge was five times more, $29,602.

But another column in the spreadsheet showed the average total payment to the hospitals, which was much closer. In fact, Johnson Regional received an average of $4,846 for the kidney and urinary tract infection procedure — $25 more than the average paid to National Park.

Anderson, Johnson Regional’s CFO, said the hospital has tried to keep a lid on charges.

“We pride ourselves on being a very good value for the patients,” he said. “Health care is not cheap, but compared to a lot of other people, we’ve been very responsive to the patient and surrounding areas.”

The nearly $30,000 “list price” charge at National Park Medical Center never reflected the true price of the procedure, Mandy Golleher, a spokeswoman for the hospital, said in an email to Arkansas Business.

“Unfortunately, looking at charge data in isolation does not take into account a full picture of the complex reimbursement environment that we, along with all hospitals, must deal with,” she wrote. “It is important to understand that hospitals only collect a small percentage of our charges, or ‘list prices.’”

She said Medicare, Medicaid and private insurance companies all receive a discount and no one pays full price. Even uninsured patients could receive a 60 percent discount on the list price, Golleher said.

“But even the discounts are not an exact science because each patient is handled on a case-by-case basis,” Golleher said.

Starting a Website

Jeanne Pinder of New York started the website ClearHealthCosts in 2011 to report the prices for different health care procedures in seven metropolitan areas. No cities in Arkansas are currently on the site, but more regions are being added.

Pinder, who is the CEO of ClearHealthCosts, said prices in the same city can vary widely. Hospital charges can fluctuate so much because “it’s an opaque marketplace,” she said.

Pinder said that she thinks transparency in health care is coming because more people will have a reason to pay closer attention to the prices.

“The landscape has changed dramatically,” Pinder said. “The people who are insured often will be either on a high-deductible plan, … [or] in many cases paying 10 or 20 percent of the sticker price.”

Accounting Change

The American Institute of CPAs started moving toward clearer hospital accounting in 2011, said Wolfskill, of the Healthcare Financial Management Association.

The rule change, which took effect in 2012, called for hospitals to use net patient revenue as their top-line figure instead of the gross revenue, which included the billed amounts that “nobody pays,” Wolfskill said.

The difference can be millions of dollars a year. For example, the Arkansas Heart Hospital in Little Rock reported $405.6 million in total patient revenue for the fiscal year that ended Sept. 30, 2009. But it also had $288.3 million in contractual allowances and discounts on patients’ accounts, which made the net revenue $117.3 million.

It is the net revenue figure that Arkansas Business has traditionally sought out when ranking hospitals among the state’s largest private companies, since businesses in other industries don’t typically claim revenue that they never receive and don’t even expect to receive.

Mark McGinnis, the chief financial officer at St. Vincent Health System of Little Rock, said most hospital systems have moved to the new accounting of revenue and now the change isn’t a big deal to hospital CFOs.

“Most people would argue it makes the financial statement more readable to the typical reader,” McGinnis said.