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Hospitals: Same Surgery, Widely Different Rates
by Rob Gurwitt | Dec 25, 2011 11:00 pm
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Posted to: Health
Each time John Dempsey Hospital performs a cardiac valve surgery, the hospital receives a median payment of $82,589 from Medicare – about $23,000 more than the median paid to Danbury Hospital for the same surgical procedure.
A pacemaker implant at Dempsey, part of the University of Connecticut, costs Medicare about $20,000—$2,200 more than Yale-New Haven, $3,500 more than Bridgeport Hospital and $6,300 more than the Hospital of Central Connecticut.
Federal reimbursements for surgical procedures swing widely among Connecticut hospitals, a C-HIT analysis of available Medicare data shows, with Dempsey receiving a higher rate than other hospitals for most procedures. Yale-New Haven, Bridgeport and Windham hospitals also were consistently among the top five in Medicare reimbursements, according to the data.
Experts say the variation in Medicare payments is due to a variety of factors, including the type of hospital (teaching or non-teaching), regional wages and salaries, the income mix and sickness of patients and the number of tests and services provided.
To read related story on consumers’ access to health care costs click here.
The amount Medicare pays to hospitals is set by the federal Centers for Medicare & Medicaid Services (CMS) in a payment structure that attempts to reflect ‘’the costs that reasonably efficient providers would incur’’ in providing care, according to CMS. In other words, the reimbursements serve as a rough gauge of the across-the-board expense of running a hospital, relative to others around it, experts say.
But there are other factors that push up costs at some hospitals, including a higher use of intensive-care beds, more visits by multiple doctors, and more tests such as MRIs and CT scans. Those treatment variables are attracting increasing scrutiny in Connecticut, as the state moves towards implementing health care reform and examines how hospitals are paid for services.
“In a system where we reward (by) fee for service—so that the more you provide, the more you get paid—we cannot have the type of health care reform we envision for our state,’’ said Jeannette DeJesus, the governor’s special advisor on health care reform. “If we’re going to do meaningful reform, we need to have payment reform.”
Hospital procedures and services do have set charges associated with each of them, but “that number is useless,’’ said Jonathan Skinner, an economist at Dartmouth College who closely studies health care cost data. That’s because hospitals rarely, if ever, receive the listed charge for a particular procedure. They receive a stream of payments from Medicare, Medicaid, government, military and private health plans, all of which may pay differently for the same procedure.
For consumers covered by private insurance, hospitals negotiate payments separately with each insurance company for procedures and services. The contracts are secret, so consumers lack the ability to compare cost and quality, and even hospitals are unable to compare themselves to one another. A single hospital may have as many as 600 different contracts with insurers. The system allows for wide differences in price on a host of medical procedures.
Though Medicare reimbursements are arrived at differently from the prices negotiated between hospitals and private insurers, they can vary just as widely. For a cardiac valve surgery, Yale-New Haven Hospital’s Medicare reimbursement was second highest after Dempsey, at $74,140, followed by Hartford Hospital at $64,758. The state median was $62,569.
Medicare reimburses Dempsey for most surgeries at a higher rate than any other hospital in the state, including other teaching hospitals, the C-HIT analysis shows. Dempsey was paid a median amount of $21,569 for major joint-replacement surgery, for example, compared to a statewide median payment of $15,255. The lowest rate was paid to Day Kimball Hospital, at $13,343. For a major cardiovascular surgery, Medicare paid Dempsey a median of $54,655, compared to $36,966 for the Hospital of Central Connecticut.
Dempsey vs. Other Hospitals
Employee pay and fringe benefits, facility size, and the number of poor people treated contribute to Dempsey’s top reimbursement rate, said Cassandra Mitchell, associate vice president for reimbursement and financial systems at the University of Connecticut Health Center.
Unlike Yale-New Haven, Hartford and other teaching hospitals, Dempsey is staffed by state employees, whose fringe benefits are richer. Dempsey’s operating expense per patient day in fiscal 2010 was $5,458, according to financial data filed with the state. Yale-New Haven’s was $4,559, and Hartford’s was $4,180. Only Stamford Hospital, which is in the New York-metro area, had a higher expense per patient day, at $5,663.
A “good component’’ of the difference, Mitchell said, is Dempsey’s employee benefit packages.
Medicare also paid Dempsey more per patient because it’s a smaller teaching hospital than Yale-New Haven, Hartford, and others. Medicare reimburses teaching hospitals based on the ratio of medical residents to beds, and Dempsey’s ratio of 1.073 (meaning about one medical resident for each bed) is the highest in the state. The next highest is Yale-New Haven, at 0.6161, followed by Hartford, at 0.3803.
In addition, Medicare pays hospitals a greater amount if they have a “disproportionate share” of low-income patients.
“Medicare is saying, ‘We in the Medicare program recognize that if you take care of more poor folks, it will put an added burden on the overall institution,’ ” said Stephen Frayne, senior vice president for health policy at the Connecticut Hospital Association. ‘’ ‘So we’ll give you extra money, so that you’ll be more available to take care of Medicare patients, too.’ ”
The patient caseload on public assistance at Dempsey, located in suburban Farmington, is smaller than at urban hospitals, however. For example, state figures show that 18 percent of in-patients and 15 percent of outpatients at Dempsey are on Medicaid compared to 19 percent of in-patients and 35 percent of outpatients at Hartford; 22 percent of in-patients and 27 percent of outpatients at Yale-New Haven; and 28 percent of inpatients and 37 percent of outpatients at Bridgeport.
Mitchell said that Dempsey’s Medicare reimbursements were higher, in part, because low-income patients’ stays were longer in its neo-natal intensive care unit, and it treats patients with sickle-cell anemia and other blood disorders, which tend to require longer hospitalizations.
Though hospitals are reluctant to talk about it, there is another reason a facility’s Medicare payments can be higher than others, said Skinner: “It treats each patient more intensively.’’
Skinner and his colleagues have found in their studies that more-expensive hospitals show a higher use of intensive-care beds, more visits by multiple doctors and a greater use of home health care. In addition, the hospitals may order more tests, such as MRIs and CT scans.
“Aside from supplemental payments,” Skinner explained, “the only way hospitals can crank up reimbursements is by cranking up what they do. If you’re comparing two hospitals in similar areas with similar status . . . like, they’re both teaching hospitals, then they can still differ because of more readmissions and surgeries and other services.”
Consumer Access To Health Costs
Medicare accounts for only about one-fifth of the revenue that flows to hospitals, so its data alone cannot determine which hospitals are the most and least expensive. For Connecticut consumers, however, it’s the only available information that opens a window into hospital pricing.
Consumers in other states, including New Hampshire and Vermont, have the ability to review hospital costs because their states have developed “all-payer claims databases,” or APCDs, which collect an array of payment information. These databases allow consumers to compare costs of hospital procedures, and they help policy-makers and researchers to understand what’s driving health care costs, experts say. Connecticut has started an effort to build an APCD but it is in the planning stages.
Nationally, major changes to the hospital pricing system are underway. For instance, Medicare officials are working on ways to account for quality of care in reimbursing hospitals. Instead of fee-for-service medicine, which health reformers say offers financial incentives to providers to deliver more, and more costly, care, officials are looking at a system of global payments that would reward quality and efficiency.
Insurance companies are making similar efforts, said Joe Mundy, a spokesman for Cigna.
“There’s an increasing trend to identify areas of quality that can be measured and then reimburse hospitals appropriately, according to their quality and not simply their price,” Mundy said. That change will demand widely agreed-upon measures of quality.
Real change for consumers won’t come until they can readily compare prices, says James Stirling, president of Stirling Benefits in Milford, a benefits plan administrator.
“I think the status quo benefits from this lack of transparency,” said Stirling. “If you could figure out that a colonoscopy here, rather than there, will save money, then employers could build [insurance] plans that say, ‘We’ll pay 95 percent of the cost, and you’ll pay 5 percent.’ Then employees would have an incentive to shop around. You could say, ‘If you go to Yale, you’ll pay a $1,000 fee, but if you go to Milford, we’ll waive the out-of-pocket fee.’
“Until you have data that puts consumerism in the mix,” Stirling said, “we’ll be limited in what tools we can use to reduce hospital costs.”
The Fund For Investigative Journalism supported this work.
Tags: medicare reimbursements, ct hospital rates, health
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posted by: John Paul on December 26, 2011 8:57am
The Medicare rates are set using wage index of the hospital. This means, higher are the wages a hospital pays, higher will be reimbursement. Being a state hospital, Demsey pays the highest wages. (Another proof that state pays higher wages than the private sector hospitals) In addition, Demsey has the best lobbyists. So they identify loopholes in the way wage indices are calculated and try to maximize their reimbursement. Our healthcare costs are high not because we consume more healthcare than others but because prices for services are high. The Congress writes health care law with full of loopholes and that increases our health care costs dramatically. So next time, a healthcare provider complains that he or she is paid less, tell him or her to take a hike….Merry Christmas and best wishes for a Happy New Year 2012 to all…..
posted by: John Paul on December 26, 2011 9:08am
Hello Mr Rob Gurwitt:
Very well written article… You get an A+ This should be a model article for other journalists… comprehensive, authoritative, useful, relevant and important…..
posted by: Harry David on December 26, 2011 11:07am
James Capretta has written recently about the cost drivers that make health care in the USA cost about $9,000 per capita—about $2,700 billion in all, representing ABOUT 17% of total GDP.
The reasons are quite varied but Capretta fingers our Fee for Service model—the more you service the higher the fee, and if you readmit someone and goose them with more services the more the fees, etc.—as the principal driver. Of course technology developments and their higher rates of deployment contribute as does cultural differences—the examples of costs in Florida versus Minnesota (or is it Wisconsin?!!) are often mentioned. A person in Minnesota wakes up to a severe case of bronchitis and just sleeps it off while a Florida person wakes up with no aches and pains and wonders “What is wrong with me? Let me see my doctor?”!!
Of course, the fact that stories like this are so rare is testimony to the power of those who feed at the public and other teats—can I use this word or should I change it to trough??— to obstruct transparency in the form of databases that tell how much hospitals and other individual service providers receive for the same service codes. Try finding out what your knee surgery will cost and you will soon realize that no one knows, not even the family doctor, the knee surgeon or anyone else. Of course, not many people bother to ask and why should they? B provides services to A and is reimbursed primarily by C whose connection to A is tenuous at best. For A the service is “free”.
Add in a bit of medicare fraud, a culture of waste—get your knees done and you will receive a gift bag of crutches, etc., even when you tell them you have these already!!! and get physical therapy that is basically some exercises you can do yourself—and self-serving politicos who thrive on their refusal to rationalize these systems and you will go a long way towards understanding the underlying economics. But wait —even when these politicos summon up the energy to make once in a generation changes to how medical care is provided, the result is more of the same with a focus on expanding coverage and costs and NO attempt to change incentives (cf the Affordable Care Act passed last year). Changing incentives means someone’s ox is gored. Oxen make a hellish racket when they are gored and politicos have fine tuned antennae for these sound frequencies.
We can take comfort in the knowledge that the cost inflation rates for medical services cannot continue at 6-9% annually without running into some hard objects. 6% cost inflation will double spending in 12 years, 9% in eight. With the unfunded liabilities of our medicare system now about $80 trillion—trillion with a big T or about $270,000 per capita and over five times annual GDP—a sane person can expect that the bond market will not voluntarily support this silliness indefinitely. But perhaps we can pass another law to correct this? A bondholder fairness and equal opportunity act??
WE can take even more comfort in the knowledge that at the end of the day these medical costs are just another form of income and wealth transfers from those that have to those that would like to have. And these transfers are not particularly egregious on a continuum from the more obvious “give me your money or your life” holdup through the distributive mechanisms of the tax system all the way to more direct income support schemes. And should we not all be grateful for the gift of life that makes all this possible??
So I shall sleep soundly at night knowing that A) I am now Medicare eligible and am on the receiving end of this largesse unless they change the rules of the game before I check out and B) I can accumulate all my body parts that require repair and tweaking and haul them over to some excellent medical centers in Delhi or Bangkok, enjoy a long vacation and come back ready to enjoy the wonderful USA.
As always, my coolness, Harry.
posted by: walt on December 26, 2011 1:06pm
Does this mean that Yale NH will be raking in all the increased fees when it takes over St. Raph’s?
No wonder St. Raph’s is going down the drain getting paid less while offering better,cleaner facilities.
posted by: Warren Henthorn on December 26, 2011 5:16pm
Harry David has hit the nail on the head.
The health care system is divorced from the market place. There is no free market control over the health insurace market or the providers of health. This system can not sustain itself.
Warren Henthorn
Choctaw, OK.
posted by: Harry David on December 26, 2011 10:43pm
There is no consensus among our politicos about possible solutions but the outlines of some structural changes are beginning to emerge. It took decade for US private industry to shift from a Defined Benefit pension system towards a Defined Contribution approach—even while much of US municipalities and states still move towards bankruptcy with their unsustainable Defined Benefits plans.
Paul Ryan, Republican, has proposed a similar structural shift for medical care. He has recently obtained the support of Ron Wyden, Democrat, for a Defined Contribution approach to Medicare. Under this plan the Feds provide each individual a set amount of money annually which a person can use to pay for medical expenses. The amount increases each year with inflation plus some factor, but any costs incurred beyond this Defined contribution must be borne by the individual. This creates a market based incentive for individuals to do some shopping and avoiding waste and fraud.
Of course nothing is ever simple so they are throwing in the option for individuals to stay with Medicare if they so choose. This makes it politically more palatable but may be unworkable if the Medicare option becomes so attractive that individuals do not shift to the Defined Contribution alternative….
This is a bit like proposing tax reform with lower rates and not many deductions but retaining the option for individuals to calculate their taxes using either approach. Some might take the simplified option just to avoid the costs and time of using the current system.
Necessity is the mother of invention and we should be seeing other alternatives as the unsustainability of our present funding approaches becomes more obvious.
I can still go to Delhi for my medical shopping but any savings will be mine as I will be paid the going rate in US dollars for such care….
Now if some suicidal politico will propose to eliminate the employer tax deductibility for medical expenses and allowing employees to shop for the best insurance available we may really see some bending of the cost curves for medical services.
Harry
posted by: Warren Henthorn on December 27, 2011 9:00pm
Harry has some good ideas, I’am not sure this will bring competition to the market.
Here in Oklahoma there is no competition among insurance providers. You can not go out of state for a provider, the pols at the insurance commission are owned by the insurance companies, so you are screwed on price, heck I can buy auto insurace in you state,but not health insurance.
There is no real competition among hospitals other than TV adds saying that this is the best place to come to. Must bring a competition back to the market in all areas of health care.
posted by: John Paul on December 28, 2011 9:00am
Obviously, it is not fair to pay different rates to different hospitals for the same procedure. One simple way to do this is to have one rate for each state with some adjustments for rural and urban. If some hospital is paying higher to its employees, why should we reward that hospital?
Most hospital mergers raise hospital costs. Medicare rates are not negotiated. They are take it or leave it type. So hospitals do not have any negotiating power. However, they hire a lobbyist and make the law favorable to them. However, when private insurance companies do not have much bargaining power. So large hospitals negotiate higher rates with private insurance companies. Since YNHH is owning Bridgeport and Greenwich hospitals (and soon St Raphael), they can negotiate higher rate with private health insurance companies and it will increase health care costs for every one. Therefore, the State should demand that YNHH divest both Greenwich and Bridgeport Hospitals.
Representative Ryan’s plan is a joke. Instead, he could have suggested that all the uninsured will be given a one-way ticket to Mass. or Canada…..
posted by: Harry David on December 28, 2011 9:35am
John Paul: I fear your suggestions will have the effect of further compounding a hopeless mess of regulatory medicine delivery. So you would like further regulations to have hospitals divest themselves of other hospitals they acquired in their efforts to become more efficient and increase utilization?? (efficiency here is used very loosely!!)
I am not very knowledgeable about state regulations over the insurance industry. But I do believe that almost all states currently regulate their insurance companies through an Insurance Commissioner who has the power to define the scope and nature of the products and services offered in the state, to prohibit consumers and employers from buying insurance from other states, to set prices, exclusions and other terms of service, etc. So the insurance industry is pretty much a utility with the insurance companies happy to make their profits on a cost plus basis, similar to the public utilities where there is not pretense at competition.
I deduce that if I am unhappy with the behavior of insurance companies and their pricing models then I should look to the general public which installs the onerous and totally ineffective insurance regulatory regimes which gives us this high cost mess. Look at your medical statement from your medicare or other provider and see the silly rates they charge and the equally silly reimbursement rates, etc…
We should be clear—we can either opt for a totally managed health care system with a single payer and impose direct rationing via some bureaucratic entity, or introduce an element of market based competition with safeguards to force providers to compete on quality and price complete with full information about the quality and cost of care.
harry
posted by: John Paul on December 28, 2011 8:06pm
People cannot be experts in everything. And even in a competitive world, unless there are competitive forces, prices will not come down. For example, why is that we pay more for one gallon of bottled water than one gallon of gas. Among health care providers, hospitals have more bargaining power than insurance companies. That is why private insurance companies pay more to hospitals than medicare rates. If YNHH demands a very high rates for procedures then they could send their patients to St. Raphael. But once both YNHH and St Raphael merge together, insurance companies will have no choice other than to acquice to whatever rate YNHH is demanding. Other than the state of Maryland, no other state sets its hospital rates. There is a study by GAO which found that in less competitive markets, private insurance companies paid lot higher rates than medicare rates. I hope this answers Harry David’s concerns.
posted by: joe dentente on December 29, 2011 10:35am
You ought to do better diligence and research. Medicare does not consider what kind of personnel benefits hospitals pay, or how many ICU beds are used, or MRIs. When it comes to inpatient care, and cardiac surgery has gone outpatient yet, everyone is paid on a DRG basis. The only adjustments to that rate are teaching, DSH and wage-area. Of course if you did your homework this would have been a non-story.
posted by: steve schutzer on December 29, 2011 11:50am
We congratulate the author on a well done piece. Ferreting out this information remains quite a challenge. This is not a unique CT phenomenon, please see article by Miller et al in Health Affairs, Nov. 2011, below: http://content.healthaffairs.org/content/30/11/2107.abstract?sid=2120239b-4837-4fbf-98be-84aed09f1caa
While we agree that consumers must be empowered with credible data, cost data alone can be misleading and potentially not in their best interest. Consumers must also have access to outcomes data to make the most informed decisions. At the CT Joint Replacement Institute we are focused on creating sustainable value based healthcare programs for our patients…and the primary drivers of such efforts are our quality and outcomes data. Articles such as this by Mr. Gurwitt, which focus on cost alone, are one step in the right direction, but without the quality piece of the value equation still fall short of presenting the full story.
posted by: john paul on December 30, 2011 3:30pm
joe dentente is partially correct… DRG payments are set based on wage index of individual hospitals. But there are exception to this rule.
posted by: Rob Gurwitt on December 30, 2011 4:27pm
Under certain conditions, hospitals can have their “wage area” reclassified. Such is the case with Dempsey, thanks to its labor expenses. Its Disproportionate Share Hospital Patient Percent of 0.32312 is second only to Yale New Haven’s of 0.33474. The work done by Dartmouth’s Jonathan Skinner and his colleagues finds that, even after controlling for Medicare’s formulaic adjustments, more expensive hospitals cost Medicare more—because of such patterns-of-practice factors as more MRI use, more visits by physicians, etc.