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Say you're on Medicare, and you get pneumonia that requires hospitalization, and say you live in Boise, Idaho. You have a choice of two hospitals. In one, treatment is going to cost $26,932. In the other, $16,239. In Bakersfield, California, the treatment would range from $55,277 to $77,562 among that city's four hospitals. In Boston, one hospital would treat you for $16,952, but the total bill could end up being $54,405 at another hospital.
Administration officials said they offered up the data with hopes that its release would administer a market corrective, forcing hospitals to take greater heed of competitors while arming ordinary people with information they could use to seek a better deal. The data could also spur health insurance companies to negotiate with hospitals to seek lower prices.
"Our purpose for posting this information is to shine a much stronger light on these practices," said Jonathan Blum, director of the Center for Medicare. "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."
The very fact that prices are now public may bring change, he added. "Hopefully, it will cause hospitals themselves to take a hard look at their charge-master practices and to ask hard questions of themselves as an industry why there is so much variation," he said.
The amounts hospitals charge Medicare are not the amounts that actually end up being reimbursed by the program, and in fact, are sometimes as much as six times the actual reimbursement rate. A New York Timesanalysis of the data shows that the charges are generally three to five times greater than reimbursements. The Times also got a partial explanation from Blum as to why their might be so much variation. Medicare does pay slightly higher rates to teaching hospitals and facilities in cities with high labor costs.
The public release of this data, Blum said, was partly inspired by the blockbuster TIME magazine story by Stephen Brill, which exposed the unfathomable and completely arbitrary price-setting "system" used by health care providers. It's a bizarre game that providers and insurance companies play—we'll charge, oh what the hell, this amount, and you can pay whatever!—that has no oversight, no rhyme, no reason. But at least this new transparency might do exactly what the administration hopes: create some competition that forces both providers and insurance companies to negotiate lower prices, and to save all of us some money.
Originally posted to Joan McCarter on Wed May 08, 2013 at 03:35 PM PDT.