Deciphering the hieroglyphics of hospital bills, especially when it involves surgery, is not a job for the faint of heart. As Mr. Wilkes discovered when comparing notes with a friend, there’s another puzzle: the huge variation in charges between hospitals and surgi‐centers for the same operation. For surgeons, too, trying to figure out the logic behind insurance company reimbursement is a daunting task. Why is it that two surgeons operating out of the same hospital, performing the same operation, can receive two vastly different fees — regardless of the clinical outcomes? Making sense of it all is beyond human mental capabilities.
A study published in 2012 in the Archives of Internal Medicine analyzed the charges for an uncomplicated appendectomy after which the patient spent three days or less in the hospital. The results were fascinating. In a review of 289 California hospitals and twenty thousand patients, charges ranged from $1,529 to $183,000. You may have to read that sentence again. The average charge was $33,000. Where was the variation? All over the place: For‐profit hospitals charged more for services than nonprofit community hospitals; charges increased with the age of the patient; and charges went up yet again for the uninsured and for Medicaid‐covered patients.
Dr. Renee Hsia, the lead author of the study, noted, “There’s no rhyme or reason for how patients are charged. Variations of two or three times is to be expected, but there is no industry where you see charges of more than 100 times for the same product.” She concluded, “There is no method to the madness. No system at all to determine what is a national price for this condition or this procedure.” While some of the price variation can be explained by surgical technique, a patient’s underlying health conditions, and whether the appendix had ruptured, the study did not find specific, consistent reasons for the large differences in what patients and their health insurance carriers were billed. Other studies analyzing Medicare prices for operations between regions across the country have also found no rational reason why price variation exists.
No one is really sure of the origins of the discrepancies in healthcare billing today, but it is clear that the current mess evolved from a byzantine system that includes hospitals (for‐profit and not‐for‐profit), insurance companies (private and federal), and physicians. And because few public resources are available to help you understand these fees, patients are left in the dark when it comes to understanding how a hospital arrived at the figures on its bill. What does “Hospital Misc.” include? (I must confess, most surgeons are in the dark, too, unaware of the expenses the hospital incurs as a result of the decisions we make in the operating room.)
For decades, there has been no transparency whatsoever in hospital pricing, no accountability for what hospitals have been allowed to charge patients. And hospitals have been content to keep it this way. Behind the guise of “This is medicine — too complicated for a mere patient to understand,” hospitals have been able to hide the price of services from the consumer. The entire pricing system exists in a cocoon, hidden not only from patients but also from market forces that could foster competition. This secrecy is so embedded in hospital billing and administrative bureaucracy that even those who manage operating rooms are clueless about cost and how final decisions are made.
Without transparency, prospective patients have no way of comparing prices, no way of gaining any bargaining leverage. In 2007, researchers at the University of Pittsburgh disguised themselves as patients, calling hospitals in advance of their fictitious upcoming operations, asking for pricing information. Only a third of the hospitals responded at all, and for those that did, much of the information provided was incomplete. Of the hospitals that did respond, the charges for a hysterectomy, for example, ranged from $3,500 to $65,000. The removal of a gallbladder cost from $2,700 to $36,000. The price of a routine colonoscopy ranged from $350 to $5,800. Despite this “transparency,” the lack of details made the prices almost meaningless. In addition, unlike so many consumer purchases today, there was no way of knowing if the prices correlated to better clinical outcomes. There was no way of knowing if you got what you paid for.
Other studies have confirmed the difficulty a patient faces when trying to crack a hospital’s pricing code. In 2013, a study published in JAMA Internal Medicine summarized efforts to obtain pricing for an elective hip replacement. The researchers repeatedly called 102 hospitals, posing as a sixty‐two‐year‐old woman with no insurance who was willing to pay cash for her hip replacement. Each hospital was asked the same questions: What are the total hospital charges and total bundled charges (hospital charges plus surgeon’s fees) for this operation? Of the 102 hospitals queried, 64 of them (63 percent) provided an estimate of hospital charges only. Only 10 hospitals (10 percent of the survey) could give a single, all‐inclusive bundled price for an elective hip replacement. Of those, prices ranged from $11,000 to $125,000. Of the twenty top‐ranked orthopedic hospitals queried, only nine (45 percent) provided an all‐inclusive bundled price; these ranged from $12,500 to $105,000. Three hospitals were unable to provide the caller with any price. The mean price for the top twenty hospitals combined was $12,000 higher than the nonranked hospitals. The lead author of the study, a physician, concluded, “in aggregate, our results highlight the difficulty that consumers have in obtaining price estimates for common medical procedures.” That might be the understatement of the year. Moreover, if it’s that difficult for someone who understands the medical system, how in the world does the average American sort through all this.
Paul Ruggieri is a general surgeon and author of The Cost of Cutting: A Surgeon Reveals the Truth Behind a Multibillion-Dollar Industry.