Hospital Charges Billed to Medicare Cover Wide Range

Andrew Kitchenman | May 10, 2013 | Health Care
Asking price for most–common procedure -- replacement of hips and knees – can be more than $200K or as little as $40K

Many New Jersey patients never see the amounts that hospitals charge for their services — but if they did take a look at the numbers, they might feel another hospital trip was in order.

Hospitals charge Medicare widely different amounts for the same services, although the amount that they actually are paid is much lower, according to data released this week by the federal Centers for Medicare & Medicaid Services (CMS).

For example, the amount hospitals charged Medicare for hip replacements and knee replacements, the most common procedures for Medicare patients, averaged $66,639. This was nearly as much as the $71,180 median household income for the state. However, the average amount that Medicare actually paid for the procedures was $15,059.

The average amount charged for hip replacements and knee replacements ranged from $202,777 at Our Lady of Lourdes Medical Center in Camden to $40,139 at Southern Ocean Medical Center in Manahawkin.

While CMS requires that hospitals submit charges, the agency generally doesn’t use this information in determining how much it pays hospitals. Instead, CMS considers a variety of factors based on the estimated cost for each service.

The database was released as part of a federal effort to increase transparency and make the healthcare system more affordable and accountable, federal officials said.

Hospitals are rarely paid the full amount that they charge, since government insurance programs like Medicare and Medicaid determine how much to pay providers, while private insurance companies negotiate lower rates with providers.

However, some uninsured patients and patients who receive services from a hospital that is outside of their insurance network are affected by the charges, according to Wardell Sanders, president of the New Jersey Association of Health Plans, an insurance industry trade group.

“It’s not the case at all the charges don’t matter – they matter a lot,” Sanders said.

Patients who choose to go out-of-network will be billed based on the hospital charges, while insurers of patients who must receive emergency services at an out-of-network facility will also pay higher rates based on a “fee profile” that takes into account hospital charges.

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Sanders noted that New Jersey hospitals’ charges are among the highest in the country. He said one reason for the high prices might be the state’s requirement that insurers pay for services at out-of-network providers.

“It does create this perverse economic incentive for folks to charge more and more and more because they can get paid for it,” Sanders said.

An example may be Bayonne Hospital Center, which charged the most of any of 65 hospitals in the state for eight of the 10 most common services for Medicare patients. Bayonne has many out-of-network patients, Sanders noted.

Sanders said expensive charges have little to do with how expensive it is for hospitals to provide the service. “It’s not really based in reality,” Sanders said of the figures.

At the other end of the scale from Bayonne is Cape Regional Medical Center in Cape May Court House. It had the lowest charges in the state for seven of the 10 most common services, although it still charged at least twice as much as Medicare paid for each service.

Cape Regional chief financial officer Mark Gill attributed the relatively low rates to a focus on providing care efficiently, noting that his hospital has some of the lowest costs in the state.

“We do try to keep an eye on our peers in Atlantic (County) and even Cumberland County, in case people do price-shopping,” said Gill, adding: “We’re a very low-cost, efficient hospital.”

Gill said he was pleased that CMS released the information for free. The agency previously charged a fee for the data.

“The more transparent it is, the more information that’s out there,” Gill said.

He added that he believes there is a strong link between the efficiency of the care that’s provided and the quality of the care. As an example, a hospital that is able to treat patients quickly can release them and reduce the chances of hospital-generated infections.

New Jersey Hospital Association spokeswoman Kerry McKean Kelly said that much of the information about Medicare charges isn’t relevant to insured patients.

The payment system has “evolved over time and we do realize that there is not a lot of sense behind the data,” she said.

Even most uninsured patients do not pay the hospital charges, since a 2009 state law limits charges to 15 percent above what Medicare would pay for all patients whose household income is less than 500 percent of the poverty line, which currently amounts to $57,450 for a single person or $117,750 for a family of four.