Rare look at Minnesota hospital costs finds huge swings

Aug. 10--Hospital bills for the same surgery can vary by as much as $65,000 from one patient to another in Minnesota -- even when their conditions are similar and the procedure is performed at the same facility.

The findings, released Thursday by the state Health Department, came from a study of thousands of records detailing payments by private health insurers and consumers to hospitals for four common procedures: a simple appendectomy, spinal fusion, major bowel surgery, and removal of uterine fibroids.

While much of the cost was covered by insurance, the wide swings can ultimately affect out-of-pocket costs for patients and contribute to premium increases for employer-sponsored health coverage.

The report found that a simple appendectomy costs, on average, about $17,000 at Minnesota's hospitals. But it cost some patients as little as $6,600 while others paid a whopping $35,500 -- more than five times the lowest price.

These differences did not arise because some patients were sicker or more medically complex than others. Researchers examined only cases of low or moderate complexity and made statistical adjustments to account for differences caused by age, gender, length of hospital stay and other factors.

"These variations reflect a market that is not necessarily working well," said Stefan Gildemeister, the state's health care economist at the Health Department. "There is a lack of transparency and pricing for services that is not closely tied to actual health care costs."

This is the second study of the topic released by the agency this year. The first was released in January and found similar results for four other common procedures: total knee and hip replacements and vaginal and C-section deliveries.

It is also part of a growing number of studies that pull back the curtain on the murky world of hospital reimbursements. It has long been known that some hospitals are generally more expensive than others, but this research shows that payment amounts can vary wildly even within the same hospital.

The study does not name the hospitals -- a condition of the state law that made the huge payment database available to researchers. That's a source of frustration for some consumer and business advocates.

"How long have we been asking for a level of transparency that will help us buy wisely and let us tell our employees what we are paying for?" said Carolyn Pare, executive director of the Minnesota Health Action Group, a coalition of public and private health care purchasers.

The data "is locked down and it is top secret stuff," she said.

Competition?

Still, the Health Department initiated the research because employers wanted to know just how wide the price variations are so they can discuss the differentials with insurance brokers and health plans. In this report, the price data include fees paid to hospitals as well as the professional fees paid to surgeons and others who bill separately.

Although the Health Department did not analyze the reasons for the price swings, differences between hospitals exist because of different overhead costs, such as labor expenses, regional competition and factors unique to some hospitals. Some facilities train medical residents, which adds to expenses, for example.

But the price differences within hospitals often reflect price negotiations between the facilities and insurers.

"It is all about negotiations, and that is what drives all of this stuff," said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University in Pittsburgh and co-author of a major national study of hospital price variation.

That study found that hospitals facing little competition charge 15 percent more on average than those in areas served by four or more hospitals.

Hospitals and health plans with the most market share have the greatest advantage, but many market factors come into play. There are also negotiations between insurers and doctors' groups.

For a surgical group like Twin Cities Orthopedics, the fees are set by the patient's insurer rather than a hospital.

"We are paid different from insurer to insurer," said Aaron Johnson, chief operating officer for the surgical group. "We are going to be paid that rate whether we work at a Fairview hospital or Allina or North Memorial."

The average price for spinal fusion surgery in Minnesota is about $36,500 according to the study, but some cases were as low as $12,500 and others went up to $80,100 -- a sixfold difference.

All of those prices were the result of fee negotiations among health plans, hospitals and physician groups, including the surgical group as well as the anesthesiology practice, which is a separate organization.

Confused consumers

Even in a state like Minnesota, which has a relatively low number of health care providers and insurers, this presents the possibility of hundreds of different prices for the same procedure.

But with more health plans that require consumers to pay a portion of the bill out of pocket, the price swings for hospital procedures can have a tangible effect.

Most employer-sponsored health insurance coverage now has a deductible that must be satisfied before insurance will kick in. The size of deductibles have more than doubled in less than 10 years, according to Health Department research. Also, it has become standard to have a co-payment or coinsurance, which sometimes can run up to 20 percent of the charge.

"Part of it is that people all have different insurance plans and so if there is a high charge and a high copay and a high deductible, the consumer ends up paying a whole lot of money," said Ron Jankowski, a retired family physician and board president at Health Care For All Minnesota, which advocates for affordable and universal coverage.

"All this price negotiation and all this back and forth takes an enormous amount of time and money," said Jankowski, who has also served on boards or councils for several local health plans. "What we have currently is not of very good value and a lot of money goes for administrative work."

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