Health Care Pricing Going Public

November 10, 2006
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Spectrum Health, Grand Rapids’ health system giant, last month became the first in Michigan to publicize its hospitals’ charges for nearly 200 procedures.

The practice is known as price transparency and it has become a hot-button issue, gaining attention from the White House and Congress as consumers field an ever-growing share of health costs. With employers casting about for ways to contain health care costs, employees are being asked to pay for premiums, higher deductibles and co-payments while learning how to handle innovations such as Health Savings Accounts and other consumer-driven health care ideas.

Currently, 32 states have laws requiring some type of hospital price disclosure, according to the American Hospital Association’s July testimony to Congress. Michigan is not among them, but Sherry Mirasola, spokesperson for the Michigan Hospital Association, said she expects the organization’s 146 hospital members would make pricelists public on a voluntary basis.

Mirasola said the Spectrum pricelist is the result of a “massive” effort to make sense of a typical hospital’s tens of thousands of charges, and is “leading the way” toward price transparency in Michigan. “There’s a lot of info out there and there’s a lot of debate about what’s going to be useful (to consumers),” she said, predicting that consumer-oriented health care information will improve over time.

Mirasola noted that federal legislation is pending that would require price disclosure nationwide, but would allow states to decide exactly what is made public.

“It’s certainly a step forward from the consumer perspective to begin to inform them about what the charges are at a hospital,” said Ron Palmer, president of Grand Valley Health Plan, a local HMO with more than 200,000 members. “I hope the market moves to the point that consumers become much more aware of the huge variations in the prices and are going to correlate prices with value.”

“Every health plan contract with a hospital is somewhat different and, yes, there is some variation in what we pay for services,” stated Helen Stojic, spokesperson for Blue Cross Blue Shield of Michigan, which has tangled with Spectrum over payment levels in the past. “We think the general trend of hospitals providing this type of information to the public is appropriate, but we also recognize that there are all kinds of complexity that come with doing this.”

The inpatient and outpatient charges posted at Spectrum’s Web site,, are list prices and don’t reflect the steeply-discounted prices paid by insurance companies and federal programs, Chief Financial Officer Michael Freed said. He said the hospital system receives “several hundred” calls per month from consumers asking about prices, and he expects that number to increase as more people join consumer-driven plans.

“I’m not saying this is the solution; we’re just trying to be part of a solution,” Freed said, noting that the health system already posts quality tabulations. “Let’s see where this leads.”

Priority Health, the Grand Rapids health plan provider partially owned by Spectrum, also last month posted on the Web ranges of average cost estimates for a variety of services based on its own database, Over the summer, Medicare posted ranges for average payments to hospitals, by county, for 30 common elective procedures at Spokespersons for Saint Mary’s Health Care and Metro Health Hospital said their institutions are working on transparency, but have no deadlines for presenting prices to the public.

The numbers are posted with caveats that they don’t include physicians’ and other charges and that individual care — and thus costs — vary widely.

“Partly, you don’t know what the whole episode is going to involve, and the total charge is the sum of so many parts that aren’t predictable to you as a consumer,” said Richard Hirth, associate professor of health management and policy at the University of Michigan.

A 2006 report in the journal Health Affairs noted that nationwide, hospital list charges are on average more than 2.5 times higher than the payments the hospitals actually receive. A second Health Affairs report stated that overall payments to U.S. hospitals reflect 38 percent of their charges.

“The ‘manufacturer’s suggested retail price’ in health care matters a lot less than it does in retail,” Hirth added.

“At least now, consumers can think about it,” said Steve Borders, Grand Valley State University assistant professor of health administration. “You can look and see what this stuff costs. The theory is, they want to help consumers make decisions about health care to promote competition and bring prices down.”

Borders called price disclosure “a good first step” but wonders about its practical application.

“Do people really make pricing decisions on hip replacements?” he asked. “It’s not like buying gasoline. You’re not going to shop to save a few pennies, because you’re dependent on where your doctor has admitting privileges.”

While big hospital care purchasers, such as the federal government, tell hospitals how much they want to pay, and others, such as insurance companies, negotiate for big discounts, uninsured or “self-pay” patients are most likely to face the full charges, Borders said, even though they are the least likely to have the ability to pay. Some 46 million Americans are uninsured, he added.

According to a Michigan Department of Community Health report issued in July, Michigan saw the percentage of uninsured residents climb from 12.3 percent in 2003 to 13.2 percent in 2004. The report also stated that in 2004, nearly 70 percent of Michiganders had employer-provided health coverage, and 6.1 percent bought individual insurance.

At Saint Mary’s Health Care, for example, spokesperson Micki Benz said 5 percent of hospital inpatient gross charges fall into the uninsured/self-pay category. Insurance accounts for 47 percent, Medicare for 36 percent, and Medicaid for 12 percent, she said. For Spectrum’s inpatient care, 6 percent of payments come from the uninsured/self-pay category; insurance, 47 percent; Medicare, 34 percent; and Medicaid, 12 percent, said spokesperson Bruce Rossman.

Health Care Sticker Shock

Replacement of hip or knee

National average, hospital charges: $36,644
Spectrum Health charge, hip replacement: $17,893
Spectrum Health charge, knee replacement: $18,845
National average Medicare payment: $11,761
Average Medicare payment to Kent County hospitals: $12,782-$13,244

Heart bypass

National average, hospital charges: $75,536
Spectrum Health charge, quadruple bypass: $42,609
National average Medicare payment: $24,506
Average Medicare payment to Kent County hospitals: $25,465-$25,698


National average, hospital charges, uterus and ovary operations: $15,084
Spectrum Health charge, uterine removal, total, vaginal: $7,451
National average Medicare payment: $4,855
Average Medicare payment to Kent County hospitals: $5,183-$5,831

Prices are fiscal year 2005; Medicare ranges are based on 25th to 75th percentile.

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