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Report shows gap in pricing among hospitals providing similar services

How do local health treatment costs compare?

SYCAMORE – Imagine a patient comes to a hospital sick, is diagnosed with appendicitis and needs the infected organ removed before it bursts.

The patient qualifies for Medicare, so the hospital performing the appendectomy procedure will be reimbursed.

But depending on how the patient responds to the procedure and how the hospital documents those treatments, what they charge and what Medicare pays can differ from facility to facility.

These and other factors are some of the many reasons why paying for hospital services is not like buying milk at the store, said Kevin Poorten, CEO of KishHealth System. The differing prices for medical treatments in areas such as Aurora, DeKalb and Rockford have some experts and hospital officials urging for a more consumer-driven health care system.

Last month, the Centers for Medicare and Medicaid Services released data from 2011 on hospital charges and Medicare payments for more than 100 procedures. The data showed significant differences in the average covered charges for the same services offered by hospitals across the nation.

That holds true for hospitals in the region. For instance, the average covered charge for 19 patient discharges receiving treatment for respiratory infections and inflammations with complications for Kishwaukee Community Hospital was $40,017, of which Medicare paid 21.8 percent of those charges. Rush-Copley Medical Center in Aurora charged, on average, $56,516 for 16 patient discharges, with Medicare paying 17.3 percent of those charges. 

Underlying issues

A lack of a functioning price system is the underlying issue with the way hospitals price services, said James Ciesla, nursing and health studies professor for Northern Illinois University.

Patients are not aware of the variation in hospital charges and Medicare payments because they either do not pay for their treatments or they are insured, he said.

“People do not discipline the market by being consumers,” Ciesla said. 

Poorten said if people get medical bills paid by their employer, they do not feel the need to be informed. A majority of patients in the state do not pay charges, according to a news release from the Illinois Hospital Association.

Another issue is that hospitals lack standards for what they charge, and their charges are often ignored by Medicare when it comes to reimbursement, Ciesla said. As an example, he said one hospital might charge a flu shot recipient for the shot itself, the syringe and the nurse’s time but a second one might lump all those charges together.

Medicare doesn’t pay attention to what a hospital charges for its services, and that makes hospitals less prone to spend more effort on making sure charges are accurate, he said. Medicare uses a fee schedule to decide how much of a given treatment will be paid.

Poorten said the region where a hospital is located can affect how it prices services. Certain regions, such as Chicago, have higher labor costs than regions in Alabama, he said. Medicare will factor that into its consideration when reimbursing hospitals, he said.

KishHealth System aims to keep prices of its services and treatments in the middle range of what the market offers, Poorten said. That range is based on the number of facilities, investments, wages and technology that exist in the KishHealth System. Contractual agreements with private insurers also can affect how the system prices services, he said.

Hospitals tend to receive less money from Medicare than what was initially charged, he said. Certain types of hospitals – such as a critical-access hospital – can get paid more by Medicare because they have been federally designated as essential to their community.

Changes coming

While consumers may not have a strong role in how hospitals price their services, Poorten said in the near future value-based purchasing will determine how hospitals serve patients. Under this model, hospitals can qualify for enhanced reimbursement from Medicare based on the services and quality of treatment outcomes.

“For every facility that’s getting the enhanced reimbursement because they met that patient satisfaction and quality outcomes, there’s another hospital losing money,” Poorten said.

Poorten said valued-based purchasing would raise the bar on hospital services. As of now, consumers pay indirectly for their treatments through insurance premiums or deductibles, but it’s a small part of the total cost of health care.

The U.S. health care system tends to be confusing and different for everyone because health insurance is employer-based and employers create different incentives to recruit and retain employees, said Heath Bell, chief information officer and vice president of revenue cycle for KishHealth System.

Poorten said health care is too expensive in the U.S. but that may change with the Affordable Care Act in 2014, which plans on increasing access to health care, improving its quality and driving down overall costs.

“The proof will be in the pudding as to whether or not collectively, as an industry and as a country, [we] accomplish all three of those lofty and appropriate goals,” Poorten said.

Ciesla said one way the costs of health care could be controlled is with Medicare forcing hospitals to take less money. He said he finds it as the only demonstrated way of reducing health care costs. 

While the Centers of Medicare and Medicaid Services data were released as part of President Barack Obama’s goal to make the health care system more affordable and accountable, Caroline Steinberg, vice president of trends analysis for the American Hospital Association, said the information is not useful for consumers because they are not shown what they are expected to pay.

“It doesn’t show payment rates but it does show charges,” Steinberg said. “It’s not data in a consumer-friendly format.”

Average hospital pricing for pneumonia and pleurisy

• Rush-Copley Medical Center, Aurora  
Number of patients: 41
What the hospital charges: $28,590
What Medicare pays the hospital: $5,287

• Delnor Hospital, Geneva
Number of patients: 58
What the hospital charges: $23,678
What Medicare pays the hospital: $4,120

• SwedishAmerican Hospital, Rockford
Number of patients: 47
What the hospital charges: $20,031
What Medicare pays the hospital: $4,657

• Kishwaukee Community Hospital, DeKalb
Number of patients: 30
What the hospital charges: $17,583
What Medicare pays the hospital: $4,138

Source: Centers for Medicare and Medicaid Services

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