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Editorial: Hospital Charges; Federal Data Reveal Wide Variation

The federal government’s recent release of data that showed wide disparity in hospital pricing did not break new ground — the variation in what individual hospitals charge for procedures has been well established for some time now. But even among those who have come to expect the U.S. health care system to behave in ways that defy explanation, it’s still alarming to discover just how wildly prices can vary from hospital to hospital.

The pricing information comes from Medicare, the government insurance program for older Americans, and tracks the 100 most common procedures performed in 2011 — although it presumably reflects the sort of price variation one assumes all patients might encounter. Some differences in pricing are to be expected, reflecting variations in regional costs of living, type of hospital (teaching hospitals and comprehensive medical centers generally have greater overhead costs) and even quality of care. But how to account for the fact that the charges for a joint replacement run $5,300 in Ada, Okla., and $223,000 in Monterey Park, Calif. (assuming that the patient in Oklahoma didn’t die)? Discrepancies in charges can be huge even within the same market: The average charge for blood clot treatment in Beth Israel Medical Center in New York was $51,580, yet was $29,869 at the nearby NYU Hospitals Center — a 42 percent difference.

As Valley News staff writer Chris Fleisher reported last week, significant differences also can be found locally, although not in any predictable pattern. A Medicare patient with complications receiving a pacemaker at Mary Hitchcock Memorial Hospital in Lebanon would be charged a little more than $36,000 — about $8,000 less than at Fletcher Allen in Burlington. On the other hand, Hitchcock charged about $60,000 for major joint replacements for people with complications, $14,000 more than Fletcher Allen.

While hospitals that generally have better outcomes for a particular procedure might be expected to charge more, the magnitude of pricing variation revealed in the data is too great to reflect differences in quality. And those familiar with the work of The Dartmouth Institute know that its studies previously established not only significant geographic differences in hospital charges, but no corresponding link between higher prices and better care.

As startling as this information might be, it strikes us as almost silly to expect that it might eventually drive down prices on the theory that it will spur patients to comparatively shop for hospital care. Todd Park, an Obama administration adviser on technology issues, expressed that hope when talking about the possible development of apps that will help consumers compare prices at hospitals.

“Transparent marketplaces are more competitive, and more competitive marketplaces drive down costs,” he said.

In typical marketplaces, that’s true. But hospital pricing is far too opaque, indirect and complex to expect consumers to play their customary role. (It’s worth noting, for example, that these charges rarely correspond to the payments hospitals receive. Insurance companies often negotiate discounts, meaning that the price listed as the standard charge might apply only to those least able to afford it — those without any coverage.) Moreover, a patient’s choice of hospital is as likely or more likely to be influenced by proximity and the guidance of a primary care provider as it is by price. Granny might whip out her iPhone to find out the best place to buy denture cream, but not where to go for a pacemaker.

On the other hand, we share the Obama administration’s hope that this data will raise questions about why some hospitals charge much more than the average — and create pressure to move their prices closer to the norm. And research that would further explore the link between pricing and outcomes might allow those hospitals that perform well at below-average pricing to serve as a model.