Studies Show Wild Variations in Healthcare Spending, Pricing

By John Henry Dreyfuss, MDalert.com staff.
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  • Cost of an orthopedic procedure can vary from $16,000 to $60,000 depending on the geographic location of the surgery.
  • Per-veteran spending within the VA system ranges from $25,000 per year in Boston to less than $6500 per patient on Cape Cod.
  • Hospital procedure pricing is seen as largely fictitious and unrelated to actual local financial conditions.
  • Blue Cross Blue Shield and the Centers for Medicare and Medicaid Services have published tools to help patients learn the cost of a procedure in advance.

A number of reports since 2013 have made it clear that the cost of medical procedures varies widely among geographic locations and among institutions.

A major contributor to the wildly varying costs of procedures across the United States stems from the fact that hospitals often don’t know exactly what a given procedure actually costs. Or they have arcane, sophisticated, and often secret formulae for determining the cost of the procedure.

Any physician or healthcare administrator knows that pricing a procedure can be exceedingly complex. And, in fact, the cost of a procedure will vary from place to place as other costs vary, such as local energy costs, food costs, HCP salaries, rents and leases, and the myriad of other expenses that hit the hospital’s bottom line.

Nonetheless, the charges that patients and insurers pay are often unknown, best guesses, or simply fictitious. Pressure is growing within the state and federal governments, and among patients for hospitals to begin to either standardize costs or to be more transparent about cost structure. Or, to simply offer a menu of procedures with prices attached so that patients could make informed decisions.

Cost of Common Surgeries

According to a recent report by the Blue Cross Blue Shield Association and the Blue Health Intelligence, the cost of knee and hip replacement surgery will cost, on average, $60,000 in New York City, and about $16,000 in Montgomery, Alabama.

Patients will see similar variations in within California. In San Diego, patients will pay an average of $41,000 for a total knee arthroscopy (TKA). In Fresno, patients pay on average just $19,000. Does the patient in San Diego get a better knee?

At Cleveland Clinic, an catheter ablation procedure to treat ventricular tachycardia cost about $10,000 in 2003. In 2013, the same procedure in a young, health patient cost more than $100,000. Can market volatility or inflation be responsible for these variations. (See Figure.)

Figure. Twelve-lead electrocardiogram showing a run of monomorphic ventricular tachycardia (VT).
Image created by Karthik Sheka, M.D.

 

In the greater Boston market, for total hip arthroplasty (THA), the lowest cost found was about $18,000, and the highest closer to $74,000.

The Washington Post  reported the following in 2013: “In the District, George Washington University’s average bill for a patient on a ventilator was $115,000, while Providence Hospital’s average charge for the same service was just under $53,000. For a lower joint replacement, George Washington University charged almost $69,000 compared with Sibley Memorial Hospital’s average of just under $30,000.

Virginia’s highest average rate for a lower limb replacement was at CJW Medical Center in Richmond, more than $117,000, compared with Winchester Medical Center charging $25,600 per procedure. CJW charged more than $38,000 for esophagitis and gastrointestinal conditions, while Carilion Tazewell Community Hospital averaged $8,100 in those cases.

A more recent report in The Washington Post found that the trends in variation have continued. In Dallas, the cost of a TKA ranges from about $17,000 to more than $60,000.

For the wild extreme of arthroplasty, look to Las Colinas Medical Center in Irving, Texas. There they charged $160,000 in 2013 for a lower limb replacement.

Challenging for Patients

These variations can be very difficult for patients. The median income for a family of four in the U.S. in 2013 was just under $52,000 (the average was more than $117,000). For a patient near the median who lives in New York City and needs a THA or TKA, the out of pocket costs – even for an insured patient – could range from $5000 to $15,000, depending on co-pays and deductibles. For many families this would be a prohibitive cost. Many would elect to continue to live in pain rather than potentially devastate the family finances.

The Good News

The good news is that Blue Cross Blue Shield offers a procedure cost calculator.  Your patient can easily find out what a procedure will cost at a specific location in the U.S.

Further good news is that the Centers for Medicare and Medicaid Services (CMS) regularly updates its 2013 report that includes data summarizing the utilization and payments for procedures and services. These data include information on the 100 most common inpatient services, 30 common outpatient services, and all physician, and other supplier procedures and services performed on 11 or more Medicare beneficiaries, according to CMS.gov. You can find those reports here.

Veterans Administration Spending

A study reported recently by National Public Radio found significant variations in per-person spending among U.S. Department of Veterans Affairs (VA) patients. According to the report, “among the states, West Virginia and Arkansas had the highest per-veteran spending in 2013 — just over $7,600. Indiana, New Jersey, Delaware and Pennsylvania had the lowest — less than $5,000. Nationally, the average is just over $6,000. That's after filtering out things like costs to build and operate VA facilities."

Spending is nearly $30,000 per patient in San Francisco, and less than $7,000 per patient in Lubbock, Texas. Nationally, the average is just under $10,000. In places where more veterans are enrolled in VA health benefit plans, spending per veteran tended to be higher, NPR reported.

Many of these issues play out in Massachusetts, where the VA spends four times as much on health care for veterans in Boston as it does on Cape Cod.

Places like Boston, with special VA services for elderly, homeless, and low-income vets, tend to have sicker patients and higher VA health care spending. That may help explain why the VA spends $25,000 on medical services per veteran patient every year in Boston and just $6,500 per patient on Cape Cod.


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