Lifting the veil on wildly varied surgery charges

Lifting the veil on wildly varied surgery charges

By Katie Kerwin McCrimmon

Andrea Mahoney was skiing her last run of the day at Breckenridge in January when she heard her knee pop.

It sounded bad.

The diagnosis she got from her doctor confirmed her hunch. She had torn her ACL and MCL, and had damaged her meniscus.

Mahoney had surgery in late February at a physician-owned outpatient center. After extensive pre- and post-surgical physical therapy and a grueling seven months of rehabilitation, she’s pleased with her results and now is running again with a brace. Mahoney is eager to get back to her typical athletic routine full of skiing, tennis, running and chasing four young children.

The bills for Mahoney’s care could have brought the most alarming news of all except that Mahoney has health insurance, which helped cover the cost.

The amount billed for the single day of her surgery on Feb. 21 came to more than $69,152.48. Her insurance company, UnitedHealthcare, covered significantly lower negotiated rates of about $14,591.47.  UnitedHealthcare paid thousands for miscellaneous costs, but bean counters balked at some charges, like $35 for a sheepskin mattress pad. On top of the surgery itself, Mahoney’s injury required multiple doctors’ visits, knee braces, an MRI, X-rays and frequent physical therapy visits both before and after the surgery.

Mahoney had some “skin the game” because she had to pay more than $2,000 in up-front costs on the day of her surgery and has paid multiple co-pays for other expenses.

She agreed to track and share every bill related to her knee injury to help illuminate the elusive costs of health care.

While the costs were high, Mahoney said she was willing to pay a significant share of expenses in order to get the best quality.

“To an extent, you get what you pay for. What mattered to me most of all was making sure my surgery went well.”

Health costs a mystery

For most patients, cost is a mystery. Therefore, patientsmake few health care decisions based on financial issues. Instead, they usually choose a surgeon and location based on convenience and recommendations from friends or their primary care doctor.

Mahoney chose a surgeon she trusted and had little opportunity to determine in advance exactly how much her surgery would cost.

And that’s no surprise, according to experts on health costs at the Center for Improving Value in Health Care (CIVHC). Unlike purchases for cars or houses or other big-ticket items, most people don’t have a clue what they’re paying for health care and if the charges are reasonable.

As health reform is fully implemented in 2014, one of the biggest questions is whether spiraling costs — that have been rising for years at double-digit rates —finally will come down or at least start to flatten out.

An analysis of hospital charges and payments by the Center for Improving Value in Health Care (CIVHC) shows the wide variation in costs that private insurers paid for six surgeries compared with Medicare and Medicaid (top). The bottom chart shows dramatically different payments for the same procedures among private health insurance companies. (Source: CIVHC)

An analysis of hospital charges and payments by the Center for Improving Value in Health Care (CIVHC) shows the wide variation in costs that private insurers paid for six surgeries compared with Medicare and Medicaid (top). The bottom chart shows dramatically different payments for the same procedures among private health insurance companies.
(Source: CIVHC)

Patients and business owners who offer health insurance are beginning to pay much closer attention to costs. In March, Time magazine ran its longest cover story ever, a 24,000-word expose by Steven Brill, called “Bitter Pill: Why Medical Bills are Killing Us.” Brill lifted the veil on secret hospital charges and how varied and nonsensical they can be.

In May, federal officials for the first time released a massive set of data on what more than 3,000 hospitals across the U.S. charged and got paid for millions of Medicare patients.

As expected, the Medicare data showed that charges for the same procedure in the same city varied wildly.

Data experts at CIVHC have taken the cost analysis a step further by also crunching cost data from Medicaid and private health insurance companies. Because of cost shifting — the concept that people with private health insurance cover costs for the uninsured and people with public health insurance — bills to people with private health insurance are significantly higher than those for patients on Medicare or Medicaid.

According to the CIVHC analysis, the average amount hospitals billed in Colorado for knee replacement surgery — a different procedure than Mahoney’s — was $58,000. It’s unlikely that anyone paid that artificially high bill. But private insurance companies reimbursed hospitals more than twice as much per replacement as Medicaid did. Commercial payers, on average, paid about $26,000 to the hospital for the knee surgery, while Medicare paid $15,000 and Medicaid paid $10,000.

Even among private health insurance companies, the amount paid to hospitals for knee replacement varied dramatically. Some paid as little as $19,000 while others paid $42,000.

CIVHC analysts looked at hospital charges and payments for six procedures ranging from pneumonia to an irregular heartbeat called arrhythmia to spinal fusion surgery and knee replacement. The spinal surgeries were the most expensive, with charges averaging $115,000 per procedure and some insurers paying as much as $80,000 for the surgery. Costs that are ultimately passed along to business owners, consumers and taxpayers are all over the map.

For instance, private health insurance companies covering patients with pneumonia paid as little as $2,000 and as much as $9,000, more than four times as much for the same illness.

Cost comparisons key to bringing them down

Like many states, Colorado is moving toward increased transparency in health costs and over time CIVHC will be releasing new data from the state’s All Payer Claims Database.

“The reason that this transparency is so important is that we want to start highlighting the huge variation in what’s being paid,” said Phil Kalin, president and CEO of CIVHC.

“Employers need to be focusing on this. Maybe there should be a ‘reference price’ for knee replacement that’s pretty standard. Then we can look at quality metrics and say, ‘here are a bunch of providers who are all pretty much the same and yet, there’s a difference between $19,000 and $42,000.’

“If I were an employer, I might say that the average price is $26,000. We’ll pay $26,000 for your knee replacement. If you want to go to Dr. Jones at Acme hospital who costs more, you can do it, but you’re going to pay the difference,” Kalin said.

“That becomes good pressure on the system. Let’s start evaluating value. If the quality is the same, why would anyone want to be paying so much more?”

Starting in December, releases from the All Payer Claims Database will have hospital names attached to costs. In the past, hospitals and providers may not have known how their costs compared with other facilities and doctors. Those with high costs could simply say that their patients were sicker. But now cost data will also be linked with measures showing how sick patients are on average in various parts of the state.

“Pressure is going to mount. Then you’re going to be in a position where you’re going to have to justify why we should pay (certain hospitals) more,” Kalin said.

Patients and business owners need to become much more vocal consumers.

“They can become very big players in this and say, ‘Wait a second. Why are my employees going here when it’s so much less at this other place?’ Business people are used to making decisions. They have a lot of clout,” Kalin said.

Kalin also expects hospital managers and doctors to tune in closely when data with their names goes public.

“They have never seen this before. They’re smart. They’re high achievers. They all think that they perform at the top of the curve. All of a sudden, if you give them information showing that their costs are way out of whack and your quality is really no better that the guy or gal down the street, they may change. They are hard-wired to want to be at the top of the curve.”

‘Surprising how random it is’

For patients, staying healthy and being able to access affordable care is key. If costs continue to escalate, essential care may be out of reach for more and more patients.

Teresa Goyette put pressure on her hips as a competitive gymnast from childhood through college. She needed two hip replacements in her 40s and is back to teaching high-energy classes including spin.

Teresa Goyette put pressure on her hips as a competitive gymnast from childhood through college. She needed two hip replacements in her 40s and is back to teaching high-energy classes including spin.

Teresa Goyette was only in her 40s when the super-fit district group exercise manager for 24 Hour Fitness began having trouble with pain and mobility that was waking her at night and making it harder for her to work. Normally when you think of hip replacement surgery, the image of a retiree comes to mind.

But Goyette had been a competitive gymnast from childhood through college. She had put so much pressure on her hips as a young person that they started giving out and causing her severe pain.

“I had osteoarthritis. It just built up so much. I had worn all the cartilage through so it was bone on bone,” said Goyette. “I was miserable. It was affecting my range of motion. I couldn’t sleep at night.”

Along with managing the fitness classes, Goyette teaches a full range of heart-pumping workouts from kick-boxing to yoga, Pilates and spin.

Now 46, she was initially hesitant to consider surgery. Then she relented after her doctors at Kaiser Permanente recommended two total hip replacements. She had her first at age 44 and her second about six months ago. Goyette was back at work within weeks and says she feels fantastic.

Thanks to her health insurance coverage, Goyette paid a $500 co-pay for each surgery. But she saw all the bills. The total cost in each case was about $80,000, she said.

“The first time I saw a bill, I thought, ‘Oh my God. They’re going to come back and make me pay for this,’” Goyette said. “I added it all up and kept my statements.

“The hospital puts out this huge number, then it’s up to the insurance company to barter and negotiate.”

In the end, Goyette did not have to pay any surprise bills, but she was struck both by the high cost of the surgeries and how little she knew in advance about how much they would cost.

“It’s very surprising how random it is. Anything else you buy or pay for, you know how much you’re going to pay.”

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