Kelly Kennedy, USA TODAY
WASHINGTON - Hospitals will now be required to tell patients how much they charge for procedures, a move federal officials said Wednesday should spark competition and lower costs.
The federal Centers for Medicare and Medicaid Services released data Wednesday showing the differences in costs for 100 medical procedures
, from surgery to poisoning treatment. The data show a wide disparity in costs, even for hospitals located near each other.
"Currently, consumers don't know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city," said Health and Human Services Secretary Kathleen Sebelius said. "This data and new data centers will help fill that gap."
She said the information would create incentives for hospitals to keep their prices low.
The announcement comes along with a report from the Robert Wood Johnson Foundation showing significant variation in prices from region to region, or even in hospitals within the same region. The report shows a joint replacement in Ada, Okla., could cost $5,300 compared with $223,000 in Monterey Park, Calif., a suburb of Los Angeles.
"Hospitals that charge two or three times the going rate will rightfully face higher scrutiny," said Jonathan Blum, acting principal deputy administrator and director of the Center for Medicare at the Centers for Medicare & Medicaid Services. He added that he sees "no logical business reason" for that variation, and that higher prices do not necessarily correspond to better quality of care.
Because insurers often pick up the bill directly, consumers have not had to shop for better prices. However, as more employers have moved to low-premium, high-deductible plans, which leave consumers paying more out-of-pocket costs, they must pay attention to how much a procedure costs. Employers have asked for procedure costs so they can limit hospitals within employee networks to those with the highest quality at the lowest cost.
Insurers also work out contracts with hospitals to pay prices that are often much lower than what hospitals charge the uninsured.
"Most perniciously, uninsured people are the ones who usually pay the highest prices for their hospital care," said Ron Pollack, executive director of consumer advocacy group Families USA, in a news statement. "It is absurd - and, indeed, unconscionable - that the people least capable of paying for their hospital care bear the largest, and often unaffordable, cost burdens."
Christopher Parks, founder of Change Healthcare, a company that works to provide consumers with health cost information, said the announcement came as no surprise.
"It's what I've been espousing for six years," he said, referring to the idea that health costs will go down if consumers have "skin in the game" and make informed decisions based on cost and quality. "It's finally getting to the point where people are beginning to care."
In 2006, he said only a couple million people had high-deductible health plans, but 2011, that had grown to 33 million people. And all of those people need to be paying attention to costs, he said.
"Joe Consumer is going to continue to pay more and more of the health care bill, and it's critical for people to know ahead of time what something will cost so they can make informed decisions," he said.
But next, he said, the government and insurers will have to work to make sure people understand the numbers and how those costs will translate to them after an insurer has worked with a hospital, or after a hospital offers a lower rate to an uninsured person if that person agrees to pay for the procedure upfront.
Mark Norrell, a health care administration expert at Indiana University's School of Public Affairs, said the information will only affect the uninsured, and he agreed that they may not be savvy enough to use the required technology to compare prices. And their best bet is to go in and try to negotiate prices with the hospital even after comparing prices. Hospital officials probably aren't worried that the information will steer customers away.
"It's not likely that a hospital would take this seriously," he said. "Most consumers are not even going to know this data exist."
Still, he said, the announcement could spur action.
"They're trying to set an example for the private sector," Norrell said. "Symbolically, it's important."
For the insured, "It's virtually impossible to know in advance how much a procedure will cost," he said. The agreements between insurers and hospitals are confidential, so it's difficult for a consumer to know how much he or she will pay if required to pay a percentage of the total.
The American Hospital Association released a statement saying the announcement doesn't take into account the $41 billion in financial aid hospitals offered to the un- and under-insured in 2011. And, 40 states already require or "encourage" hospitals to release pricing data to consumers, an effort the association says it supports. They called the current billing system "complex and bewildering."
"This is especially true when what is most important to the patient is knowing what his or financial responsibility will be," the statement said.
The move comes as part of the 2010 federal health care law, also known as the Affordable Care Act, which will also provide $87 million to the states to collect and distribute hospital pricing data. It is the first time the data have been available at no cost to the public.