When a doctor sees a patient at Olympia Hospital in Los Angeles for a routine, 15-minute consultation, the hospital typically bills Medicare about $1,100 for the service. Two miles away, Cedars-Sinai Medical Center bills the government just under $200 for the same kind of visit.
Medicare sets its own rates, so the program ultimately pays both hospitals the same amount, or nearly so, regardless of how much they try to charge.
But the huge disparity in billing for the same procedure in the same city raises questions about how hospitals establish their rates, who pays them, and what connection, if any, the charges have to the actual cost of providing care. The mysterious billing practices are fueling a nationwide drive for more transparency.
The differences have also become fodder in a brewing political fight. A leading health care labor union, the 150,000 member SEIU-United Healthcare Workers West, is trying to qualify a measure for the California ballot that would limit how much hospitals can charge.
Olympia executives declined repeated requests to comment for this article. But other hospital executives say the increasing focus on their billing practices is misplaced because almost nobody pays the full rates they charge. Government agencies typically set their own rates and insurance companies negotiate with hospitals to establish reimbursements for the care of their customers.
“This type of coverage is misleading and only adds to confusion for patients and consumers,” a public relations office for Tenet Healthcare said in a written statement.
But SEIU spokesman Sean Wherley said even if hospitals do agree to negotiate their bills, the high charges put uninsured patients, as well as those responsible for co-payments on medical charges, in an unfair position.
“Even if the price tag is inflated to $10,000 and someone has to pay $1,000, that’s more than if they’d just charged close to the initial price in the first place, and then maybe that person would have to pay maybe $200,” Wherley said.
“Whether it’s reduced or not, it was inflated as a starting point, and that makes it a burden on the patient. We’re saying let’s get these prices down to where they should be.”
The Institute for Health & Socio-Economic Policy, which is affiliated with National Nurses United, recently identified 12 California hospitals as having charges among the highest in the nation.
Those institutions are:
• Olympia Medical Center in Los Angeles, with charges exceeding its actual cost of care by 1,034 percent.
• Doctors Hospital of Manteca: 967 percent.
• Doctors Medical Center of Modesto: 957 percent.
• Barstow Community Hospital: 872 percent
• Monterey Park Hospital: 860 percent.
• Twin Cities Community Hospital in Templeton: 813 percent
• Lodi Memorial Hospital: 811 percent
• Providence Holy Cross Medical Center in Mission Hills: 809 percent
• Regional Medical Center of San Jose: 804 percent
• Community and Mission Hospital of Huntington Park: 783 percent
• Los Alamitos Medical Center: 782 percent
• Centinela Hospital in Inglewood: 773 percent
The Institute survey also listed Olympia as the 13th-highest charging hospital in the country.
Tenet’s public relations office, on behalf of the Twin Cities, Manteca, Modesto and Los Alamitos hospitals, questioned the survey’s value.
“(T) he charges reported have little relationship to ‘hospitalization costs’ or the actual money that hospitals receive for the care they provide and for which private insurers, patients or the government pays,” the statement claims.
But Prime Healthcare Services, which owns Centinela Hospital, sought to distance itself from the prices attributed to it.
Company spokesman Ed Barrera pointed out that Centinela was the only one of Prime Health’s 25 hospitals to make the Institute’s list, and that’s because it hasn’t yet revised its price schedule from its days as a Tenet property.
He said Prime Health is in the process of revising the charges to reflect market rates.
Still, Barrera, too questioned the worth of the raw numbers. In a written statement, he pointed out that government health plans reimburse hospitals on fixed rates and private insurance pays according to the prices they’ve negotiated.
In cases where there’s no contract in place, health plans typically reimburse according to “usual and customary rates,” the statement points out.
“The uninsured usually do not pay any amount,” the statement reads. “For those uninsured that want to pay, most of the hospitals give steep discounts. Therefore, there is no correlation between the charges and actual payments.”
Chuck Idelson, a spokesman for National Nurses United, said there’s nothing voluntary about paying these charges.
He cited a recent Commonwealth Fund study comparing health care policies in 11 industrialized nations. Researchers found that Americans are the most likely to forgo treatment due to cost, struggle to pay bills and spend the most out of pocket on treatment.
“That’s not an accident. It’s a direct result of the fact that these costs are so high, and the hospitals are major culprits,” Idelson said.
At Providence, spokeswoman Patricia Aidem pointed out that the hospital must cover its own expenses, including “top level physician specialists, diagnostic services, and nursing staff on-site providing expert care 24 hours a day, 365 days a year.”
Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management, said justifying higher charges by citing specialized services doesn’t make sense.
“On the technology side, technology is very well reimbursed by (insurers),” he said. “There is no rationale for raising charges for something that’s already overpriced.”
As for the claim that these prices are a mere abstraction, “If nobody pays the rate, why do they set them in the first place?” Anderson said. “It makes no sense to set exorbitant rates if they don’t expect anybody to pay them.”
Maryland’s state government publishes an online hospital pricing guide that lists every acute care hospital in the state, along with the average charge per day for 15 common diagnoses.
John Romley, an assistant professor at the University of Southern California’s Price School of Public Policy who also serves as an economist with the Leonard D Schaeffer center for Health Policy and Economics, sees a broader drive toward greater openness.
“I think a lot of people can agree that maybe we need more transparency and better information for consumers, and maybe that will help people to choose better quality of care and maybe even care that offers more bang for the buck,” he said.
Federal authorities have made moves in that direction. For instance, one provision in the Patient Protection and Affordable Care Act requires hospitals to publish a list of their standard charges for items and services.
However, the federal Department of Health and Human Services has yet to issue a rule implementing that requirement.
Micah Weinberg, a senior policy advisor at the Bay Area Council, a San Francisco business organization, thinks greater transparency in hospital pricing could move the public health discussion in the direction of a functioning market, with consumers equipped to evaluate the value of their healthcare choices.
Meanwhile, Weinberg said, there’s an “odd irony” to the union’s initiative drive, since wages account for a sizable portion of health-care costs. He said labor leaders have used proposals similar to the current proposed initiative in the past to gain leverage in pay and benefit negotiations.
“I think what happened this time is that there was a similar strategy in place, but things kind of got out of hand, and now the initiative may actually be on the ballot,” he said.