A drive from Oklahoma City to Tahlequah down Interstate 40 would probably take about three hours.
But it could possibly save you thousands of dollars if you're looking for a place to have joint replacement surgery.
The scenario is one of the take-aways from data released Wednesday from the federal government's Centers for Medicare & Medicaid Services.
The information lays out the average amount of money hospitals across the nation bill Medicare and the average amount Medicare pays them for the care they deliver.
Health and Human Services Secretary Kathleen Sebelius said the prices hospitals charge, as shown in the data, can vary dramatically, even within the same communities, in ways that cannot easily be explained.
“When consumers can easily compare the prices of goods and services, producers have strong incentives to keep those prices low,” she said. “That's really a market theory, and that's how markets work. But even basic information about health premiums or hospital charges has long been hidden from consumers.”
For example, Tahlequah City Hospital in northeast Oklahoma charges an average of $26,831 for a joint replacement for a lower extremity. Meanwhile, the average amount hospitals in Oklahoma City charge ranges from $28,194 to $78,071.
But whether these amounts are close to what patients actually pay is up for debate.
Out of pocket?
Rick Snyder regularly works with hospitals on reimbursement issues, including Medicare, Medicaid and private insurance.
How useful is the data to an insured Oklahoman who wants to price shop hospitals?
“Not very,” said Snyder, the vice president of finance and information services at the Oklahoma Hospital Association. “It's interesting, and there is a lot of variation, but in terms of what people really care about — it's what the care is going to cost them out of pocket, and that's usually (based on) what's their insurance plan's deductible (and) coinsurance, and those things are usually not related to the amount the hospital charges for the service.”
People with insurance are likely to pay a predetermined amount. In most cases, insurance companies have agreements with hospitals that determine the amount the hospital will receive, regardless of what the hospital's total charges are, he said.
For example, Mercy Hospital Oklahoma City charges an average of $18,240 for treating pneumonia, according to the CMS data. An insurance company might have an agreement with Mercy that it will pay $4,000. The patient's out-of-pocket expense is usually based on that $4,000, not the $18,240.
Mercy Hospital officials could not be reached for comment but released a statement, explaining how the hospital's pricing structure is based.
“It is important to note that the charges on hospital bills rarely reflect the amount collected for hospital services,” the statement reads.
“For example, hospitals are reimbursed only a portion of their charges for patients covered by Medicare and Medicaid. Also noteworthy is that Mercy's operating margin is only three percent — meaning Mercy makes three cents for every dollar of revenue.”
Insurance is key
Stan Hupfeld, a retired hospital administrator, said hospitals have one of the most confusing pricing mechanisms that exist.
The difference between what hospitals “charge” and what they actually expect to be paid is often in the 300 percent or 400 percent range.
Hospitals aren't generally paid what they charge, for one, because insurance companies negotiate a price for their clients. Secondly, hospitals will work with people who are uninsured to decrease their bill to something they can pay, he said.
“Over the years, and this has been decades in the making, what has happened is: You've inflated your charge to be able to discount it back to get something which is reasonable, and that discounting that goes on with the various insurance companies sort of depends on your relationship with them,” said Hupfeld, the former president and CEO of Integris Health.
The price also will vary because of what the hospital offers. For example, if a hospital is a teaching hospital or has a large nursing training program, the cost of that teaching will be factored into what it charges. Secondly, a hospital has to pay for the technology it operates and the type of specialty care it provides, such as a burn center or a mental health clinic, he said.
And hospitals also factor the amount of money they lose on people who don't pay or can't pay into what they charge.
“It's so difficult to explain, and it doesn't make any sense,” Hupfeld said. “It's grown up over decades into the system it is now, and we're all sort of stuck with it.”
Jonathan Blum, acting principal deputy administrator and director of the center for Medicare at the Centers for Medicare & Medicaid Services, said the hope is that the data release will elevate the conversation about why there is so much cost variation among hospitals.
“Some have speculated that some of the variation is driven by different patient status or teaching status of the hospital facility, or by the fact that some hospitals may have higher capital costs, but the variation that we see in the data just doesn't — those reasons don't seem very apparent to us,” he said.