NEW YORK (MainStreet) Patients at one California hospital can get a standard lipid panel with change leftover from their twenty, while at another state hospital they'll pay more than they did for their first car. This basic blood test ranges from $10 at some hospitals to over $10,000 at others. What explains the 1,000-fold difference? Not that much.
A recent study published by BMJ Open reveals enormous price differences for ten standard blood tests among California hospitals. According to the research team, led by Dr. Renee Hsia of the University of California's Department of Emergency Medicine, basic services that cost an arm and a leg at one institution can be little more than a rounding error at another.
For example, getting a metabolic panel costs only $35 at some hospitals while others charge up to $7,303 with little explanation for the difference.
While the researchers noted that government and teaching hospitals tend to charge less than their competitors, they otherwise found no data to explain the vast and unpredictable price differences. Even when taking into account issues like pay scales across institutions and local populations, the researchers said they could at best account for one-fifth of the variation in charges between California hospitals.
"These findings," the authors note, "demonstrate the seemingly arbitrary nature of the charge setting process, making it difficult for patients to act as true consumers in this era of 'consumer-directed healthcare.'"
The researchers said that while the variation for some tests was wider than others, with standard lipid panels as the most extreme, all ten of the blood tests studied revealed these seemingly arbitrary differences to some degree. Eight of the ten ranged by over 200% among local hospitals. By means of comparison, according to Hsia, the average prices for consumer electronics tend to range by about 12.5%.
Commonly hospitals defend exaggerated prices by referring to their duties to cover the uninsured population, as well as government price caps on Medicare and Medicaid. However the researchers indicated that they could find little evidence of this in their data, pointing out that "market level characteristics," such as the percent of uninsured, the local poverty rate and competitiveness among other hospitals had no effect on pricing for any of the hospitals studied.
Instead, it is very likely that this practice reflects the tendency for insurance companies to negotiate over hospital bills after the fact. It's rare for an insurer to pay the full bill from a hospital, and in anticipation of this, administrators create elaborate billing schedules to try and make their money back in other areas. A hospital charging $10,000 for a lipids test might hope to collect half and plan to put the overage toward its losses on a surgery that only got partial payment.
Payments "are often set independently of costs or value," the study reported, "eliminating the typical free-market constraints by which variation in charge and price would be limited. Rather, as payments by private insurers are often negotiated based on charges, hospitals use proprietary formulas to raise their charges in order to secure sufficient funding from third party payers to cover overall costs. This often results in some services subsidising [sic] others, with their increased charges generally unrelated to value."
In other words, hospital prices for even routine blood work vary widely and unpredictably. This, as they say, isn't a bug. It's a feature.
--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website www.wanderinglawyer.com.