Price Transparency: Understanding Variation in the Pricing of Health Care Services

February 2015
By HCFO Staff

The cost of surgery and other medical procedures varies widely across the country and can even vary within the same city. In a recent USA Today article, Jayne O’Donnell and Laura Unger provide an overview of the variation in prices across geographic locations, discuss why the variations in pricing may exist, and highlight how consumers can use this information to make better decisions about their health care.

O’Donnell and Unger cite data from a January 2015 Blue Cross Blue Shield (BCBS) report showing wide variability on the cost of knee and hip replacement surgeries. The average cost of a total knee replacement in the 64 markets where BCBS analyzed claims data was $31,000. However, the total cost of a knee replacement varied from $11,317 in Montgomery, Alabama to $69,654 in New York City. In Dallas alone, the cost of a total knee replacement ranged from $16,772 to $61,584.

Factors affecting the cost of health care services can include expenses associated with operating the facility, the mix of public and private insurance and charity care, and the network of providers. Ultimately, the pricing of health care services may be most directly linked to the reimbursement system and the prices that insurers and consumers are willing to pay.

O’Donnell and Unger spoke with several experts who expressed hope that more price transparency will allow consumers to choose the providers offering the highest quality services at the lowest cost.

Federal and state policymakers are also pushing for more transparency. On August 21, 2013, North Carolina passed a bill mandating that the state’s Department of Health and Human Services publish hospital charges. Section 2718(e) of the Affordable Care Act, effective on October 1, 2014, mandates that each hospital establish, update, and publicize a list of standard charges for items and services provided. In related private sector action, Blue Cross and Blue Shield of North Carolina launched an online tool, which lists rates it has negotiated with local providers. Consumers can search a database for the estimated cost of a treatment or service across various providers. As reported by Kaiser Health News, the transparency issue has launched a conversation around the risks and benefits of greater access to information. And, questions remain about the potential for price transparency to reduce health care costs.

On May 15, 2013, the Robert Wood Johnson Foundation’s HCFO program hosted a webinar with CMS featuring the release of 2011 data on the prices that more than 3,000 hospitals charged for the 100 most common inpatient procedures. These data underscored the wide variation among hospital prices across the country and within communities for similar services.   Niall Brennan, CMS Director, Office of Information Products and Data Analysis,  provided an overview of the data source, including what led CMS to produce the data, high level methodology, how the data can be accessed. Uwe Reinhardt, James Madison Professor of Political Economy, Princeton University and Suzanne Delbanco, Executive Director, Catalyst for Payment Reform, discussed the implications of the data release and the value of greater transparency generally.

Issues around price transparency will be the focus of an upcoming summit sponsored by the Robert Wood Johnson Foundation.  The Second National Summit on Health Care Price, Cost and Quality Transparency will be held March 16-18 in Washington, DC, with participation also available via webcast.  An agenda, list of keynote speakers, and registration information is available here.