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Friday, February 28, 2014

A Closer Look at Hospital Prices for Knee Replacements

A Consumer Viewpoint on Discerning Hospital Value for Knee Replacements
This article explains how information from CMS, a government agency can help you decide where to have your next knee replacement. The Centers for Medicare and Medicaid provide regular reliable information on hospital safety metrics and pricing, both for gross hospital charges and for net reimbursements. For many health care consumers, it is the gross charge figure which is of concern, because if you have private insurance or God-forbid-are-uninsured, what you actually pay for your health care procedure will be based on this number. Since workers and families are so much more mobile now, it pays for the health care consumer to shop around for the best consumer value.

Presently there are a number of Medicare and federal government initiatives addressing hospital price transparency, so I examined a number of CMS circulars to assess hospital data from 2011 for procedures and prices. The May 2013 CMS circular on Hospital Pricing and Charge Variation to Promote Transparency lists broad disparities in hospital prices for both heart failure and knee transplant procedures.[1] Since the latter is a scheduled surgery and not an emergency procedure, I reviewed all hospital prices, both gross charges and net Medicare reimbursements for the knee surgery for Minnesota, which was mentioned in the article. Then I looked at the same procedure for all hospitals performing it for Washington.

Knee Replacement Surgery
Using the Center for Medicare information for the DRG code 470 for a lower extremity joint replacement, such as a knee transplant, I reviewed the fiscal year 2011 hospital charges and actual reimbursements for all Minnesota hospitals for this procedure.[2] Needless to say there was quite a spread as I identified the facilities that were the best value and then the most expensive hospitals for this procedure.
Best Buy for Knee Replacement
The least expensive facility for which to to have this procedure in the Land-of-a-Ten-Thousand-Lakes, was the Mayo Clinic in Austin, MN which posted a gross charge of $23,430 and was paid $12,820 on average for this procedure. FYI, this was also one of the best deals in the nation, for this procedure. Sure you could go to Ada, Oklahoma and have it done for $5,300, but not with the vaunted  Mayo Clinic quality (which is by the way, organized as a true group practice). Private employers, health care consumers with health savings accounts, and medical tourists may be interested in visiting this facility for a bargain rate knee replacement and Mayo Clinic quality. Other Mayo Clinic prices for the same procedure were: St. Mary’s Hospital which was reimbursed $16,109 and Mayo Clinic in Albert Lee, where the net Medicare reimbursement was $12,933.  Another hospital that did very well in this metric was Lakeview Hospital, which booked $25,009 for the gross charge and $12,591 for the net reimbursement for the knee replacement. Lakeview is part of Healthpartners, a large nonprofit health care group in Minnesota.
Most Expensive for Knee Replacement
The most expensive facility in Minnesota for a knee transplant was the Hennepin County Hospital (a level 1 trauma center) which received a net reimbursement of $23,526 for the procedure. Trauma centers receive special funding because they are designated for the most intensive care and serve a disproportionate share of the region’s poor and disenfranchised.
Though Cambridge Medical Center charged $58,683 for the procedure it only received $13,545 in reimbursement.  Other hospitals charging more than $50,000 for this type of procedure included Abbott Northwestern and Unity Hospital, which are private facilities, and this probably explains the big difference between what they are charging and what they are actually paid by Medicare. Also, all three of these facilities are part of the behemoth Allina Health, which is a nonprofit entity, posting the most expensive prices for knee transplants in the state. For several of these hospitals the average reimbursement for the knee procedure was 25% of their gross procedure charges. Which means that Medicare is not over paying for the procedure, but private insurers and health care consumers will be paying a higher charge here than at other facilities without this huge disparity. This spread between gross charges and net payment is indicative of a national problem and is one of the reasons the Obama Administration is touting hospital pricing transparency, with the Maryland model as a standard. Maryland has the lowest spread between gross charges and actual reimbursements, because of a thirty year old law, as reported in my December article.[3]
Washington-The Evergreen State
Next I reviewed the diagnostic code 470 for knee transplants for all hospitals in Washington State performing this surgery, for data reported in 2011, to identify best buys and the most pricey locations.
Best Buy for Knee Replacement
Washington State’s prices were much more uniform than Minnesota, but the least expensive hospital for the knee replacement, based on the average Medicare reimbursement for the 2011 fiscal year was Overlake Hospital in Bellevue, with a gross charge of $45,672 and a net reimbursement of $13,444. It should be noted that Overlake also scores very well on health quality measures, which can be found on the Medicare site as well. But if you want to look at the gross charges and the net reimbursement, Valley Medical Center in Renton was the top performer, with a low gross charge of $31,753 and a higher net reimbursement of $21,521. This means they have a lower price disparity for this procedure.
Most Expensive Place for Knee Replacement
Harborview Medical Center, which is the regional level 1 trauma center, was the most expensive place for this procedure at $24,298 in net reimbursement and $67,105 in gross charges. But, let’s face it; a trauma center is not your best site for this type of surgery.  The second most expensive place in the state for this procedure was the University of Washington Medical Center, with a gross charge of $31,753 and a net payment of $21,521. Again, this may not be your best choice for this type of procedure, but a great choice for a kidney transplant. The third most expensive place for this procedure was Tacoma General-Allenmore, which is a specialty hospital and does not provide primary trauma center services, with an average charge of $86,022 and an average reimbursement of $17,369.  All of these hospitals are non profit entities but Harborview is funded through state coffers along with the University of Washington.
Crib Notes for Smart Health Care Consumers
Remember, the cost of services for a privately insured or uninsured health care consumer is based on a mark-up of the Medicare reimbursement and the greater the disparity between gross charges and net reimbursement means that difference will come out of the other customer’s payments. So, the private insurance sector will pay more to make up for the Medicare shortfall and all private non-Medicare or Medicaid customers will pay higher prices for the same service. In short, if the gross charges are less for the procedure, you will be at less risk of overpaying for the procedure. For example, Valley Medical Center’s average gross charge for the knee replacement procedure was $31,753 and the net charge to Medicare was $21,521. This is a difference of $10.232, which will in part be paid by private insurers, depending on the contract stipulations. But if you look at Tacoma General-Allenmore’s spread between net reimbursement and gross charges, it is $68,653, which means the private payer has to make up more of this difference somehow.  In other words privately insured customers will experience lower costs at Valley Medical Center for this procedure.

This article was researched using public resources from the Center for Medicare and Medicaid for the 2011 fiscal year, which is the most current information available. To be a wise health care consumer, keep on reading what the healthpolicymaven has to say.


1 comment:

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