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As Hospital Prices Soar, a Stitch Tops $500

The New York Times, 12/3/13

Two-year-old Ben Bellar of East Lansing, Mich., getting stitches after a fall at home. The bill for his treatment came to more than $2,000.Fabrizio Costantini for the New York Times
December 2, 2013

SAN FRANCISCO — With blood oozing from deep lacerations, the two patients arrived at California Pacific Medical Center’s tidy emergency room. Deepika Singh, 26, had gashed her knee at a backyard barbecue. Orla Roche, a rambunctious toddler on vacation with her family, had tumbled from a couch, splitting open her forehead on a table.

On a quiet Saturday in May, nurses in blue scrubs quickly ushered the two patients into treatment rooms. The wounds were cleaned, numbed and mended in under an hour. “It was great — they had good DVDs, the staff couldn’t have been nicer,” said Emer Duffy, Orla’s mother.

Then the bills arrived. Ms. Singh’s three stitches cost $2,229.11. Orla’s forehead was sealed with a dab of skin glue for $1,696. “When I first saw the charge, I said, ‘What could possibly have cost that much?’ ” recalled Ms. Singh. “They billed for everything, every pill.”

In a medical system notorious for opaque finances and inflated bills, nothing is more convoluted than hospital pricing, economists say. Hospital charges represent about a third of the $2.7 trillion annual United States health care bill, the biggest single segment, according to government statistics, and are the largest driver of medical inflation, a new study in The Journal of the American Medical Association found.

A day spent as an inpatient at an American hospital costs on average more than $4,000, five times the charge in many other developed countries, according to the International Federation of Health Plans, a global network of health insurance industries. The most expensive hospitals charge more than $12,500 a day. And at many of them, including California Pacific Medical Center, emergency rooms are profit centers. That is why one of the simplest and oldest medical procedures — closing a wound with a needle and thread — typically leads to bills of at least $1,500 and often much more.

At Lenox Hill Hospital in New York City, Daniel Diaz, 29, a public relations executive, was billed $3,355.96 for five stitches on his finger after cutting himself while peeling an avocado. At a hospital in Jacksonville, Fla., Arch Roberts Jr., 56, a former government employee, was charged more than $2,000 for three stitches after being bitten by a dog. At Mercy Hospital in Port Huron, Mich., Chelsea Manning, 22, a student, received bills for close to $3,000 for six stitches after she tripped running up a path. Insurers and patients negotiated lower prices, but those charges were a starting point.

Chelsea Manning in St. Clair, Mich., in November. She tripped and fell in the driveway of her home, and needed six stitches for which she was billed close to $3,000.Joshua Lott for The New York Times

The main reason for high hospital costs in the United States, economists say, is fiscal, not medical: Hospitals are the most powerful players in a health care system that has little or no price regulation in the private market.

Rising costs of drugs, medical equipment and other services, and fees from layers of middlemen, play a significant role in escalating hospital bills, of course. But just as important is that mergers and consolidation have resulted in a couple of hospital chains — like Partners in Boston, or Banner in Phoenix — dominating many parts of the country, allowing them to command high prices from insurers and employers.

Sutter Health, California Pacific Medical Center’s parent company, operates more than two dozen community hospitals in Northern California, almost all in middle-class or high-income neighborhoods. Its clout has helped California Pacific Medical Center, the state’s largest private nonprofit hospital, also earn the highest net income in California. Prices for many of the procedures at the San Francisco hospital are among the top 20 percent in the country, according to a New York Times analysis of data released by the federal government.

“Sutter is a leader — a pioneer — in figuring out how to amass market power to raise prices and decrease competition,” said Glenn Melnick, a professor of health economics at the University of Southern California. “How do hospitals set prices? They set prices to maximize revenue, and they raise prices as much as they can — all the research supports that.”

In other countries, the price of a day in the hospital often includes many basic services. Not here. The “chargemaster,” the price list created by each hospital, typically has more than ten thousand entries, and almost nothing — even an aspirin, a bag of IV fluid, or a visit from a physical therapist to help a patient get out of bed — is free. Those lists are usually secret, but California requires them to be filed with health regulators and disclosed.

Inflated Prices

California Pacific Medical Center has very high price markups for routine supplies and services.

CPMC Inflated Price Chart

California Pacific Medical Center’s 400-page chargemaster for this year contains some eye-popping figures: from $32,901 for an X-ray study of the heart’s arteries to $25,646.88 for gall bladder removal (doctor’s fees not included) to $5,510 for a simple vaginal delivery (not including $731 for each hour of labor, or $137 for each bag of IV fluid). Even basic supplies or services carry huge markups: $20 for a codeine pill (50 cents at Rite-Aid or Walgreens), $543 for a breast-pump kit ($25 online), $4,495 for a CT scan of the abdomen (about $400 at an outpatient facility nearby). Plenty of other hospitals set similar prices.

Dr. Warren Browner, the chief executive officer of California Pacific Medical Center, said that there were good reasons that hospitals charged what they did: They must have highly trained professionals available 24 hours a day, seven days a week. They must constantly upgrade to the latest equipment and building standards to meet patients’ expectations and state mandates. They charge paying or well-insured patients more to compensate for others they treat at a loss.

“Hospital care is extremely expensive to produce and to have available for everyone in the community,” he said, noting that hospitals needed to have a neurosurgeon on call in case a patient turned up with a blood clot on the brain. “We take every penny of the revenue we earn and use it to build new and better facilities for everyone in the city.”

Some health economists say that even though most hospitals are nonprofit, they nonetheless are often flush with revenue and guilty of unnecessary spending.

“Hospitals are self-fueling, ever-expanding machines,” said James Robinson, an economist and professor of health policy at the University of California, Berkeley. “There is an infinite amount of stuff to buy — amenities, machines, new wings, higher salaries, more nurses.”

“But,” he asked, “to deliver good health care, what do you need?”

Few Constraints

There is little science to how hospitals determine the prices they print on hospital bills.

Orla Roche with her mother, Emer Duffy. Orla, 2, fell and cut her forehead during a family vacation. The visit to the emergency room, where her cut was treated with skin glue, cost $1,696.Fred R. Conrad for The New York Times

“Chargemaster prices are basically arbitrary, not connected to underlying costs or market prices,” said Professor Melnick, the economist. Hospitals “can set them at any level they want. There are no market constraints.”

Prices for any item or service are set by each hospital and move up and down yearly, and show extraordinary variability, health economists say. The codeine that costs $20 and the bag of IV fluid that costs $137 at California Pacific are charged at $1 and $16 at the University of California San Francisco Medical Center, across town. But U.C.S.F. Medical Center charges $1,600 for an amniocentesis, which costs $687 at California Pacific.

After each hospital stay or visit, computer programs and human coders and billers use the chargemaster price list to translate the services rendered into a price. Sutter employs more than 1,300 people at a special center in Roseville, Calif., to perform this and other administrative tasks for its hospitals. Emergency room visits typically include separate charges for doctor’s services and for supplies, as well as a “facility fee” — the charge for walking in the door.

Orla Roche’s bill, for example, included $529 for “supplies and devices,” though her mother is perplexed about what those are: Orla left the emergency room with gauze wrapped round her head (under $1 at Internet supply stores), festooned with a pink cartoon sticker. According to the chargemaster price list for California Pacific, a vial of skin glue is billed at $181, a tube of antibiotic cream at $125.84 and a vial of local anesthetic at $79.73. These items can be purchased for $15.99, $36.99 and $5 on the Internet, though hospitals — which buy wholesale and in bulk — pay far less.

The bill also included $1,167 for the facility fee, which was classified at Level 3 — the middle of the scale, though Orla’s treatment was one of the most simple emergency room interventions. At Lenox Hill in New York, Daniel Diaz’s unusually detailed bill for his stitches included $1,828 for emergency room services, $628 for repairing the wound, $571.83 for “application of a finger splint,” $97.10 for a tetanus shot, and $311 for someone to give the injection. At Sparrow Hospital in Lansing, Mich., 2-year-old Ben Bellar’s bill for six stitches, more than $2,000, included $145.20 for “pharmacy” — a spoonful of ibuprofen and local anesthetic, his mother said.

Economists note that hospitals can bill for emergency room care with relative impunity, since injured patients generally rush to the nearest treatment facility. But worried about high prices, even the sick sometimes shop around. When Jamie Burke, 33, a graduate student in North Carolina, came to after she was knocked out during a soccer game in April, she started searching on her smartphone for an in-network hospital as a friend drove.

“It was crazy,” she said, “but luckily I wasn’t unconscious, so I could figure it out.”

She is glad she did: Though the hospital billed $5,039, her insurer’s in-network contracted rate was about $2,700. With copays and coinsurance, she owed $600 for the visit.

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