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Richmond Hospital Pricing: Anything but a Free Market System

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If you're a Medicare patient and need a major joint replaced — perhaps a hip — consider the initial cost.

In 2011, HCA Healthcare's CJW Medical Center billed Medicare $117,477 and got about $12,926 from the government. Virginia Commonwealth University Medical Center billed $55,327 and got $20,308. Bon Secours Memorial Hospital charged $53,195, and got $12,458.

Sound screwy? It is. For all the talk about a free-market system, setting health care prices is anything but.

Instead of open bidding, think of hospital officials meeting behind closed doors, strategizing how much to charge to get reimbursed. Medicare, which usually represents about half of a hospital's revenues, sets a fixed rate for various procedures. But hospitals can't by law offer a specific set of prices for just Medicare.

So they factor in other price variables such as what insurance companies might pay on a percentage basis. A big insurer may pay only 20 percent of charges or what they negotiate privately. That automatically jacks up the asking price. Another variable is getting financial aid to help pick up the bill for indigents.

Moreover, higher prices don't necessarily mean better quality, says Michael Spine, senior vice president for business development at Bon Secours Health System.

What results is an incredibly skewed set of prices for essentially the same procedures. That's the takeaway from a survey by the federal Center for Medicare and Medicaid Services, which shows what hospitals billed Medicare — and what Medicare paid — for procedures in 100 categories in 2011. The Obama administration released the survey to drum up support for the Affordable Health Care Act, which takes full effect next year.

A glance at the survey shows that CJW Medical Center was by far the priciest on some procedures, but also reimbursed the least.

Take kidney-tract infections, for example. CJW filed $30,552 while MCV asked for $19,819. Yet MCV got more. For some heart-failure cases, HCA billed $40,274 while St. Mary's Hospital, owned by nonprofit Bon Secours, billed $18,460. And St. Mary's was reimbursed more. Go figure.

Because insurance companies base policies around what Medicare is billed and will pay for, just about everyone's affected. Those without insurance could be stuck with the entire bill, although they can receive treatment free or through discounts.

"Hospital charges vary because they reflect the individual hospital's mission, the patient population it serves and the subsidies necessary to provide essential public services," says Anne Buckley, a spokeswoman for VCU Medical Center.

Mark Foust, a spokesman for HCA, says a "patient's medical coverage — rather than charges — is what primarily drives what he or she pays a hospital."

HCA and VCU help poor patients with their bills through discount or charity programs. So does Bon Secours, says Spine, who adds that releasing the results of such surveys is an important step in moving from "legacy" pricing to something more transparent.

Next on Obama's list: releasing surveys of physicians' fees.

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