The Problem With Health Care Prices

After being diagnosed with diverticulitis at an urgent care facility in Brevard, North Carolina, last year, Lucia Gerdes' thoughts shifted from the pain in her gut to her lack of insurance. Rather than go directly to the hospital for tests, antibiotics and pain meds as the physician had advised, Gerdes, who had recently moved to the area from Southern California, sat in her car in the parking lot, doubled over in pain as she and her fiancé dialed hospital after hospital, asking for estimates of the cost. "None of the hospitals could tell us," she says. "We ended up picking the one that was the closest."

Anyone who has ever sought clarity in the murky waters of hospital pricing knows how tempting it is to give up. In a study in JAMA Internal Medicine last year, researchers in Philadelphia reported that out of 20 local hospitals asked for an estimate for a simple electrocardiogram, only three came through with a number, ranging from $137 to $1,200. (Nineteen out of the 20 were, however, able to quote parking fees.) Consumer advocates hoped for illumination last year when the Centers for Medicare and Medicaid Services released data on what it had been charged by -- and paid -- some 3,300 hospitals for 100 common procedures and services in 2011 and 2012. But the raw data isn't all that useful to the average person, experts argue.

[ Excerpted from U.S. News' 'Best Hospitals 2015,' the definitive consumer guidebook to U.S. hospitals. Order your copy now.]

"An Excel spreadsheet that requires a lot of parsing isn't going to help someone who needs a hip replacement," says Caitlin Morris, a senior policy analyst at Families USA, a consumer health care nonprofit. And pricing is further muddled by the complexity of so much care. "It's hard to say exactly what the costs are until after it happens," says David Howard, associate professor of health policy at Emory University. "How long was the stay? Were there complications? What physicians were involved? The complexity all works against price transparency."

Still, the push to get user-friendly information on cost to consumers is gaining traction as patients shoulder more of the tab. A number of states have passed laws requiring some level of transparency on pricing. And a slew of private companies, from crowdsourced websites to pharmacy chains, are working to make cost information more accessible. If people could comparison shop, the theory goes, then greater competition would ultimately bring costs down. Research by Thomson Reuters has found that providing comparative information could whittle the national price tag by $36 billion a year.

[See: Infographic: How to Read Your Hospital Bill .]

Even insured consumers have an incentive to get some idea of costs upfront, since deductibles and coinsurance are on the rise. The Kaiser Family Foundation reports that last year 38 percent of Americans insured through their employers had a deductible of $1,000 or more, up from 10 percent in 2006. Under the Affordable Care Act, silver plans carry an average family deductible of $6,000 and bronze plans, nearly $10,400. All told, when you count premiums, deductibles, copayments, coinsurance and out-of-pocket maximums, those who opt for a silver plan can expect to pay an average of 30 percent of the total bill; for bronze plans, that rises to 40 percent.

For now, it's wise to at least get familiar with the cost-sharing terms of your health plan. Justin Evans of Bonney Lake, Washington, thought he had. But then he was billed $6,100 of nearly $50,000 in charges after a 13-hour hospital stay for emergency gallbladder surgery, even though he has a deductible of just $2,000. The extra charges were because an ER doctor was out of network, plus he hadn't realized he would owe a percentage of the difference between the cost of the procedure and what the insurer allowed. Evans later discovered that the same procedure at the Surgery Center of Oklahoma, one of the rare facilities that posts prices, costs only about $6,000 total. Had he had the luxury of planning the procedure, he says, "I wouldn't have ruled out flying to Oklahoma City." Factoring in insurance, "I could have stayed in a five-star hotel, had a steak dinner and still come out ahead."

[Read: Socked With an Out-of-Network Medical Bill?]

Perhaps surprisingly, the Affordable Care Act requires hospitals to post prices, but the Department of Health and Human Services has yet to enforce the provision. Even if it eventually does, rack rates (the full amounts medical facilities charge for procedures outside of negotiated discounts, say, for insurers) will be wildly inflated. Besides showing huge variations in what hospitals charge from place to place, the Medicare data released last year revealed the size of the spread between charges and reimbursements. Trident Medical Center in Charleston, South Carolina, billed Medicare an average of $92,961 for major joint replacement, while the average charge for the same procedure across town at Roper Hospital came in at $37,537, for example. The Charleston hospitals were paid $10,511 and $9,527, respectively. This dynamic could change with a bundled payment system encouraged by health reform, in which the hospital and doctors assume the financial risk for a patient's care "episode," including any complications, over a set period of time. Geisinger Health System in Pennsylvania pioneered the concept in 2005 by offering fixed-rate cardiac surgery and postoperative care for 90 days. On average, per case, the cost dropped 4.8 percent and the hospital posted a 22 percent boost in profit.

Private insurers also negotiate to pay a fraction of hospitals' rack or "chargemaster" rates. The only groups not automatically discounted are uninsured people and patients getting care out of network, says Pat Palmer, founder and CEO of Medical Billing Advocates of America, a firm based in Salem, Virginia, that supports fair pricing and reviews and renegotiates bills. Hospitals often are willing to offer discounted rates to self-payers who ask, however, Palmer says.

Meanwhile, states are passing their own transparency legislation. The most robust law so far is in Massachusetts, which requires all health care providers and insurers to give out costs for procedures to consumers who ask. There are still kinks to work out. A reporter for WBUR in Boston recently recounted on the radio station's blog the 26 steps she took in a futile attempt to comparison-shop for a bone density test, including multiple calls to hospital billing offices and searches on hospital websites. Other states with laws on the books include Maine, Colorado and Virginia.

[Read: Crowdfunding Your Medical Bills .]

One promising development is that a number of startup companies are getting into the transparency business., for example, works with providers to collect the average cost insurers pay for common procedures across the country. The service also has created a marketplace where prospective patients can request quotes from local providers. Healthcare Bluebook is a website that allows consumers to look up what it deems as "fair prices" for services in their area, based on what providers accept from insurers. ("This is the price you should have to pay, even if your provider charges more," the website states.) uses crowdsourcing to compile pricing data coast to coast. Some insurers, notably Aetna, also offer searchable databases to their members.

These prices are just a start, however; it's up to the consumer to negotiate. Palmer suggests bargaining upfront when possible: "Tell them you don't want to pay off 'billed charges.' Ask for a flat rate and get it in writing." If you don't have the luxury of prior notice, ask for a discount for paying cash, but first scrutinize every item carefully. Palmer says bills often contain a separate charge for, say, a ventilator already factored into the cost of a stay in intensive care.

Chains like Walmart with clinics are also getting in on the action. Retailers "are very accustomed to posting prices online, in the store, in their catalogues," says Ceci Connolly, managing director of PricewaterhouseCoopers's Health Research Institute. One health care group on the same page is ZoomCare, whose providers offer same-day service in 24 clinics in Oregon and Washington. Services include primary and urgent care, as well as limited specialty care such as cardiology and dermatology in some locations, with flat-rate pricing for much of the care posted on the website. Within the next decade, Connelly predicts, consumers will shop for care in "online marketplaces that will resemble how we now buy airlines tickets."

That day can't come fast enough for Lucia Gerdes, whose two visits to the hospital ran $17,000. The facility gave her the option to apply for Medicaid, arrange a payment plan, or pay cash and get a 30 percent discount. She borrowed to pay the bill. Had she still lived in California, "I'd have gone to Mexico,"she says. "The hospitals there tell you how much things cost."

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