Insurers decide that not all hospitals are created equal

Special to The Times

When choosing health insurance this fall, many consumers will notice something new that’s going to affect their pocketbooks. It used to be that it didn’t matter which hospital your doctor sent you to -- you’d pay the same amount out of pocket. But some of California’s largest medical insurers are pushing new health plans that will require you to pay more to go to hospitals that insurers consider too pricey.

Blue Shield of California, for example, is marketing an option that would require members to pay 30% of their hospital bill (a co-insurance fee) instead of 20% for using a hospital not on the insurer’s preferred list. A $5,000 hospital bill, for example, would mean paying $1,500 out of pocket instead of $1,000. PacifiCare has plans that would require paying up to $400 extra for using a non-preferred facility.

Hospital tiering, as the practice is called, is part of a strategy to group hospitals on the basis of cost and use that system to determine co-payments and co-insurance. The cost for medical care, primarily for hospitals and prescription drugs, is rising rapidly and insurers are looking for ways to pass some increases to patients. Hospital tiering programs are similar to those used for insurers’ prescription drug programs, in which consumers pay more out of pocket for brand-name drugs and less for generic substitutes.

In theory, the concept of tiered pricing pressures hospitals to lower their costs to gain a spot on insurers’ “preferred” lists.


“We’re seeing an increase in hospital use,” says David Joyner, senior vice president at Blue Shield. “When we look at hospital costs for an area, we find inexplicable differences between hospitals.”

Insurers, pressed by employers to reign in premiums especially in a sluggish economy, are trying to compete for important customers by selling less costly plans. If they can do that by getting their members to foot more of the bill, it helps them attract more business. “It’s a great win-win,” says Dr. Sam Ho, PacifiCare’s chief medical officer. “The only stakeholders who lose are the worse-performing providers.”

Not exactly. What about people who live in areas where there is no low-cost hospital? What about patients whose doctors are unable to admit patients to lower-cost hospitals? Insurers say patients should talk to their physicians about changing hospitals.

What about the uninsured, who tend to go to large academic centers or teaching hospitals for services they need but can’t afford? If millions of Californians are steered to low-cost hospitals, these teaching hospitals, which tend to have higher costs, may be left with the burden of treating more of the uninsured. “The amount of uncompensated care is typically higher at an academic medical center,” says Thomas Priselac, chief executive of Cedars-Sinai Medical Center in Los Angeles, a teaching hospital. It takes more money, he says, “to educate new physicians and professionals and develop the cutting-edge research methodologies.”


Some insurers are beginning to study the relationship between a hospital’s cost and the quality of medical care it provides. For the average patient, though, this information is difficult to sort through and compare. Each insurer has its own method of combining data on cost and quality. With each carrier going its own way, confusion results.

Research shows that people tend to distrust information if there are conflicting sources, says Judith Hibbard, a health policy professor at the University of Oregon and an expert in consumer information needs.

As a patient, I want to know the chances of coming out of a hospital alive. Working at the not-for-profit Institute for Healthcare Improvement in Boston, Brian Jarman, a British researcher, has ranked the 6,200 hospitals in the U.S. using Medicare death rates and cost data for about 20 million cases. He has made hundreds of adjustments to the data to arrive at an apples-to-apples comparison.

“Death rates,” says Jarman, “are the only reliable measure of quality. I don’t know of any that are better.” Jarman’s data show no relationship between the cost of care and mortality rates. “If you were to choose a hospital with a very high cost, that hospital could have a high or a low death rate,” he says. California hospitals, Jarman adds, have very high costs, but score as a whole about average for mortality rates.


If I need gallbladder surgery and know that a particular hospital in Los Angeles had the best mortality rates, as determined by a credible source, I might decide that paying the extra price to go there was worth it.

However, the information about quality medical care available to Californians is spotty and published by different groups with their own goals and interests. Insurers are encouraging patients to choose hospitals based on price, when they should be directing them to hospitals with high quality medical care, based on reliable data that can be easily understood by consumers. Financial incentives may serve the goals of managed care firms and employers, but they are doing little to get patients to hospitals giving the best care.

Trudy Lieberman can be reached by e-mail at