When Medicare disclosed average charges from thousands of U.S. hospitals for 100 common procedures last week, only one hospital was near the top in every category: Cedars-Sinai Medical Center in Los Angeles.
Be it a cardiac stent, a hip replacement or a pacemaker, Cedars-Sinai's list prices for these routine treatments ranked among the top 5% in the country.
For example, the average charge at Cedars-Sinai for gallbladder surgery with complications was $153,302 in 2011 compared with the U.S. median charge of $42,380, government data show. That figure ranked second nationally.
Overall, California hospitals dominated the ranks of the most expensive. Nine of the 10 hospitals with the highest share of procedures in the top tier of charges were from the Golden State, including Stanford Hospital in Palo Alto and John Muir Medical Center in Walnut Creek, Calif.
Cedars-Sinai has long justified its pricey care because of its commitment to cutting-edge research and training. The hospital also takes on patients with complex injuries and ailments that other hospitals aren't equipped to handle.
But other elite U.S. hospitals aren't charging anywhere near those amounts. Charges at nearby UCLA Medical Center cracked the top 5% only a third of the time. Mayo Clinic's flagship hospital in Rochester, Minn., didn't pierce that threshold at all.
The Medicare data were culled from list prices that hospitals charge for their treatments and procedures. But few customers pay the full amount. Medicare, the largest healthcare purchaser in the country, sets the prices that it will pay to hospitals for its patients, and private insurers negotiate their own discounts for policyholders.
Still, the figures are important because insurance companies tie some reimbursements to these list prices. And in some cases, cash-paying patients fork over the full amount. Moreover, ever-increasing hospital prices have helped fuel higher healthcare spending.
The Obama administration has released this data to put the heat on hospitals to explain wildly different charges for the same treatment at medical centers across the nation. It comes as employers and government officials are demanding more pricing transparency to spur greater competition to hold down costs.
"The insanity of the marketplace is that for the same service you can have these huge disparities in price without any justification," said David Gruber,
director of healthcare research at Alvarez & Marsal, a consulting firm in New York. "Right now, higher prices win in healthcare regardless if you're operating efficiently or producing quality outcomes."
Thomas Priselac, Cedars-Sinai's chief executive, said the average charges released by Medicare are irrelevant because they have little or no bearing on what the hospital actually gets paid by the government, insurers or patients.
Priselac said hospitals aren't solely responsible for a broken healthcare system that has been decades in the making.
"Everyone is always looking for someone to blame. That is neither accurate nor productive," Priselac said in an interview this week. "These billed charges are neither meaningful, accurate nor reliable. Worse than that, I think it contributes enormously to confusion about what patients pay as well as what hospitals are ultimately paid."
Still, some large employers have begun scrutinizing the expensive premiums they're required to pay to keep high-profile hospitals in their health insurance plans.
Last fall, Anthem Blue Cross, the state's largest for-profit health insurer, singled out Cedars-Sinai and UCLA for above-average costs. The insurers persuaded the city of Los Angeles to adopt a health plan that excluded physicians groups affiliated with those hospitals in order to lower its premiums.
A 2010 study showed a huge variation in what insurers are paying at hospitals around the Los Angeles area. Some institutions received 84% of the Medicare rate for inpatient care while one unnamed hospital received 418% of that benchmark, according to the Center for Studying Health System Change.
Paul Ginsburg, the study's author and the center's president, said this illustrated the stark contrasts between the "have" and "have-not" hospitals in Southern California.
"Los Angeles stood out as a relatively low-priced market overall, but there were some individual hospitals that were very high," Ginsburg said. "Cedars-Sinai and UCLA are likely to have more leverage [with insurers] because of their strong reputations."
Ginsburg and other experts say the charges disclosed by the government last week are of limited value because Medicare and private insurers pay only a fraction of those amounts.
Nonetheless, there are
instances in which hospitals can profit from inflated sticker prices, medical researchers say. Some portion of commercial insurance rates are still pegged to a percentage of full charges, particularly for the most complex and expensive patients that require additional reimbursement.
Priselac estimated that roughly 10% of Cedars-Sinai's commercial insurance revenue may be tied to these list prices.
"There are certain cases in which what our charges are can impact what we do get paid," he said. "We are talking about a small fraction of our commercial payments."
Cedars-Sinai also attracts some wealthier, cash-paying patients from across the country and the world who may not question these higher rates.
Cedars-Sinai said higher patient charges don't necessarily translate into bigger payments from insurers. Priselac pointed to 2011 state data that showed Cedars-
Sinai's patient charges were nearly 60% higher than those of UCLA, adjusted for the number of patient days. But Cedars-Sinai's net patient revenue — what it actually got paid — was only 4% higher than that of UCLA, state records show.
Last year Cedars-Sinai reported revenue of $2.7 billion and net income of $133 million.
Priselac said 55% of the hospital's patients come from Medicare and Medi-Cal, the state's Medicaid program for the poor. He said those government programs paid Cedars-Sinai about $400 million less than what it actually costs to treat them. The hospital lost an additional $42 million on uncompensated care for the uninsured, he said.
To compensate, hospitals have routinely charged employers and their workers higher rates. Cedars-Sinai estimates that its rates for private insurers are about 35% higher than they would be otherwise.
Priselac said he supports increased price transparency for consumers, but he said any mechanism for doing so must reflect the far-reaching benefits that teaching and research institutions provide.
"When you are buying healthcare at Cedars-Sinai, you are not just paying for that clinical treatment," Priselac said. "You are basically paying for a societal good that benefits the entire community."
Cheryl Damberg, a senior researcher at Rand Corp., a nonprofit think tank in Santa Monica, said Cedars-Sinai and other big-name hospitals will face increasing pressure to bring their charges more in line.
"We need teaching institutions like Cedars both to train the next generation of professionals but also to serve as test beds for a lot of innovation," Damberg said. "But these new data are a signal to hospitals that people need to know what they're paying for."