A recent article reported the results of a study showing wide variation in the cost of lab testing in California hospitals (see: Charges for 10 common blood tests at California hospitals). This is not news to anyone involved in the management of clinical laboratories. Below is an excerpt from the article:
Researchers studied charges for a variety of tests at 160 to 180 California hospitals in 2011 and found a huge variation in prices. The average charge for a basic metabolic panel, which measures sodium, potassium and glucose levels, among other indicators, was $214. But hospitals charged from $35 to $7,303, depending on the facility....The biggest range involved charges for a lipid panel, a test that measures cholesterol and triglycerides, a type of fat (lipid), in the blood. The average charge was $220, but costs ranged from a minimum of $10 to a maximum of $10,169....The smallest range in charges was for a blood test that checks an individual’s red and white blood cells. It cost $37 to $278....Most consumers with health insurance won't pay those prices; most often, their health plans have negotiated a lower price with the hospital or provider. But patients without insurance face the full brunt of the charges, especially if they don’t qualify for a hospital’s charity care discounts....In general, county hospitals and teaching hospitals had lower prices than non-teaching hospitals, not-for-profit and for-profit hospitals, she said.....The majority of hospitals were not-for-profit, urban, non-teaching hospitals....One factor that researchers weren’t able to measure was a hospital’s investment in higher quality facilities or supplementary services.....The bottom line, according to the study, is that hospitals recoup losses in other areas from third party payers to cover overall costs. “This often results in some services subsidizing others, with their charge increases generally unrelated to their value,” the study concluded.
I have blogged about hospital costs and charges a number of times. One of the most relevant notes dates back to December, 2008 (see: Why the Prices Charged by Hospital for Inpatient Care Are Irrelevant). The basic point I made then was that hospital charges are not worthy of analysis because they are have no relevance to the cost of services. In short, a charge of $7,303 for a basic metabolic panel is set by the hospital and has nothing to do with the cost of the test. Although articles such as the one above are shocking, they simply emphasize the extent to which hospital pricing systems are out of whack.
The process by which hospitals get reimbursed for their services is by tallying up their costs for patients in a disease group and then negotiating with health insurance providers for reimbursement for that cost plus some profit margin. Certain activities like a stay in an intensive care unit are labor intensive and the charge for the service is far less than its true cost. Lab testing, on the other hand, is highly automated so the charges are far more than their cost. The last couple of sentences in the excerpt above explain all of this: [Hospital billing practices result] in some services subsidizing others with their charge increases generally unrelated to their value.
So what is the value of articles such as the one quoted above? The key take-home lesson is that hospital billing needs reform. However, all of the key players like hospitals and health insurance companies are used to the system so that chance of reform is probably slim. The only people who get mauled by hospital billing is the uninsured and those with high co-pay policies. A number of hospitals, particularly in California, offer steep discounts to the uninsured but these discounts need to be negotiated at the time of admission (see: Hospitals in California Offer Steep Discounts to Uninsured Patients; Texas Web Site Lets Healthcare Consumers Shop Around).