In the United States, it’s fairly common for children in need of specialized medical care to travel for that care, largely because pediatrics is a specialty not offered at every local hospital. This means that many families whose children need hospital care find themselves considering providers well beyond their local institutions.
Thanks to the CMS’s Price Transparency Rule, families can now compare the price of various treatments in addition to considering a hospital’s specialities and reputation – at least in theory. When we looked at children’s hospitals on U.S. News & World Report’s 10 Best Children’s Hospitals list, we found that most have not yet published their pricing data.
So we dug around a bit to see whether prominent children’s hospitals not on that list were compliant with the CMS rule. Our findings offered some surprising insights. In this piece, we highlight finding that stood out: the widely varied pricing for a tonsillectomy. Let’s take a look.
(Not sure whether your hospital is compliant? Find out with our Compliance Dashboard.)
Negotiated Tonsillectomy Prices Range from $1,173 to $7,810
The first big surprise we found was the wide range of prices insurers pay hospitals for a common childhood procedure: the tonsillectomy.
At St. Jude Children’s Research Hospital (located in Memphis, TN), the price insurers pay varied by 560 percent – that is, the highest price was 5.6 times the lowest price. Here are the hard numbers: for this procedure, St. Jude is reimbursed in the following amounts:
- By Cigna: $7,810
- By Humana: $1,173
- By First Health: $7,810
This kind of price variation for a procedure performed at the same hospital is confusing at best. It means that, for two children who receive the same care on the same day, the amount of money the hospital receives from payers could vary by more than $6,600.
Tonsillectomy Prices Vary by Location… But Not in Any Predictable Pattern
We expect the price of gas to vary based on where we buy it. Local demand, taxes, and the cost of space all affect how much it costs to fill the tank. These variations may be annoying (if you’re out of gas at the high end of town) but they’re understandable.
The variations in the price of hospital services are often much harder to understand or predict. Again, let’s look at the negotiated prices for a tonsillectomy at two of the top 10 Children’s hospitals: Cincinnati Children’s and St. Jude (see Figure 1).
Figure 1: Negotiated tonsillectomy (42820) prices for three payers at St. Jude and Cincinnati Children’s, as visualized in HDA’s analytics tool
Here, we see that, while a patient’s insurer greatly affects the cost of care at St. Jude, there’s far less variation at Cincinnati Children’s, where the procedure is priced at either $1,512 or $1,624 – a difference of just $112 or about seven percent of the lower price.
A peek into the price transparency file offers some insight as to why: whereas St. Jude’s published prices list a tonsillectomy at $8,678, Cincinnati Children’s lists the same procedure at $1,675 (see Figure 2). (The price transparency file price is usually the starting point for negotiations with payers.)
Figure 2: Listed prices listed for a tonsillectomy (42820) at St. Jude and Cincinnati Children’s, as visualized in HDA’s analytics tool
Examining cost of living data doesn’t account for the discrepancy in how St. Jude and Cincinnati Children’s price a tonsillectomy. In fact, the cost of living in Memphis is slightly lower than it is in Cincinnati – if that were the determining factor, we’d expect to see a lower listed price at St. Jude than at Cincinnati Children’s.
There are many possible reasons for the difference in prices. For example…
- St. Jude might have much lower listed and negotiated prices for other services; Cincinnati Children’s prices for other services might be higher, meaning payers end up paying about the same amount overall to the two hospitals.
- Humana might have strict internal policies about how much it will reimburse a hospital for tonsillectomies.
- St. Jude may be more likely to perform tonsillectomies on children with additional medical complications, making the procedure more expensive (though, of course, that still leaves the question of why one payer pays so much less than the others).
It might also be some combination of those reasons or another reason entirely. We’ve reached out to representatives at St. Jude to see if they can shed more light on tonsillectomy pricing.
The Bigger Picture: We’re All Paying for Higher Prices
Admittedly, looking at listed prices for a single procedure offers only a sliver of what’s going with children’s hospital pricing. On the other hand, though, the enormous differences in negotiated prices for a single procedure at one hospital are telling.
They illustrate how complex pricing for medical care is and how, without understanding the full context of a hospital’s services and relationships with its payers, it is almost impossible to understand the pricing of a single service.
This opacity is particularly troubling given how extremely profitable health insurance companies currently are.
Those profits come from the premiums, copays, and deductibles funded by US residents and their employers. When the services we get for those premiums, copays, and deductibles are priced in incomprehensible ways, the need for price transparency becomes all the clearer.
How Price Transparency Can Improve Outcomes for Everyone
The CMS’s stated goal for implementing its Price Transparency Rule is to improve transparency and drive competition and innovation in the healthcare industry.
At Healthcare Data Analytics, our goal is to usher in that transparency. Our database includes pricing data from hospitals around the country. In addition to cleaning, standardizing, and aggregating this data, we’re actively reaching out to hospitals that haven’t yet published their pricing to encourage them to publish (and comply with the CMS’s rule).
We’ve also added an analytics layer on top of the data to make it easier for hospitals to view their competitors’ prices and so understand how they might price services to be most competitive.
If you’re interested in seeing how other children’s hospitals price their services, get in touch. We’d be happy to set you up with a trial so you can see what kind of insights our platform offers.