Variation in Southwestern Hospital Charges for Pulmonary and Critical Care DRGs

Richard A. Robbins, M.D.

Phoenix Pulmonary and Critical Care Research and Education Foundation

Gilbert, AZ

Abstract

Recently, the Centers for Medicare and Medicaid Services (CMS) released nationwide data on hospital charges and CMS payments for the top 100 disease-related groups (DRG). Data obtained from the CMS website was examined for 23 common pulmonary and critical care DRG charges and payments to hospitals in the Southwest United States (Arizona, New Mexico and Colorado). Similar to nationwide trends, charges vastly exceeded payments and varied widely. Normalizing the data to the state average for each DRG, the percent over/under the state average revealed a negative correlation between charges and payments. Urban hospitals billed more but did not receive significantly higher payments. Hospitals that were primary hospitals for residencies did not bill significantly more but did receive higher payments. These data demonstrate that charges and payments for respiratory and critical care DRGs in the Southwest mirror nationwide trends in large overcharges.

Introduction

It has commonly been accepted that hospital charges greatly exceed payments (1). Insurance companies, CMS and other groups negotiate a discounted price from the “charge master” price (1). However, in the absence of a negotiated discount, the “charge master” price applies which may result in the poor and most vulnerable paying the highest prices. In addition, it may result in overbilling for insurance companies who in some instances pay more than patients who pay cash for certain procedures (1).

Some attempt has been made to introduce transparency. For example, a bill was introduced into the Arizona legislature to require posting of hospital and physician prices (1). However, this bill died in committee. The Arizona Department of Health Services requires hospitals to report their charges which are posted on the Arizona Department of Health Services website (2). However, this information does not appear to have been disseminated widely and would appear to be seldom used by consumers when making health care decisions. Similarly, this data does not appear to be well known by healthcare providers. Recently CMS released data on hospital charges. This database was searched for common pulmonary and critical care DRG charges and payments for hospitals in the Southwest.

Methods

CMS data

Data was obtained from the CMS website (3). Hospital-specific charges for the more than 3,000 U.S. hospitals that receive Medicare Inpatient Prospective Payment System (IPPS) payments for the top 100 most frequently billed discharges were examined. Also examined was the amount paid by Medicare based on a rate per discharge using the Medicare Severity Diagnosis Related Group (MS-DRG) for Fiscal Year (FY) 2011. These DRGs represent almost 7 million discharges or about 60 percent of total Medicare IPPS discharges.

Hospitals determine what they will charge for items and services provided to patients and these charges are the amount the hospital bills for an item or service. The Total Payment amount includes the MS-DRG amount, bill total per diem, beneficiary primary payer claim payment amount, beneficiary Part A coinsurance amount, beneficiary deductible amount, beneficiary blood deducible amount and DRG outlier amount.

For these DRGs, average charges and average Medicare payments are calculated at the individual hospital level. The payments are adjusted based on the wage index applicable to the area where the hospital is located, the percentage of low-income patients, if the hospital is an approved teaching hospital and for outlier cases (4).

For the purposes of comparison, urban hospitals were defined as within an urban center (Phoenix, Tucson, Denver, or Albuquerque) or within 50 miles of the city center.

Statistical Analysis

Data was reported as mean + standard error of mean (SEM). The percentage over/under for charges and payments was calculated by taking the state average for each DRG and calculating the percentage above or below for each hospital. Comparison between groups was done using the Student’s t-test. The relationship between continuous variables was obtained using the Pearson correlation coefficient. Significance was defined as p<0.05. All p values reported are nominal, with no correction for multiple comparisons.

Results

Southwest Hospital Charges by State

Covered charges are shown in Table1. Arizona and Colorado charges averaged 24% and 23% above the National average respectively while New Mexico closely approximated the National average.

Table 1. Average Southwest hospital charges for 23 common pulmonary and critical care DRGs. [Editor's Note: It may be necessary to enlarge your browser window to view this and the other tables.]

Southwest Hospital Payments by State

Payments were much lower than charges (Table 2). Payments averaged 25%, 24% and 31% of charges in Arizona, Colorado and New Mexico for the pulmonary and critical care DRGs. These closely approximated the National average of 28% for all charges.  In contrast to billings, payments averaged below the National average in the Southwest. For the pulmonary and critical care DRGs the payments were below the National average for Arizona (-3.76%), Colorado   (-7.46%), and New Mexico (-0.98%).

Table 2. Average Southwest hospital payments for 23 common pulmonary and critical care DRGs.

Individual Hospital Charges

CMS listed hospital charges from 56 hospitals in Arizona, 40 hospitals in Colorado and 31 in New Mexico. The number of DRGs from each hospital was highly variable ranging from a low of 1 to a high of 23. Hospital charges varied widely with large differences between the high and low charges (Table 3).

Table 3. Average differences between high and low charges for each pulmonary and critical care DRG. The percent is the difference between the high and low compared to the state average.

Charges by individual hospitals as a percentage of the average for each state are listed in Appendix 1.

Urban hospital billings were higher than rural hospital billings (3.0 + 3.0% vs. -14.5 + 4.4% of the state average, p= 0.001).

Hospitals charges for the 9 hospitals that are primary hospitals for residencies in the Southwest (6 in Arizona, 2 in Colorado and 1 in New Mexico) averaged 4.0% over the average for their respective state (p=0.21 compared to the other hospitals). In contrast, these hospitals received payments that were 28.9% over their state average (p= 0.015 compared to the other hospitals).

Individual Hospital Payments

CMS listed hospital payments from 56 hospitals in Arizona, 40 hospitals in Colorado and 31 in New Mexico. Like the hospital charges, the number of DRGs from each hospital was highly variable ranging from a low of 1 to a high of 23. Hospital payments varied but less between high and low payments than charges (Table 4).

Table 4. Average differences between high and low payments for each pulmonary and critical care DRG. The percent is the difference between the high and low compared to the state average.

Payments to individual hospitals as a percentage of the average for each state are listed in Appendix 2.

For the Southwestern states there was an inverse relationship between percent of the state average of charges and percent payments (r = -0.2243, p = 0.0112). In other words, the higher the percent charges compared to the state average, the lower the percent payments compared to the state average.

Urban hospital payments did not significantly differ from rural hospital payments (0.8 + 2.7% vs. 7.8 + 3.3% of the state average, p= 0.103).

Hospitals payments to the 9 hospitals that are primary hospitals for residencies in the Southwest averaged 28.9% over their state average (p= 0.015 compared to the other hospitals).

Discussion

The data in this manuscript demonstrates that hospital charges to CMS in the Southwest US for common pulmonary and critical care DRGs greatly exceed CMS payments. These charges reflect national trends for other DRGs (1-5). The data also suggest that there is wide variability in charges between hospitals, again reflecting national trends. Payments also vary, but the degree of variability is much less. Interestingly, higher charges to CMS were associated with lower CMS reimbursement.

The data showing the range of hospital bills does not explain why one hospital charges significantly more for the same DRG than another hospital. Some hospitals have said that higher bills they sent to CMS reflected the fact that they were either teaching hospitals or they had treated sicker patients (5). CMS does make higher payments to certain hospitals based on the wage index applicable to the area where the hospital is located, the percentage of low-income patients, if the hospital is an approved teaching hospital and for outlier cases. However, the inverse relationship we found between the charges and payments in the Southwest US for pulmonary and critical care DRGs suggest that the higher billings are not based on the CMS adjustments.

Teaching would not appear to explain the differences in hospital billing. There are 9 hospitals that are known primary hospitals for residencies in the Southwest (6 in Arizona, 2 in Colorado and 1 in New Mexico). These hospitals had billings that averaged only 4.0% over the average for their respective state. In contrast, these hospitals received payments that were 28.9% over their state averages.

Similarly, high labor costs likely do not explain the differences in billing. The urban centers where wages tend to be higher did bill higher but their payments did not differ. This would seem to indicate that higher billings are not based on higher labor costs. There was considerable variability in billing. For example, the medical centers with the highest billing in each state were in Bullhead City, Arizona (Western Arizona Regional Medical Center); Littleton, Colorado, a suburb of Denver (Centura Health-Littleton Adventist Hospital) and Roswell, New Mexico (Eastern New Mexico Medical Center).

There are several limitations to our study. Hospital billings and payments are based on CMS data. In several instances the average data is based on only one or two DRGs. Billing and payments vary considerably from state to state and it is unclear if this data from the Southwest reflects national trends.

The hospital industry is quick to point out that the charges are irrelevant because private insurers, Medicare or even the uninsured do not pay these amounts (5). Medicare sets standard rates for treatments and insurers negotiate with hospitals. However, experts add that the charges reflect decades of maneuvering by hospitals to gain an edge over insurers and provide themselves with tax advantages. A hospital could use the higher prices when calculating the amount of charity care it was providing. Charity care is important to hospitals which need to demonstrate provision of a high level of “community benefit” in order to maintain its status as a nonprofit hospital. However, the IRS has recently issued new rules that require a hospital to charge uninsured patients a rate that is not more than the “amounts generally billed” to patients with insurance coverage (6).

A small number of hospitals have adopted a strategy to increase their profits by “going out of network” (5). The hospitals sever ties and hence contractual agreements that limit reimbursement rates, with large private insurers. An out-of-network hospital can bill a patient’s insurer at essentially whatever rate it cares to set which likely reflect the “charge master” price. While the insurers can negotiate with the hospital, they generally end up paying more than they would have under a contractual agreement. Data regarding the network affiliations of the hospitals in the Southwest is unavailable.

Transparency in healthcare pricing is needed but few hospitals or physicians have adopted this as a standard policy. One that does post prices is the physician-owned Surgery Center of Oklahoma (7). Their prices appear to be about 50 to 75 percent lower than most major hospitals. Whether this business model will grow as an approach to attract patients is unclear.

Physicians need to act as patient advocates including advocating for affordable healthcare. Transparency is one part in achieving this goal. The release by CMS of hospital charges and payments is a step towards transparency. Release of similar data by healthcare providers and insurers will enhance the transparency and will likely lead to more affordable healthcare for the majority of patients.

References

1. Roy A. Why do hospitals charge $4,423 for $250 ct scans? Blame Arizona Republicans. Forbes. Available at: http://www.forbes.com/sites/aroy/2012/05/27/why-do-hospitals-charge-4423-for-250-ct-scans-blame-arizona-republicans/ Accessed 5/13/13.
2. http://www.azdhs.gov/plan/crr/cr/hospitals.htm Accessed 5/13/13.
3. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/index.html
4. http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html?redirect=/acuteinpatientpps/
5. Meier B, McGinty JC, Creswell J. Hospital billing varies wildly, government data shows. NY Times. 5/8/13. Available at: http://www.nytimes.com/2013/05/08/business/hospital-billing-varies-wildly-us-data-shows.html (accessed 5/13/13).
6. Federal Register. 2013;78(66):20523-44. Available  at: http://www.gpo.gov/fdsys/pkg/FR-2013-04-05/pdf/2013-07959.pdf (accessed 5/27/13).
7. http://www.surgerycenterok.com/index.php (accessed 5/27/13).

Reference as: Robbins RA. Variation in southwestern hospital charges for pulmonary and critical care DRGs. Southwestern J Pulm Crit Care. 2013;7 (1):31-7. doi. http://dx.doi.org/10.13175/swjpcc074-13 PDF

July 2013 Pulmonary Case of the Month: Swan Song

Bridgett Ronan, MD

Lewis J. Wesselius, MD

Department of Pulmonary Medicine

Mayo Clinic Arizona

Scottsdale, AZ

History of Present Illness

A 53 year old man presented to the emergency department with a 2 week history of progressive dyspnea. He thought it was anxiety due to quitting drinking just before the onset of his symptoms. He also had fatigue and malaise.

PMH, SH, FH

He had no significant past medical history or family history. He did not smoke but drank 2-6 beers/day until 2 weeks prior to presentation.

Physical Examination

BP 110/60 mm Hg, P 110 beats/min, R 32 breaths/min, T 37.6° C, SpO2 81%

He is pale and appears mildly dyspneic otherwise his physical exam is unremarkable.

Chest Radiography

His chest x-ray is shown in figure 1.

Figure 1. Initial PA (Panel A) and lateral (Panel B) chest x-ray. 

Which of the following laboratory tests is/are not indicated?

1. Arterial blood gases
2. Complete blood count
3. Spiral thoracic CT angiography
4. Urinanalysis
5. All of the above

Reference as: Ronan B, Wesselius LJ. July 2013 pulmonary case of the month: swan song. Southwest J Pulm Crit Care. 2013;7(1):1-9.  doi: http://dx.doi.org/10.13175/swjpcc081-13. PDF

June 2013 Pulmonary Case of the Month: Diagnosis Makes a Difference

Lewis J. Wesselius, MD¹

Henry D. Tazelaar, MD²

Departments of Pulmonary Medicine¹ and Laboratory Medicine and Pathology²

Mayo Clinic Arizona

Scottsdale, AZ

History of Present Illness

A 64 year old man from Southern Arizona was referred for a second opinion on a diagnosis of chronic eosinophilic pneumonia that was poorly responsive to corticosteroid therapy. The patient first became ill February 2012 with cough and congestion.  His wife was ill at the same time. Both were treated with antibiotics. His wife improved but he never fully recovered with ongoing symptoms of cough and some dyspnea.

He was admitted to another hospital in August 2012 due to worsening shortness of breath and pulmonary infiltrates on chest x-ray. During this admission he underwent bronchoscopy with bronchoalveolar lavage (BAL) that demonstrated 78% eosinophils. A video-assisted thorascopic (VATs) lung biopsy was done and the patient was diagnosed with chronic eosinophilic pneumonia. He was begun on therapy with high dose prednisone (80 mg/day) but had only slight improvement in symptoms.

He was followed by a pulmonologist and continued on prednisone who questioned the possible development of pulmonary fibrosis. Earlier this year he was started on mycophenolate mofetil and the dose was increased to 1000 mg bid while the prednisone was tapered to 5 mg every other day. He was also being treated with fluticasone/salmeterol 250/50 twice a day. The patient continues to have dyspnea with limited activity. His last pulmonary function testing was done in December 2012. At that time his forced vital capacity (FVC) was 51% of predicted and his diffusing capacity for carbon monoxide (DLco) was 40% of predicted.

PMH, SH, FH

He had a history of obstructive sleep apnea (OSA) and had undergone an uvulopharyngoplasty (UPPP). There was also a history of gastroesophageal reflux disease (GERD) and he had a prior Nissen fundoplication. He had a history of osteoarthritis and had undergone a right shoulder replacement.

He had a remote smoking history, a history of modest alcohol use, but no history of using recreational drugs.  He worked as an airline pilot.

His present medications included mycophenolate mofetil 1000 mg twice a day, prednisone 5 mg every other day, voriconazole 200 mg daily (started after BAL showed a few colonies of Aspergillus), and fluticasone/salmeterol 250/50 twice a day.

Physical Examination

Blood pressure 134/88 mm Hg.  Resting oxygen saturation 96%.

Chest:  bibasilar crackles but no wheezes.

Cardiovascular: the heart had a regular rhythm but no murmur.

Extremities: no clubbing or edema.

The remainder of the physical examination was unremarkable.

Chest Radiography

His chest x-ray is shown in figure 1.

Figure 1. Initial chest x-ray.

Which of the following diseases has/have been associated with increased eosinophils in bronchoalveolar lavage fluid?

1. Interstitial lung diseases
2. Acquired immunodeficiency syndrome (AIDS)-associated pneumonia
3. Idiopathic eosinophilic pneumonia
4. Drug-induced lung disease
5. All of the above

Reference as: Wesselius WJ, Tazelaar HD. June 2013 pulmonary case of the month: diagnosis makes a difference. Southwest J Pulm Crit Care. 2013;6(6):247-54. PDF 

May 2013 Pulmonary Case of the Month: the Cure Can be Worse than the Disease

Lewis J. Wesselius, MD¹

Thomas V. Colby, MD²

Departments of Pulmonary Medicine¹ and Laboratory Medicine and Pathology²

Mayo Clinic Arizona

Scottsdale, AZ

History of Present Illness

A 65 year old man from Colorado presented for evaluation of “lung masses.” He had a prior diagnosis of dermatomyositis made in 2010 and had been with intravenous immunoglobulin (IVIG), prednisone and methotrexate. He had been previously seen in January, 2011 with a 5 mm left lower lobe nodule on thoracic CT which was unchanged compared to August, 2010. A thoracic CT scan done in July, 2011 in Colorado was interpreted as stable.

Over the prior month had been having chest discomfort.  He had a history of pulmonary embolism (PE) and felt the pain was similar in quality to his prior PE. This prompted a chest x-ray and he was told of “lung masses”. He had also experienced 20 pound weight loss.

His current medications included methotrexate 25 mg weekly, prednisone 3 mg every other day and warfarin 7 mg daily.

PMH, SH, FH

In addition to dermatomyositis, he has a history of a left lower extremity deep venous thrombosis with PE. At that time protein S deficiency, activated protein C resistance and factor V Leiden mutation were diagnosed and an inferior vena cava filter were placed. He also has a history of paroxysmal atrial fibrillation and the prior lung nodule noted above.

He was a prior smoker, quitting in 1991, but briefly resuming in 2010.  The patient had social alcohol use but no drug use. 

The patient’s father died at age 75 from prostate cancer; his mother died at age 89 with heart disease; and he had a sister living with throat cancer.

Physical Examination

Vital signs: Afebrile; Blood pressure 114/65 mm/Hg; Pulse 80 regular; Oxygen  Saturation  97% on room air at rest

HEENT: limited ability to open mouth

Chest:  few late exp wheezes

CV: Regular rhythm, no murmur

Skin: diffuse erythema, particularly on face. 

Neuro: muscle strength normal 

Radiography

His thoracic CT is shown in Figure 1.

Figure 1. Movies of the thoracic CT scan showing lung windows (Panel A, upper panel) and mediastinal windows (Panel B, lower panel).

Which of the following are pulmonary manifestations of dermatomyositis?

1. Lung cancer
2. Aspiration pneumonia
3. Interstitial lung disease
4. Metastatic cancer particularly from the cervix, pancreas, breasts, ovaries, gastrointestinal tract and lymph nodes
5. All of the above

Reference as: Wesselius LJ, Colby TV. May 2013 pulmonary case of the month: the cure can be worse than the disease. Southwest J Pulm Crit Care. 2013;6(5):199-208. PDF

April 2013 Pulmonary Case of the Month: A Suffocating Relationship

Lewis J. Wesselius, MD

Department of Pulmonary Medicine

Mayo Clinic Arizona

Scottsdale, AZ

History of Present Illness

A 70 year old woman from Oregon was referred by urology for evaluation of an abnormal thoracic CT scan. She was asymptomatic.

PMH, SH, FH

She has a prior history of retroperitoneal fibrosis with ureteral obstructions requiring stents and a transient ischemic attack in 2009. During 2012 she developed hypertension and a thoracic CT was done. She has never smoked and is a widowed housewife. There is no family history of lung disease, although her husband died from lung cancer. Her present medications include: amlodipine 10 mg/day, oxybutynin (Ditropan XL) 10 mg/day, and prednisone 5 mg daily.

Physical Examination

Her physical examination was unremarkable.

Radiography

Her chest CT scan is shown in Figure 1.

Figure 1. Thoracic CT movies from mediastinal windows (upper panel) and lung windows (lower panel).

Which of the following is true regarding the CT scan?

1. There is a right upper lobe mass
2. There are bilateral pleural effusions
3. There is lung fibrosis predominately involving the lower lobes
4. There are diffuse ground glass opacities
5. There are multiple pleural plaques

Reference as: Wesselius LJ. April 2013 pulmonary case of the month: a suffocating relationship. Southwest J Pulm Crit Care. 2013:6(4):154-60. PDF