Reporter's Notebook

What’s The Price? Simple Question, Complicated Answer In Medicare

By Martha Bebinger, WBUR

March 8th, 2013, 8:24 AM

I wrote to Medicare a while back, asking for a price. I know nothing is simple in the world of health care costs, but I just needed one number, a number Medicare uses all the time, I supposed, to calculate payments to doctors and hospitals.

Here’s what I wanted to know: How much does Medicare pay a particular hospital in Boston for a colonoscopy? (It was for a story I wrote about searching for the best colonoscopy.)

The first emailed response I got, at a time when the system is supposed to be working toward more price transparency, was barely in English.

For the inpatient hospital side:

If you want to calculate a hospital specific DRG payment for a specific fiscal year, look at that year’s IPPS Impact file to get the hospital’s wage index.

Then you can look at Table 5 for the FY 2009 Final Rule to get the relative weights for the MS-DRGs you are interested in. Finally, you can determine the FY 2009 labor related share and non-labor related share rates from Table 1A in the FY 2009 Final Rule.

These files and tables can be found here: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/Acute-Inpatient-Files-for-Download-Items/CMS1247872.html

Then the hospital specific DRG payment can be calculated as follows: (wage index x labor related share + non-labor related share) x DRG relative weight.

For the outpatient side:

Medicare Part B data by procedure code for specific years are posted: http://www.cms.gov/Research-Statistics-Data-and-Systems/Files-for-Order/NonIdentifiableDataFiles/PartBNationalSummaryDataFile.html Data are presented by 5-digit code so you would need to know the code for CT scan and MRI. Code range categories are identified in the readme file which is included in the zipped file.

A colonoscopy for the inpatient side does not affect the MS-DRG assignment. You will only be able to narrow it down by looking at the procedure codes. Below are the two most common reported.

ICD-9-CM procedure code 45.23, Colonoscopy

ICD-9-CM procedure code 45.25, Closed [endoscopic] biopsy of large intestine – this code includes colonoscopy with biopsy

So I write back to Medicare. Really, I ask, is this what I have to do to find out how much you pay a hospital for a basic test? Well, says the Medicare media contact, that’s the calculation if you have the test in a hospital. Since many colonoscopies are done in outpatient clinics, you could also follow these instructions:

Addendum A for January 2013
http://www.cms.gov/apps/ama/license.asp?file=/hospitaloutpatientpps/downloads/January-2013-Web-Addendum-A.zip

APC 0158 looks like it would be the correct APC

The quarterly Addenda A and B that are used for payment are at

http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Addendum-A-and-Addendum-B-Updates.html

I clicked that first link, accepted the terms of use, and found a spreadsheet with several thousand procedures and prices.

AND, the answer to my question is (drum roll please)…$611.77.

I’m going to keep that second link handy (not the table, because it will be updated periodically) for Medicare’s outpatient prices. I still have no idea how I would calculate what Medicare pays for tests and procedures that happen inside a hospital.

This is important because Medicare prices are often the basis for negotiations between insurers and hospitals or physician groups. To know if a certain hospital is charging a lot more than what’s considered reasonable for a procedure, it helps to know the Medicare price — if you can find it.

Medicare does a lot of cool things. The Blue Button (and the new iBlueButton app) has been helpful several times in monitoring my mom and my sister’s health care record. So why is it so hard to calculate what a hospital is paid? I’m still searching for that answer.

I’ve asked, several times, to speak to the Ombudsman at Medicare to find out how this vast agency plans to make prices more accessible. And I hope to post an update soon.

This article was produced by Kaiser Health News with support from The SCAN Foundation.

This story is part of a collaboration that includes WBUR, NPR and Kaiser Health News.

5 Responses to “What’s The Price? Simple Question, Complicated Answer In Medicare”

  1. As if the process you followed isn’t complicated enough – consider the process a patient who is NOT eligible for Medicare, even one covered under a private payer plan, would need to follow to determine the cost of a procedure, and how much the patient would be required to pay after insurance payments.
    Private payer plans from different carriers provide different levels of “approved charges” and percent reimbursements, along with different limitations on the amount a provider can write off for the procedure. The patient remains responsible to pay the balance.
    When I asked a provider how much I would be responsible for prior to the procedure, the provider could not tell me, insisting I would have to wait after the insurer pays-long after the procedure.
    The issue is even further complicated with the “chargemaster” idiosyncratic billing mechanisms at most hospitals. See this week’s Time, Special report-”Bitter Pill.”
    Massachusetts is leading the way to require carriers and payers to publish actual prices to enlighten consumers. Massachusetts’ initiatives highlight the only way to solve the problem of runaway unjustified health care costs. Only an enlightened and engaged consumer population who understands the inadequacies of the health care billing process can effect the change desperately needed in the US health care system.
    Please feel free to contact me to elevate this dialogue to a broader community of patients and employers who provide health benefits.

  2. civisisus says:

    wow what a blast from the past! i remember getting tables for the composition of spreadsheet-based ‘calculator’ of this kind of payments – we were going to build a modeler for use at a self-funded employer. We got it to work, and could even layer “private sector pricing factors” on it – but we realized it would probably become a big maintenance challenge.

    In a way, the exercise underscores the ‘cynicism’ of knowing the price of everything; you lose – or rather never actually obtain – the value of anything, because simply knowing the price of procedures is not equal to knowing their value when they are aggregated into a picture of any specific patient’s care.

  3. Izzy says:

    Geez! Just reading the two posts above coupled with the main article, is there any better evidence of the need for a universal single-payer healthcare system. The very first thing we need to do is retire all of the so-called “experts” that build spreadsheet based calculators and that alone will save us multiplied billions in waste. No wonder Americans pay twice as much for their healthcare as any other country in the world. We have way too many “experts” and not enough people with basic common sense! Give me a break!

  4. John Moore says:

    Geez! Just reading the two posts above coupled with the main article shows how terrible centralized medical payments are. With a single payer plan, this would still go on, but it would be completely opaque, and the people making the price-based decisions would be government bureaucrats – deciding if your care is worth it. Don’t believe me – check out the British NIS. But don’t ever check *in* to their hospitals… there’s a good chance you won’t check out alive.

  5. Weiwen says:

    Lots of complaints here, but how else would you do it?

    The government used to pay each hospital’s cost plus a small allowance. That gave hospitals no incentive to contain their costs. They’d just run their costs up.

    So, they switched to Diagnosis Related Groups (DRGs). The payment for each DRG is based on all hospitals’ average costs for each particular procedure. This gives hospitals incentive to contain their costs somewhat. Hence the DRG “relative weight”. A procedure of absolutely average complexity would have a weight of 1.00. A simple one might have a weight of 0.70. A complex one, say a heart transplant, might have something like 1.30.

    The labor related share and the wage index represent the cost of labor, which can vary widely from state to state. The Bureau of Labor Statistics collects detailed local wage data. Those data form the wage index. For example, say your local wage index is 1.00, the national average. You’re in Springfield, Somestateorother. Very very average. Your labor share might be $100. You would get paid $100 for labor.

    The non-labor related share, I believe, covers capital costs (like basically paying hospitals for a share of the costs associated with the building for each discharge). This is a base rate that’s the same for all hospitals.

    Either way, all these “weight” and “share” things have prices associated with them. I didn’t used to work on the inpatient hospital side. But for a made up, illustrative example, say you’re a hospital in Cambridge County, Maryland (there is no such county, the numbers here are made up and besides, Maryland’s hospital payments are done using a different system). Your labor related share, adjusted for your local operating costs, is $100. Your non labor related share is $200. Your wage index is 1.05, as Maryland has a higher than average cost of living. Let’s say the non-labor share is 1.00. And let’s say you did that heart transplant for a DRG weight of 1.30.

    You would get paid ((wage index * labor share) + non labor share) * DRG weight = (1.05 * $100) + $200) * 1.30 = ($105 + $200) * 1.30 = $396.50.

    Obviously the numbers are made up.

    Too complex? Remember, Medicare wants to pay hospitals enough to keep running with a modest surplus, but not so much that taxpayers are overly burdened, and not so much that they pay zero attention to cost control. The private sector, iirc, often piggybacks off Medicare’s rates. If Medicare, the Centers for Medicare and Medicaid Services and the Bureau of Labor Statistics were to vanish overnight, how would they do it? Insurers would probably individually negotiate rates with hospitals, who would demand as much as they could get. It would be a much more complex system.

    For those of you complaining, Medicare’s payment system is complex because medicine is complex. Abolishing Medicare wouldn’t make things better necessarily, barring some other sort of government intervention (e.g. mandate price transparency, impose formal price controls, etc). Expanding Medicare to everyone would reduce overall complexity, but it would still be complicated because medicine is complicated.

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