GAO: Hospital charges drive most geographic differences in care cost

Geographic variations in healthcare costs are a well-known phenomenon in the United States. And it appears that hospital charges--particularly those incurred just as a patient is admitted--are driving a lot of that variation, according to a recent study from the Government Accountabilty Office.

In the study, the GAO examined the cost to private insurers in 2009 and 2010 for three fairly pricey procedures--coronary stent placement, laparoscopic appendectomy and total hip replacement. And it came to a conclusion that was hardly a surprise: In some of areas of the country, the cost of those procedures are as much as 94 percent higher than it is in other parts.

But the study pinned those variances on how hospitals set their prices rather than any complications that may attach themselves to the procedure. According to the GAO, what the hospitals charged for initially admitting the patient led to price differentials as high as 91 percent. For hip replacement surgeries, the difference in prices was about 77 percent when determined by the cost of admitting the patient. It was even bigger for appendectomies--a 121 percent difference between the highest and lowest-cost regions.

By contrast, "professional services--office visits and other services provided by a physician or other health professional--were the second largest contributor to geographic differences in episode spending, but accounted for 7 percent or less of the difference in episode spending between [metropolitan statistical areas] in the lowest- and highest-spending quintiles," the GAO concluded.

The results are somewhat at odds with previous geographic cost studies, which concluded that both the volume of services provided and hospital prices tended to account for a large part of the differences, FierceHealthFinance has reported.

Salinas, California, was the most expensive region of the country to undergo all three procedures, which the GAO said it picked because they're performed at a high volume throughout the country and are also often associated with high costs.

It cost more than $60,000 to place a coronary stent in Salinas, compared to Huntsville, Alabama, where hospitals charged less than $15,000. Salinas was also the most expensive area to undergo an appendectomy at nearly $26,000 (Joplin, Missouri, was the least expensive, at $6,166). And the Northern California coastal city was also the most expensive to undergo a hip replacement, at a cost of nearly $58,000 (in the least expensive city, Youngstown, Ohio, it cost $19,164).

Some hospital executives took issue with the report. Steve Love, president of the Dallas-Fort Worth Hospital Council, told the Dallas Morning News that the study was confusing because initial charges are often discounted to insurers. "We need to clearly understand the data as charges will definitely vary, but reimbursement may not reflect that trend," he said.

To learn more:
- read the GAO report (.pdf)
- check out the Dallas Morning News article