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In the past I have expounded upon general conditions necessary for consumers to drive market prices and specifically on market influences on health care. There are three basic requirements for consumers to drive a market; consumer choice, informed consumers and rational consumers. There is no means by which consumers can drive a market without choice. Though choice alone isn’t enough, consumers must be informed about the choices they make in order to influence the market. Finally no amount of information helps unless it is applied rationally to the situation. Unfortunately health care in the US lacks all 3 requirements for consumers to drive the market. People have few if any choices in health care because most people receive insurance through employment so their employer and insurance companies decide what choices the consumer is allowed. Second consumers have very little if any information about the quality of health care providers and their associated costs. Finally since consumers have little to no information there is no way that they can make rational choices about the best health care providers.

Well the Centers for Medicare and Medicaid Services (CMS) under the guidance of the Obama administration has released data on health care costs by hospital. The data set contains the hospital’s average billing rate and average paid amount by diagnosis related group (DRG). The billing rate is their overall rate the hospital sets, though insurance companies, Medicare and Medicaid all pay amounts different than what is billed. Only those without insurance are charged the full rate. But the rate billed is the starting point for negotiations between hospitals and insurance companies to determine what should be paid so it does influence the cost of services to those with insurance. Also it is worth noting that the DRGs selected are the top 100 billed to Medicare, that means they will lean toward conditions faced by the elderly and will lack information about children specific conditions or hospitals.

Even with all of those caveats about the data this is still quite informative data. The most striking of everything is the fact that some hospitals charge several times what others charge even with in a short distance of each other. Two hospitals can be just a few miles apart but they may have a several fold disparity in the amount charged. The data overall is seemingly incoherent as there is no consistency of how much services cost. Looking through costs for my area (Austin, TX) I can see numerous procedures that cost twice as much at one place compared to another. I also see some that are as much as 3 or 4 fold the cost of other hospitals.

I recommend that everybody take some time and look at the data for themselves especially focusing on your local area so you can see which hospitals will charge you more. The easiest way I found to do that is to download the excel spreadsheet from CMS found here. The turn the whole data set into a pivot table then you can filter the data to compare the hospitals in your area easily. First highlight all of the data. On Excel 2003 and earlier go the “Data” menu and select pivot table. On Excel 2007 and newer go to the “Insert” menu and select pivot table. For the row field you want provider names, for the column field you want DRG definition. For the data / values field you want Average Covered Charges. And for the page / report filter field you want to put first Provider State and bellow that put Provider City. That will allow you to filter the data by city or state. It will show providers down the left side and the DRGs (or type of services) across the top with the cost for each filling the table. That will allow you to easily compare the hospitals in your area.

The release of this information is a positive step in the right direction for helping consumers get a grip on their own health care costs. Consumers controlling their personal health care expenditures will be a major part of our nation bringing down the cost of health care. And the first step is informing consumers about the cost of health care.

Though this data set is a step forward it could use some significant improvement. The data needs presented in a manner that average consumers can interpret. Most people don’t know what all of the DRGs cover which makes it difficult for them to make sense of the data. Also there are 100 different DRGs with prices so comparing that many is confusing. The data needs reduced to a format that individuals can use to make decisions. I think it would be wise to break apart the charges into categories based on age. People of different ages tend to utilize different services. So if you multiply the costs for each service by the proportion of people of that age using those services and combine it together we could get an idea of what each hospital costs based on patient age. That way people could look at it and determine what a 20-30 year old patient may cost at one hospital compared to another. That is something people can use to guide action. But for now we don’t have that. So please take a few minutes and look at the costs in your own area. Determine which hospital seems to be the best price for you.

PS If you need help creating a pivot table or analyzing the costs just ask and I will try to help you out.

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