The Dose

Welcome to The Dose, which tackles the finances behind local health care and life sciences and points to the most interesting national analysis. Your host is J.K. Wall.

Health Care & Life Sciences / Life Science & Biotech

Uninsured—and probably you, too—paying double what Medicare does

May 30, 2013

For the past four decades, Indianapolis-area hospitals have consistently expanded their geographic reach into new territories to seek out patients with private health insurance.

That’s because private insurers, such as Indianapolis-based Anthem Blue Cross & Blue Shield, pay much higher reimbursement rates to hospitals than do government insurance plans, such as the federal Medicare program for seniors.

Now, thanks to President Obama and me, we can see exactly how much more, in a database I created, here.

Basically, private health insurers would have paid double what Medicare paid for the most common inpatient procedures. That’s right, 100 percent more than what the federal government paid, for caring for patients staying in a hospital with the exact same conditions.

So how did I get to that number?

I downloaded a massive spreadsheet of hospital charges from 2011 made available in May by Obama’s Department of Health and Human Services, which oversees Medicare. I used that federal data to construct my own database for Indianapolis hospitals. I included all Indianapolis-area hospitals owned today by these four systems: Community Health Network, Franciscan St. Francis Health, Indiana University Health and St. Vincent Health.

Then I adjusted their prices based on their standard discounts for the uninsured, which were 35 percent at Franciscan and 40 percent at the other three. The hospitals claim their discounts for the uninsured are roughly equivalent to the largest discounts given to private health insurers.

I’m not entirely convinced that’s true, but I’ll accept the hospitals’ statements for the sake of argument. They at least made it possible for me to adjust the federal data to be in the ballpark of what private health insurers pay.

The database shows charges for the 100 most common diagnosis-related groups, or DRGs. These categories describe different medical conditions patients have and how seriously ill they are.

For example, if you had simple pneumonia with no complications and you were uninsured, you would have paid $7,914, on average, for treatment at Community North Hospital. But if you had simple pneumonia with complications, you would have paid an average of $10,828. And if you had simple pneumonia with major complications, you would have paid an average of $13,520.

Looking at these data by DRG means they are comparable across hospitals, regardless of whether one hospital took care of more sick patients than another hospital.

If you had been a Medicare patient with those same conditions, and you also went to Community North, you (and the government) would have paid 83 percent less for the first two types of pneumonia and 54 percent less for pneumonia with major complications.

That's also the case at the other Indianapolis hospitals. IU Health's charges to the uninsured averaged 86 percent higher than what Medicare pays. Community Health's charges to the uninsured averaged 94 percent higher than Medicare. St. Vincent's charges to the uninsured averaged 120 percent higher than Medicare. And Franciscan's charges averaged 121 percent higher.

To get the overall difference among all the hospitals, I took the number of patients classified in each DRG that each hospital treated in 2011 and multiplied by the average charge for Medicare. Then I did the same thing, but this time using the average charge for uninsured patients.

I totaled each column, one for all the Medicare patients, and then one for all the unisured patients. Then I calculated the percentage difference between the two. The result was 101.6 percent. Again, you can see my spreadsheet here.

And there you have it. Roughly speaking, Indianapolis-area hospitals are charging you, your insurer and the uninsured double what the federal government has decided to pay them.

Hospitals will argue that they charge private insurers more because Medicare is underpaying them. That may be true. although there was doubt cast on that argument recently. No matter what, it’s a stark gap. I just thought you’d like to know.

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