California and New Jersey Hospitals Charge Highest Average Prices

New federal data sheds light on hospital pricing for the most common diagnoses and treatments. View data for your state.
May 9, 2013

Hospitals in California, New Jersey and Nevada generally list the highest prices of any states nationally for the most common diagnoses and treatment, according to a Governing analysis of data released Wednesday by the Centers for Medicare and Medicaid Services (CMS).

The price variations across states were significant. For example, the average hospital-listed price for treatement of a pneumonia episode in California and New Jersey was more than $70,000. But in North Dakota and Maryland, the listed cost averaged less than $20,000. The average listed price for treatment for a diagnosis of heart failure in California, Nevada and New Jersey was also in the range of $70,000, while the average listed price for the same diagnosis and treatment in Maryland, Montana, North Dakota, Vermont and West Virginia was less than $15,000. The same trend held for major joint replacement: California hospitals’ average price was more than $150,000, while the average price in five other states (Idaho, Maine, Maryland, Montana and West Virginia) was less than $50,000.

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CMS released 2011 data on total discharges, averaged covered charges and average total payments for the 100 most common diagnosis and treatment groups for every hospital in the country that treats Medicare patients. A Governing analysis found the following states have the highest average aggregate rankings compared to service costs in other states:

  1. California
  2. New Jersey
  3. Nevada
  4. Florida
  5. Pennsylvania
  6. Texas
  7. Alaska
  8. Colorado
  9. Arizona
  10. South Carolina

Notably, Maryland, the only state with a unique CMS waiver that allows a state-appointed board to set Medicare prices, consistently had the lowest average price for treatment.

It is important to point out that what hospital list as their price for a diagnosis and treatment is not the same as what the typical person actually pays. Medicare and private insurers negotiate payments with hospitals, which are usually significantly lower than the what hospitals list as the cost of treatment. In addition, these are only averages, and the costs for individual episodes of care can fluctuate dramatically depending on individual circumstances. There was also significant price differences between individual hospitals within a state. It is also likely that a state’s demographics and overall average cost-of-living influence the prices charged by hospitals.

Industry groups contacted by Governing focused on the first point when asked about the CMS data. They noted that hospitals aren't usually paid their list price, and, in fact, note that they typically lose money when treating Medicaid enrollees because that program pays providers significantly less than Medicare or private insurance--not to mention the money lost when treating uninsured patients, for which hospitals might not receive any reimbursement at all.

The New Jersey Hospital Association (NJHA) pointed out that a 2009 state law limited hospitals to charging uninsured patients no more than 115 percent of Medicare rates, meaning those people do not pay the total costs found in the CMS data.

“Virtually all hospital ‘customers’—Medicare, Medicaid, commercial insurers and the state’s charity care program here in New Jersey—pay hospitals at rates much lower than these posted charges,” Kerry McKean Kelly, a NJHA spokeswoman, wrote in an email. She added that 62 percent of New Jersey hospitals’ claims are covered by Medicare, Medicaid or charity care, which often pay substantially less than the actual cost to the hospital.

“As a result, these listed charges account for some of the cost-shifting that occurs when other payers fall short in their reimbursement levels,” Kelly said.

Officials at the Hospital and Healthsystem Association of Pennsylvania (HAP) offered a similar explanation.

“Here in Pennsylvania, when talking about health care finance issues, we have historically focused on the actual costs of care, as hospital charges rarely reflect the actual payments by government or private insurers,” Roger Baumgarten, spokesman for HAP, wrote in an email. “Actual payments from Medicare are significantly less than charges as shown in the CMS tables, and here in Pennsylvania, our hospitals are reimbursed by Medicaid at much less than the cost of care.”

At the national level, the National Association of Public Hospitals (NAPH) took a same position, noting that the safety-net hospitals that make up its membership operate with a profit margin of only 2.3 percent.

“Often, there is little relationship between a hospital's charge for a service and what it ultimately receives for patient care. Safety net hospitals, for example, offer some of most generous charity care and discount policies of all hospitals nationally,” Beth Feldpush, senior vice president for policy and advocacy at NAPH, said in a statement. “Medicare and Medicaid pay administratively set rates often below a hospital's true costs. Private insurers, likewise, pay negotiated rates that can vary greatly from charges... We appreciate the government's attempt to promote transparency in pricing, but we caution against providing data without context.”

Though the data might lead to imperfect analysis, the Obama administration touted its release as an unprecedented exercise in transparency. This was the first time that this information has been made available to the public free of charge.

“Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city,” U.S. Health and Human Services Secretary Kathleen Sebelius said in a statement. “This data… will help fill that gap.”

Select a procedure type below to compare average costs between states:

Source: CMS Medicare Provider Analysis and Review (MEDPAR) inpatient data, FY 2011

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