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Yikes! Medicare sticker shock!

By Jay MacDonald ·
Thursday, May 9, 2013
Posted: 4 pm ET

Let's say you just ran out of, I don't know, Chock Full o' Nuts coffee. You recall that it sells for around $10 a can at your usual grocery store. But when you stop by a different store to pick up some on your way home from work, you're shocked to find it priced at $30 a can.

Do you buy it? Of course not.

That's where you and Medicare differ. The federal health insurance program has been paying wildly differing prices for the same medical procedures for years.

And now they've decided that they've had enough of it.

This week, the Centers for Medicare & Medicaid Services (CMS) released data for the first time ever on the 100 most common inpatient procedures and what 3,300 hospitals billed Medicare for them in 2011. The data show that some hospitals charged 10 to 20 times the amount that Medicare typically reimburses other hospitals for the same procedure, often in the same city.

You think our Chock Full o' Nuts example is bad? Try these examples:
• Treatment for heart failure in Denver can range from $21,000 to $46,000.
• One Dallas hospital charged $14,610 to treat pneumonia, while another charged $38,000.
• A joint replacement that costs $5,300 in Ada, Okla., can be billed for as much as $223,000 in Monterey Park, Calif.
• Gallbladder surgery cost $40,000 at one hospital in St. Augustine, Fla., while another in nearby Orange Park charged $91,000.

Medicare's unprecedented disclosure brought sudden transparency to pricing data that hospitals have long protected from public scrutiny.

"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," says Health and Human Services Secretary Kathleen Sebelius.

Neither Medicare nor private insurers actually pay the amounts billed; instead, they negotiate payments at a fraction of the cost that hospitals charge. While private insurers used to pick up some of the difference, that's changed in recent years as insurers moved their reimbursement rates closer to those paid by Medicare.

If you're covered by Medicare or private insurance, you may never be subject to such sticker shock. But if you lack health insurance coverage, look out.

"If you're uninsured and you are going to the hospital for needed care, chances are these are going to be the prices that you are charged," according to Jonathan Blum, deputy administrator of CMS.

Billing transparency falls in line with the mission of health care reform to provide better treatment to more Americans for less money.

Toward that end, Sebelius this week also made available $87 million to states to beef up their rate review processes and make hospital services more like supermarket shopping -- and less chock full o' nuts.

Follow me on Twitter: @omnisaurus

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Jay MacDonald is a Bankrate contributing editor and co-author of "Future Millionaires' Guidebook," an e-book by Bankrate editors and reporters.

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December 09, 2013 at 5:03 pm

I didn't even realize that there is a penalty for not accepting part B insurance when it is presented to you!

May 14, 2013 at 12:38 pm

It always pays to review and understand completely your health insurance policy to avoid these kind of scenarios.