Disease without a cure: comparing the cost of hospital care in the Aspen region

It’s hardly a secret that most goods and services are cheaper downvalley, and that many Aspenites regularly travel to Carbondale, Glenwood Springs and points beyond to pay less for things like gas, dining, household items and oil changes.

One would think — and many do — that the same goes for health care and hospitalization.

In light of this perception, and because hospital charges and health care costs in general have been getting a lot of national attention in the media lately, Aspen Journalism set out to try to answer the question: Does it cost less to go to Valley View Hospital than Aspen Valley Hospital?

And is hospital care even cheaper the farther you get from Aspen, in Grand Junction or Denver?

The answer is: Maybe, it depends. But not necessarily.

According to an analysis of the most common inpatient diagnosis groups in Colorado in 2011, Aspen Valley Hospital (AVH) had lower average charges than four other Western Slope hospitals eight out of 23 times.

Aspen’s hospital was, however, more expensive than Valley View Hospital in Glenwood Springs, St Mary’s Hospital in Grand Junction, the Vail Valley Medical Center and Grand River Hospital in Rifle in three treatment categories: internal obstruction, chronic obstructive pulmonary disease and knee joint replacements.

And for 12 of the categories, AVH was somewhere in the middle.

Of the five hospitals, Valley View Hospital came out to have the highest average charges most often, while St. Mary’s Hospital tended to be the most affordable.

Please also see chart, below, as a Google spreadsheet.

Good luck with shopping around

What does this data mean for prospective patients looking for an affordable knee or shoulder surgery, or trying to decide where to give birth?

Unfortunately, not much.

First of all, inpatient hospital care is simply very expensive no matter where you go, especially when paying out of pocket or being saddled with increasingly higher deductibles and co-insurance payments (the percentage that insurance companies require the patient to pay).

Secondly, actual bills for any specific procedure vary widely — up to two or three times more or less than the averages show here — due to many factors: individualized care, complexity of each case, contract arrangements with health insurance companies, and, if applicable, the amount of Medicare/Medicaid reimbursement.

In addition, hospital charges can change from year to year based on the facility’s expenses.

For example, capital purchases such as new X-ray machines and the amount of uncompensated care — such as charity cases and bad debt — that must be made up. In the budgeting process, pricing is just one component — having state-of-the-art technology, the best surgeons, and other elements that affect the quality of the care (and therefore its price) are often major considerations for hospital executives.

Charges for the same diagnosis can vary widely from hospital to hospital. And while one hospital may be significantly more expensive than another for one procedure, it could in turn be less expensive for something else.

All of which, hospital officials admit, is neither simple nor seems rational to the average consumer.

The perception that health care is expensive — and more expensive than it should be — is difficult to argue. Nearly all of the most common inpatient procedures in Colorado cost five figures — the numbers referenced in the related chart look more equivalent to a year’s salary than treatments involving a couple of nights in the hospital.

“You’d have to be buried six feet under to not know that costs are too damn high,” said AVH Chief Financial Officer Terry Collins.

A burdensome health insurance system, the disconnect between Medicare payments and costs, an inflated pharmaceutical industry, and an American public that in general utilizes too much health care were all reasons given for some of these bloated costs. And nothing short of a full-scale overhaul of the system seems to be the answer.

“If we don’t find a way to build a different model, then we’re caught in a system of high costs,” said John Sarpa, interim chief executive officer at AVH.

What’s in a charge?

Asked how Aspen Valley Hospital determines its rates, Collins explained in detail a very rational budgeting process, at the end of which he said, “If I had a time machine to go back to the beginning of how hospitals set their rates, I would do so because I have no idea.”

In other words, the baseline cost of a procedure or treatment has gotten lost over the course of years of budgeting, considering all the variables that go into the process.

Here’s how it works: Every hospital has what’s called a chargemaster, or a master price list. AVH has some 12,000 items on its chargemaster; Valley View about 6,000; and St. Mary’s 10,000, according to officials with each hospital.

The prices are not determined by diagnosis, so there’s no set charge for a specific surgery, for example, but by each component of care for that diagnosis. Some pieces are time-driven, so an operating room charge reflects minutes on the operating table and a labor room charge by how long a woman labored.

Then there’s the cost of implants or devices, which, depending on how complex or customized they are, can be quite high. IV solution and drugs are priced by the unit, and other services — even if they’re not used or seen by the patient — are tacked onto the bill.

On the other side of the equation is the budgeting process. As Collins explained it, he looks at the hospital’s current net revenue and projected operating expenses. And then, “knowing what my expenses are, and knowing what I can get from our current pricing, I can back into [next year’s] pricing,” he explained.

Aspen being the resort community that it is, some operational costs are automatically higher than at other hospitals. Labor costs, seasonality, employee housing, senior housing and the cost of delivering supplies all factor into expenses more so than the average federally-designated critical access or rural hospital.

If there’s a shortfall of revenues to expenses, prices go up, and they’re generally spread across the board. Over the last eight or nine years, Collins said, AVH has increased its prices an average of 5 percent per year.

And while AVH is a not-for-profit hospital, its tax-exempt, special-district status means that by law its earnings can’t be distributed outside the hospital. It must do better than break even every year, said Collins, in order to be able to do things such as make capital purchases, since new technology can often run into the millions of dollars.

Budgeting also takes into account uncompensated care.

At Valley View, patients paid 12 cents out of every dollar of their charges to make up for charity care and bad debt in 2011. Another 22 cents made up for shortfalls in Medicare payments and 8 cents for state Medicaid shortfalls. In total, Valley View patients paid 42 cents of every dollar for someone else’s care, which explains some of its higher pricing, according to Valley View CFO Larry Dupper.

At AVH, which is better compensated from Medicare and Medicaid than most hospitals because it’s designated as a critical access facility, 16 cents of every dollar spent covers insurance discounts, Medicare and Medicaid, while charity care and bad debt each account for 2 cents, according to the hospital’s 2012 annual report.

“It isn’t as methodical as you might think, the way charges are established in other businesses,” said Dan Prinster, vice president of business development for St. Mary’s Hospital.

A complicated comparison

Drilling into the numbers, there are even more factors that go into figuring out how much you might pay for an elective surgery or for your next trip to the emergency room. And the variances in inpatient charges from 2011 show just how difficult it is to get a handle on the true cost of hospital care from this data.

The average charge for knee and lower leg procedures, for example, was just under $40,000 at St. Mary’s on the low end to over $58,500 at Grand River Hospital in Rifle.

Aspen, Valley View and Vail Valley Medical Center were in the middle with average charges in the $40,000 range.

But the range of actual charges at St. Mary’s, which did 95 such procedures in 2011, spread from $22,000 to nearly $78,000, according to a Colorado Hospital Association report titled “Hospital Charges and Average Length of Stay” from July 2012, which is the source of the average charge data reviewed for this story.

Grand River only did five inpatient knee and lower leg procedures, but its charges ranged from $12,800 to $104,300.

So the cost of hospital care can vary widely based on the severity of the diagnosis.

For example, a knee or lower leg surgery categorized as minor — one without complications or secondary diagnoses — costs an average of $25,000 at St. Mary’s.

But those procedures categorized as moderate, major and extreme (levels of severity that require additional resources and more time in the hospital) can send the charges soaring, to as much as triple the cost of a minor case.

In terms of trying to compare average charges, hospitals that do a great number of minor cases will show a lower average charge than those that handle more severe cases. But that average charge doesn’t reflect the potential range of cost of that procedure.

So in the example given here, Grand River had a much higher average charge than St. Mary’s because of a couple, very high-dollar knee and lower-leg procedures, and because St. Mary’s treated many more cases that were less severe.

The average charge for this diagnosis group — which includes such common resort town cases as fractured tibias and fibulas, and ACL repairs — at AVH was $43,200. The prices ranged from $35,200 to $47,600 for 62 cases.

Some hospitals are better at handling more severe diagnoses, and thus their average charges appear higher because a small, rural facility might regularly transfer more complex cases to a larger one.

Septicemia, an infection of the blood system, is illustrative of the difficulty of true price comparisons among Western Slope hospitals.

In 2011, AVH treated three moderate septicemia cases and three major cases; its average charge, about $24,200, was the lowest of the five hospitals.

Valley View had charges ranging from $17,800 for a moderate septicemia case to nearly $146,500 for an extreme case. Because 33 of its 77 cases were categorized as extreme, its average charge (nearly $41,500) was much higher than AVH.

St. Mary’s, which often receives septicemia patients from smaller facilities, had the highest average charge for that category, at $59,000. The Grand Junction hospital treated 353 septicemia cases in 2011, nearly half of which were labeled extreme.

Looking at some of the average charges, one can only guess at why the prices range so widely.

For example, AVH had the highest average price for knee joint replacements in 2011 — $82,500, more than double St. Mary’s average price of $38,500.

And in these cases, prices didn’t overlap.

St. Mary’s had over 300 knee joint replacements and they ranged from $35,000 to $67,400, while Aspen’s prices (for 26 procedures) started at over $67,650 and went up to $104,500 for a moderate case.

“Pricing is all over the place; there’s no consistency at all,” said Dupper.

But even so, the huge price differences make sense, he added.

“Even if every hospital had the same price list, you would still see variation because of the way each physician practices, because of differences in patients, etc,” he said.

Add to that varying price increases per hospital and the fact that many components of care have such high price tags, and you come away with a mind-boggling array of charges.

Comparing hospitals peer-to-peer

It probably makes more sense to compare average charges for each hospital to the average charges for its corresponding peer group.

AVH, for example, is considered a critical access hospital (a federal designation which allows it to get reimbursed by Medicare according to its true costs).

In all but four of the diagnoses on the chart, AVH has a higher average charge than the average of other critical access hospitals, which tend to be small, rural and far from urban centers.

Given Aspen’s cost of living, which drives higher wages (hospitals’ largest cost) and expenses such as employee housing, it’s a logical conclusion that AVH’s prices are higher than those in Gunnison, Craig and small towns on the eastern plains.

Valley View, which is classified as rural, also has higher average charges than those in the same category.

That doesn’t bother Dupper, who notes that Valley View offers a broader spectrum of services than neighboring rural hospitals. Specialists on staff at Valley View, who enjoy the lower cost of living in Glenwood, occasionally travel to nearby Aspen or Vail to work.

“We live in a town of 9,000 that has a cardiac lab, sophisticated technologically, current radiation therapy equipment and two neurosurgeons,” Dupper said. “It’s a challenge to find a town of 20,000 that has what we have here.”

St. Mary’s, a not-for-profit, faith-based hospital, makes an effort to charge less than its “other urban” counterparts, and is usually 10 to 20 percent less expensive than hospitals in Denver, said Prinster. And it can be less expensive than smaller, rural hospitals because, like a chain grocery store as opposed to a mom-and-pop, it can realize economies of scale like buying supplies in bulk.

In fact, Colorado Hospital Association data shows that St. Mary’s average charges are lower than other urban hospitals for all but one of the diagnosis groups.

The ‘great hidden tax’ and the insurance factor

Another problem with average charges is that they often have little or no correlation with what patients ultimately pay. That’s because hospitals almost always adjust their pricing based on contracts with insurance companies and anticipated Medicare reimbursements.

At AVH, two-thirds of patient revenue is private insurance, while 23 percent comes from Medicare, according to Collins.

What insurance pays depends on the contracts hospital officials and insurance companies negotiate. Contracts are often based on discounts (the discount amount shown on your explanation of benefits) agreed upon in advance by both parties. So AVH factors those “discounts” into its pricing, said Collins.

In some cases, such as OB, insurance companies pay what they consider a reasonable cost to deliver a baby, said Collins. But insurance compensation doesn’t cover the cost of operating the OB unit, so AVH has to make up for the loss elsewhere. And it can do so on surgeries, said Collins, because insurance companies will typically reimburse whatever is charged.

How insurance companies determine what they’ll reimburse is a mystery to Collins, who noted that his employees’ insurance premiums have been going up 10 to 12 percent per year while AVH’s prices have risen 5 percent.

“There’s something going on at the insurance companies that’s inexplicable to me,” he said.

In addition, insurance discounts can be much deeper in more populated, urban markets on the Front Range, which means that even though AVH’s total charges might be less than those at a Denver hospital, a patient will actually end up paying more in Aspen.

Then there’s Medicare and Medicaid — the “great hidden tax” on hospital charges, according to Collins.

Charge structures over time have developed based on Medicare rules and reimbursements, according to Prinster, who noted that Medicare and Medicaid patients are half of St. Mary’s business.

For most hospitals, Medicare reimburses at a set rate per diagnosis, not taking into account the individual complexity of each case. This means hospitals must either eat the difference, or often, according to Collins, they’ll shift that cost somewhere else. And this might result in pricing services to private insurers at a higher rate, he said.

“If everybody paid us the same as Medicare, we’d go out of business quickly,” said Dupper, who also pointed out that Valley View could have earned $6 million more in 2004 if it had the lower Medicare/Medicaid percentage of business that AVH had that year.

The billing structure “doesn’t make any sense at all for the consumer,” said Prinster. “And there’s truly no logic; years of complexity have been added to a Medicare/Medicaid billing system that might have made sense in the 1960s, but not today.”

In summary: A broken system

Many of the factors driving charges are not under the control of hospitals, much less patients. Americans are far more tested and treated than citizens of other industrialized countries — part of that is doctors who recommend more tests for fear of malpractice, and patients have come to believe that this is the norm.

Another component is the for-profit medical industry, which is involved in every aspect of patient care: medical goods, sales people and health insurance companies, to name a few.

Telling an anecdote about a very highly paid yet poorly educated drug company representative, Collins quipped: “If you want to cut health care, regulate the pharmaceutical industry.”

Sarpa, head of AVH, compared hospital care to buying a new car — if you call up the dealership and ask how much a car is, you’ll be asked what components, add-ons and features you want in that car before being quoted a price.

But the difference with hospital care is, oftentimes you don’t have a choice about some of the add-ons, whether it’s by necessity or just standard practice.

And understanding all the myriad and complex factors that go into one’s hospital bill doesn’t necessarily make it more palatable for the patient who is going to pay some or all of a bill that may equate to his annual income.

For the consumer, there’s no logical rhyme or reason why a test might cost twice as much at AVH than at Valley View, or an MRI three times less in Denver.(Outpatient procedures were not examined closely for this article.)

Even more frustrating is trying to get an accurate quote on a medical procedure and then coming out with a bill that’s twice as high due to unforeseen factors.

As one local doctor pointed out, physicians can standardize their pricing for medical office visits and other services, even though they’re dealing with a lot of the same factors, so why can’t hospitals?

This doctor, who wished to remain anonymous, wondered if, given the high cost of care, local hospitals always do what they can to control patient costs.

Could there be economies of scale, for example, by combining Aspen’s and Glenwood’s OB departments, given the fact that the AVH birth center loses money and isn’t fully utilized anyway?

Could nurses and/or some doctors join forces to better serve the valley’s population as opposed to perhaps having overlapping functions at AVH and Valley View?

Echoing the sentiment of the other medical professionals and frustrated patients interviewed for this article, he concluded, “As a country, we have to get health care costs under control.”

Editor’s note: This project was produced in collaboration with the Aspen Daily News. The Daily News published the work as three separate stories on Sunday, September 1, 2013: “Disease without a cure: The cost of health care,” “The anatomy of a bill,” and “Tips for comparison shopping.”

A closer look: The birth of a bill

By Catherine Lutz

Normal vaginal childbirth is typically considered to be one of the more standard services a hospital offers, and therefore average charges should be easier to pin down than other diagnoses.

But the unpredictability of childbirth costs is particularly frustrating for new families who are trying to budget for this most important life event. A number of women interviewed for this story expressed the stress the financial aspect layered onto an otherwise happy time.

“During my pregnancy and beyond I spent hours each month going over bills and explanations of benefits and arguing with my insurance company about coverage,” said Karyn Spiropoulos, a local mother who gave birth to her daughter at AVH in 2011. “They were determined to find any loophole to get out of covering me.”

In the end, insurance covered Spiropoulos’ hospital bill (after she met a $7,500 deductible), which was just over $17,000 for a normal natural childbirth and newborn care. That’s significantly higher than the $10,900 that the Colorado Hospital Association reported as the average charge for vaginal delivery and newborn care at AVH.

Another local mom had $8,300 in hospital charges at AVH for herself and her newborn in 2010 for a normal, natural delivery (well under the 2011 averages). This writer incurred just over $8,500 at AVH the same year (see detail below).

Why the big differences? What may seem to be relatively minor to a patient can dramatically bump up costs. Spiropoulos, for example, said that the only abnormality in her situation was “a slight case of jaundice” in her baby that required only an extra doctor’s visit.

Aspenite Catherina Lemons ended up paying much more than she expected for the birth of her daughter in 2010, which included $26,000 worth of hospital bills.

Though she too had a normal delivery, she was admitted to AVH one extra night (in advance of the birth) due to high blood pressure. Lemons’ unexpected costs were mainly items her insurance company wouldn’t cover; the biggest was having a separate deductible to meet for her baby, something she said wasn’t explained in advance.

C-section births are more than double the cost at valley hospitals — an average of $18,900 at AVH and $24,100 at Valley View.

Local mom Misheel Chuluun, who had planned on a home birth at a cost of about $4,000, had an emergency C-section at Valley View to deliver her first son in 2010, and a planned C-section in 2012. With hospital bills of about $22,000 apiece, the total cost of the births of her two children was about $70,000.

If you think having a baby in Aspen is expensive, try San Francisco.

Aspenite Carmen Busch had hospital costs of $60,000 for a normal delivery at California Pacific Medical Center, a nonprofit academic medical center that apparently boasts one of the best neonatal intensive care units in the country. That and other state-of-the-art technology and maternity services probably drives up the operating costs exponentially, Busch said.

One baby, two bills

In order to give a sense of what goes into hospital charges, below are the details of two final bills I received from AVH after the September 2010 natural birth of my daughter.

Total charges for baby and mother were $8,567, which did not include $3,700 in prenatal care and delivery charges from the OB/GYN’s office, nor in-hospital pediatrician visits.

By contrast, the natural home birth of my second child, in 2013, cost $4,880, which included all prenatal and postpartum care, as well as newborn wellness visits for up to two months.

The itemized charges shown here simply highlight how much higher hospital costs are than the perceived value of the item or service.

Maternity care:

• OB semi-private room (two nights): $2,576

• Pharmacy (over-the-counter painkiller): $11*

• Medical/surgical non-sterile supply: $366.44

• Medical/surgical supply/device sterile: $4.50

• Laboratory: $140

• Lab, hematology (blood test): $140

• Lab, urology: $25

• Labor room (based on time spent): $1,836

• Labor and delivery (nurses and other staff): $1,044

Total: $6,142.94

Newborn care:

• Hospital visit process fee (charge for hospitalist, doctor who manages overall care): $330

• Newborn nursery, level IL $1,676**

• Pharmacy (saline solution): $30*

• Medical/surgical non-sterile supply: $131.79

• Laboratory (newborn screening panel and blood draw): $169

• Lab chemistry: $87

Total: $2,423.79

*While it was shocking to get charged $11 for a Tylenol and $30 for salt water, here’s how Valley View CFO Larry Dupper explains it: “If you buy aspirin from the store, it might cost one penny. But for every aspirin we give, we have to spend 15 minutes documenting, keep the records for two decades, do the billing and more. So it literally does cost that to give one aspirin.”

Aspen Valley Hospital CFO Terry Collins said that the $11 aspirin is only problematic from a public relations perspective. It’s a charge that he would like to eliminate from patients’ bills, but that would have to be absorbed somewhere else to cover costs.

**A nursery charge of over $800 per night is added to all newborns’ hospital bills, whether or not the newborn spends time there. Hospital officials explained that this is akin to reserving a hotel room — you may or may not end up using it but it costs the hotel staffing and other resources to keep it available for you.

Tips for comparison shopping

Editor’s note: The following information was provided by Ginny Dyche, spokeswoman for Aspen Valley Hospital.

If you are comparison shopping for health care services, beware that it is extremely difficult to obtain an apples-to-apples comparison of charges.

In some instances, what is included in charges simply may not be comparable. For example, Medicaid and some health insurers require hospitals to include care for both the mother and the newborn as part of delivery charges.

Other health plans, however, may require these charges to be billed separately. Similarly, charges for hospitals where physician fees are not included will appear lower than at hospitals where they are included.

It is recommended that you ask specific questions to help you obtain an accurate estimate of your care.

Here are some questions to ask:

• Who will I receive bill from (e.g., hospital, anesthesiologist, pathologist, radiologist), and are they included in the quote?

• Will my procedure require sedation and is that included?

• For imaging studies, will contrast or other medications be administered that are not included in this estimate?

• Is there a difference in the cost of a screening versus a diagnostic procedure? (Make sure you get the correct quote, and know that your insurance company may handle payment differently.)

• If a biopsy is taken during my procedure, will there be additional charges?

• Does the estimate include “hardware” or other surgical items that will add to my costs?

Questions to ask your insurance company include:

• Is the facility and each individual doctor part of my network? If not, how will that impact my out-of-pocket expense?

• Do I need pre-certification for this test/procedure?

• Are there any restrictions on payment relative to age, frequency, etc.?

• When you say this is a “covered” expense, does that mean 100 percent, or less?

• Is my coverage on a calendar year or a policy year?

Questions to ask your doctor:

• How will my condition and health status affect costs, procedures and length of stay?

• What are the benefits, risks and alternatives? What could happen without treatment?

• Can I receive the care as an outpatient without staying overnight in the hospital?

• What are your charges and fees?

• What additional charges may be incurred? For example, will there be a bill from a specialist to read an X-ray or other test? Will there be other consulting specialists, such as an anesthesiologist?

• Will you accept my insurance payment as full payment?

• Is home health care an option?

Aspen Valley Hospital believes that no one should postpone or go without needed care because of financial difficulty, Dyche wrote. AVH can work with patients and their insurance companies to develop payment plans based on financial status and credit eligibility.

For those who qualify, help also is offered by AVH in accessing indigent care resources. For more information or assistance, contact an AVH billing representative at 970-544-7690.

Aspen Valley Hospital revenues and expenses, 2011

As shown in this snapshot from the 2011 “Aspen Valley Hospital District Cost Report,” revenue from patients doesn’t always cover a hospital’s operating expenses.

In this case, AVH relied on income not generated from patients to be able to turn a profit in 2011.

Total patient revenue: $78,253,969

Less contractual allowances and discounts: $20,543,248

Net patient revenues: $57,710,721

Total operating expenses: $58,099,281 (includes $22.8 million in salaries, AVH’s largest expense)

Net income from service to patients: -$388,560

Net income: $9,442,738

Total other income (for example, contributions, investments, revenue from meals, rent, and sales to non-patients): $9,831,298