Healthy Sunshine

California Hospitals Open Books, Showing Huge Price Differences | WSJ | 12.27.04

At some California hospitals, a tablet of Tylenol, or its generic version, acetaminophen, is billed at $5 or $5.50. Others charge $7, or even $9, for a single pill. One Los Angeles hospital charges just 12 cents a tablet, while at a few facilities it’s free. The retail price of brand-name Tylenol is about eight or nine cents each. The generic goes for a nickel or less.

A new law in California mandates that hospitals there do what few hospitals in America will: open up their “chargemasters,” books that show thousands of list prices for medical goods and services. An examination of chargemasters at several hospitals shows that pricing strategies fluctuate wildly — on everything from brain scans to painkillers to leeches. Depending on a hospital’s pricing method, the charge for the same commodity or service, such as a blood test, can vary by as much as 17-fold from one institution to another. …

Dozens of lawsuits have been filed in recent months by lawyers alleging that nonprofit hospitals are price-gouging the poor and uninsured. Hospitals long seen as charitable organizations are being forced to defend themselves against allegations they have preyed on patients for debts that were inflated. …

Hospitals began marking up the prices of various goods and services. But they didn’t always know what their rivals charged because of antitrust restrictions. Each hospital came up with its own formula. In some cases, retail prices for certain procedures, such as a routine chest X-ray, rose even as the costs of those services declined. …

At UC Davis, Mr. McGowan’s pricing decision on acetaminophen was influenced by an Ann Landers column he read years ago. In it, someone complained about a hospital bill for aspirin. Anticipating the day someone would complain about the same thing at his hospital, he tinkered with his usual pricing formulas and set the price at $1.

Mr. McGowan says there’s a good reason his hospital charges much more for the tablets than a consumer would pay at a drugstore. “I suggest that you call the drugstore,” he says, “and ask them to bring you one Tylenol delivered to your bedside by a registered nurse after you have a prescription from a doctor, along with a glass of water, and see what they charge.”

Healthcare desparately needs, and at least in California, finally gets a sunshine law. One has to admire Mr. McGowan’s (supra) chutzpah, his analogy only has validity if the customer is standing at the pharmacy counter and asks for the Tylenol—to be fair you must compare marginal cost with marginal cost, not the fixed cost—the pharmacy does not have to burden the cost of Tylenol with the discounting provided other medications. The real interesting follow-on piece should be what the costs are, not only amongst hospitals but, amongst payer catagories at the same hospital…

See also EMedConcepts