Article is by Molly Rosbach, as seen in

Yakima Valley Memorial Hospital has been advertising that its medical charges are dramatically lower than those of its main competitor, Yakima Regional Medical and Cardiac Center.

But the ads are misleading because they omit a big piece of the picture when it comes to health care costs: The charges listed have little relation to what insurers and most patients ultimately pay for those services through negotiated rates.

Memorial’s decision to publish its charges for certain procedures comes at a time when transparency advocates are pushing to make more information available to the health care industry and the public so consumers can make more informed decisions about where and how to seek services for both price and quality.

Memorial officials concede the ads don’t tell the whole story but said the numbers are the only ones available.

“It’s flawed data to share with the public — you can say it is misleading, but it’s really the only thing we can publish,” Chief Financial Officer Tim Reed said in an interview last month. “People are getting in the habit of price shopping, and the only thing you can really publish now is charges.”

But the overall message from health care advocates is that consumers need to educate themselves to make the best use of available pricing information.

“You need to do your homework,” said Washington State Health Alliance communication and development director John Gallagher. “Health care is a team sport, and the patient has to be at the center of the team.”

Memorial’s ad uses data pulled from a report by the Centers for Medicare and Medicaid Services, first released in 2014, that lists hospital charges for the top 100 most common hospital billing codes, along with Medicare’s average payments to hospitals for those services.

In 2013, for example, according to the CMS report, Memorial charged $14,538 for an inpatient stay for stroke, while Regional charged $22,761.15, more than $8,000 more.

Regional charged more for each of the 12 inpatient events listed in the ads — hospital visits for chest pain, elective procedures like knee replacements, potentially avoidable stays for things like chronic obstructive pulmonary disease. For a certain spinal fusion procedure, Regional charged nearly $100,000 more than Memorial.

But hospital charges are rarely paid in full. Medicare has complicated formulas to determine how much reimbursement a given hospital is paid — formulas that look at geographic location, labor costs and other factors. On that stroke stay, Medicare paid both hospitals around $4,300, and Memorial was actually paid slightly more than Regional, according to CMS data.

“Hospital charges do not accurately reflect what consumers pay for their health care,” Regional spokesman Blake Keller wrote in an email when asked to respond to the ads. “The average total payment to Yakima Regional Medical Center (from Medicare) … is consistent, and many cases lower, than the average for all Washington hospitals.”

Medicare payments are changing, Reed said, as CMS includes more incentives to push hospitals toward value-based purchasing, that is, paying providers for better patient outcomes and for successfully incorporating efficiencies like electronic medical records. This kind of purchasing is replacing the fee-for-service model of paying based on the number of tests and procedures a patient undergoes.

Medicaid payments — historically the absolute lowest of any payer — are also determined according to set formulas, partly based on a hospital’s patient population. These payments aren’t influenced by hospital charges.

Commercial insurers like Regence and Premera negotiate their rates with individual hospitals, and those rates are usually not publicized so hospitals won’t know, for instance, if their neighbor down the road is getting paid more or less.

Those negotiations, then, shield insurance companies from the full billed charges, too. The state Insurance Commissioner does not oversee the negotiated rate contracts.

Insured patients pay differently depending on their insurer and their individual plan within that insurer’s offerings. The most variation comes from whether there is a high deductible or out-of-pocket maximum. For example, on a knee replacement, if the out-of-pocket maximum is $6,000, the patient will still have to pay that $6,000 before insurance kicks in to cover the other $6,000 or $7,000 or $10,000, whatever the insurer has negotiated with that particular hospital as the final price.

On the other hand, the full “sticker” prices, or charges as they are called, directly affect patients who don’t have insurance and are paying everything out of pocket, or who are receiving care from an out-of-network provider, where the insurance company has no lower negotiated rate.

If uninsured patients meet certain low-income thresholds, they become eligible for free or discounted charity care. And in some cases, hospitals will negotiate with patients to arrive at a lower price.

So if hardly anyone actually pays the full price, what’s the point of continuing to list it?

Reed says some insurance plans use the old model of reimbursement by paying a flat percentage of the overall price listed. To take advantage of those holdover plans, some hospitals may choose to keep their high prices, which they can edge up marginally year by year. That way, they may actually get $75,000 out of a $100,000 bill, even though a “fair” price for that procedure may only be $30,000.

“It’s enough to offset the flak that you take, because there’s financial gain there,” Reed said. “You wouldn’t want to do it for PR (public relations), but it has a material effect on your bottom line, because you have a handful of these things that come through.”

Washington’s all-payer claims database, established by the Legislature earlier this year, is meant to be a major step toward greater transparency. It will require all commercial insurance companies to provide comprehensive data on whom and what they pay for patient service claims.

But it’s at least a year away, with the first legislative deadline requiring a progress report in December 2016. And the database won’t list insurers by name, or by plan, as there are too many variables to make a meaningful list. Instead, it will show an average of what hospitals pay for procedures, so patients can compare hospitals against each other.

Twelve other states, including Oregon, already have an all-payer claims database, while five others have systems currently in implementation. Other information varies by state.

“At this point, consumers bear a lot of responsibility for finding out how much their insurance company is paying their medical providers and what portion of that cost the consumer is responsible for,” Office of the Insurance Commissioner spokeswoman Kara Klotz wrote in an email.

Most tools currently in the market for consumers to price-shop are provided by insurance companies themselves, for patients already on plans within that insurance company.

At Regence, spokeswoman Jen Morgan wrote in an email, the company allows customers to search online by procedure, then compares prices at different types of facilities — surgical center versus hospital, etc. — based on their individual plan benefits. They can then click “Search providers near you” to see local providers, listed alongside what the cost to the patient would be, accounting for insurance’s portion of the payment.

The tools are limited in that they only help existing customers, and don’t allow consumers to compare different insurers prior to buying a plan, if they’re trying to determine who gets the best deal at their local hospital.

At Premera, spokeswoman Melanie Coon says the focus is heavily on getting people to choose the right plan in the first place, based on their personal health needs, to address those concerns. Customers can use online tools or talk to customer service representatives to get a ballpark figure on what they might expect to pay for a certain procedure at a specific hospital.

State law now requires all commercial insurers to have cost calculators available to their customers, Gallagher said.

While the all-payer claims database won’t solve everything, the Health Alliance and others hope it will better enable consumers to compare prices alongside quality data.

“You really don’t want to just go on the basis of price; you want value,” Gallagher said. “Value is where high quality and lower price intersect.”

Some hospital quality data is already available, mostly compiled by Medicare. Gallagher said the Health Alliance hopes whoever is chosen as the lead organization on the database will incorporate that quality data into the system.

The Health Alliance has compiled some of its own quality data from ambulatory or outpatient clinics using previously filed claims data from insurers that show whether providers are adequately billing for the kinds of screenings and preventive measures that improve patient outcomes.

The problem, Gallagher said, is that health care value doesn’t match how we normally think of value.

“In the absence of actual information, (consumers) assume that cost is a proxy for quality,” he said. “Because in general, in other major purchases — a $75,000 car is going to be better than a $5,000 car. But there’s no correlation in health care between price and quality, and that’s a fundamental concept that most consumers don’t understand.”