Getting your hip replaced in the Dallas area can cost $16,772 — or $61,584. That's a 267 percent difference between the least and most expensive options for the exact same procedure, according to new data from the Blue Cross Blue Shield Association.
The data offers a rare glimpse into the rates that hospitals and insurance plans negotiate, which are typically kept private. Blue Cross Blue Shield hasn't released the specific data on how much each hospital charges. Instead, it published data on the variation in different markets across the country, from Dallas to Boston.
The data shows two things. First, hospitals charge wildly different prices for the same procedure. And this isn't because the more expensive hospitals are providing better care. There's a long body of research showing that more expensive care doesn't correlate with better medicine.
Second, the fact that Blue Cross Blue Shield health plans are still contracting with these expensive hospitals shows how difficult it is for insurers to demand lower prices. Even a major insurer like Blue Cross Blue Shield feels the need to keep the Dallas hospital that charges $61,584 in network, even if there are nearby facilities that charge one-third of the price.
Same operation, different price
BCBSA used their data to illustrate the wide variation in prices for some of the most common operations in the United States: knee and hip replacements.
This map shows the difference between the highest and lowest price hip replacement in large, urban areas:
In the Seattle area, for example, there's a $39,039 difference between the least- and most-expensive hip replacements that the local Blue plan paid for during the three-year period that ended in 2013. In the Boston area, there's a $34,221 difference. The most expensive hip replacement surgery cost $52,690. The least expensive surgeon charged $18,469.
Similar price variation showed up when the insurance association looked at knee replacements, too.
One possible explanation for this variation might be quality: Maybe the hospitals that charge more for hip and knee replacements are able to do so because they're just way better at replacing hip and knees. Maybe their patients have better outcomes or speedier recoveries.
But there's a big problem with this explanation: nearly everything we know about health care suggests it isn't true. Study after study has failed to show a correlation between cost and quality in health care. There are some expensive hospitals that deliver great care — and some low cost providers that do equally as well. Conversely, both expensive and cheap hospitals can provide bad health care.
"Evidence of the direction of association between health care cost and quality is inconsistent," Peter Hussey, Samuel Wertheimer and Ateev Mehrotra wrote in a recent RAND literature review. "Most studies have found that the association between cost and quality is small to moderate, regardless of whether the direction is positive or negative."
Buying health care is different from lots of other things we buy because the price tag does not give any indication of quality.
Why insurers still buy ludicrously expensive health care
Insurance plans don't usually like pay for the higher cost procedures, especially when they aren't any better than the less-expensive options. If Blue Cross, for example, can get knee replacements at a lower price they can spend less money, offer consumers lower premiums, and likely attract more members.
And Maureen Sullivan, BCBSA's chief strategy officer, says that her plans are trying to limit the number of higher-cost providers in their network. They offer one network that only includes hospitals who meet certain quality benchmarks — but do so at a price about 20 percent lower than average.
But the fact that BCBSA has paid some hospital in Dallas more than $61,000 for a knee replacement shows that they've still got those really expensive doctors somewhere in their networks, too. Sullivan says this is in part driven by consumer demand. The expensive hospitals might be ones that lots of patients want covered.
"Access is important to a lot of consumers, so we do have programs that enable patients to be seen at those facilities," she says.
In other words: bigger, brand-name hospitals — the Cleveland and Mayo Clinics of the world — have lots of leverage in price negotiations. There will be patients who simply don't want to buy coverage that excludes the best-known hospital in the region and, as a result, insurers often end up paying those providers a lot more — even if the quality of care isn't any better.
Sullivan hopes that more efforts like these to release data and increase transparency will help compress some of the variation that shows up in the health care market now. Maybe it will, but it probably won't happen quickly. Why should marquee hospitals, after all, give up their great leverage in price negotiations? They've got, in some situations, a trump card that they are not afraid to play.