There’s been a lot of talk this week about the data CMS released. It shows hospital charges and Medicare payment.

Articles like this raise eyebrows:

In one hospital in Dallas, the average bill for treating simple pneumonia was $14,610, while another there charged over $38,000.

via Hospital Billing Varies Wildly, U.S. Data Shows - NYTimes.com.

And they are missing the big picture.

The reason prices vary so greatly is the result of how commercial insurance contracts are negotiated and paid.

Hospitals want an annual margin - about 4% on average. To get there, they have to look at what the contracts pay well on and what they don’t. Medicare is irrelevant because it pays on a fee schedule. So they focus on commercial contracts. If one hospital’s contracts pay well on pneumonia, then the price gets raised.

I’m not assigning a value judgement to how or why this is done. But it is worth pointing out.

I also think it’s misleading to suggest those without insurance foot the full bill. While there are tragic examples, that’s rarely the case. Again, not suggesting its right or wrong, just saying there’s more to the story.

What can we learn from hospital charges? Very little. They are the ghosts of an ever changing industry based on a third party payment system.

NPR plays it safer:

…the numbers only tell us part of the story. “Charges are list prices,” he says. “They’re sticker prices.”

The Washington Post addressess uninsured programs:

“The chargemaster can be confusing because it’s highly variable and generally not what a consumer would pay,” said Carol Steinberg, vice president at the American Hospital Association. “Even an uninsured person isn’t always paying the chargemaster rate.”

Paul Levy nails it on his blog, (although he and I may disagree on the role of commercial insurance):

This is a case where the release of bad data is worse than having no data at all. A hospital’s chargemaster is an archaic fiction, a way previously used to allocate the joint and common costs of the hospital to particular services. It does not serve as the basis for how much a hospital is paid by Medicare. It does not serve as the basis for how much a hospital is paid by Medicaid. It does not serve as the basis for how much a hospital is paid by private insurers.

Updated to add:

David Lazarus asks if we are ok with the end result - high bills, in the his LA Times coverage:

Medical costs are often inexplicably high and are almost always kept hidden from patients until the bill arrives. Health insurance, meanwhile, is frequently coverage in name only.

What do you think? Does the charge data tell you anything meaningful?