New U.S. Hospital Price Transparency Rule Takes Effect: Stunning Differences in Costs for the Same Surgery

The new U.S. hospital price transparency rule took effect on January 1, 2021, requiring hospitals to disclose prices negotiated with insurance companies for services. New data shows that even within the same hospital, the cost of hip or knee replacement surgery can vary widely. For example, at Sutter Hospital in San Francisco, the price range for such a procedure was $22,865 to $101,571.

Price differences mainly depend on the patient's insurance company.

For a long time, U.S. medical pricing has been opaque, and this new rule is seen as a milestone shift in the industry. Hospitals strongly opposed it and tried to block its implementation through legal means, but failed. The court rejected the American Hospital Association's (AHA) claims that the policy was illegal and that some prices were 'unknowable' and thus could not be disclosed.

During oral arguments in October 2020, Judge David Tatel of the D.C. Circuit Court of Appeals questioned the AHA's lawyer: 'Why is the price of an X-ray unknowable?' This question became the focus of the hearing at the time.

For employers, the new rule offers an opportunity to cut costs by excluding high-priced hospitals from their networks. However, the current uneven compliance among hospitals limits this potential.

For consumers, the usefulness of this data remains to be seen. Ultimately, patients' out-of-pocket costs depend on their insurance benefits. Some experts criticize that the policy does not clearly reveal the final amount consumers will pay, although it is closer to the truth than before.

Healthcare Dive analyzed new pricing data released by multiple health systems across the country and found that even within the same hospital, price ranges for the same procedure are extremely wide, with significant differences across markets. The analysis focused on prices for joint replacement and childbirth (including cesarean sections).

Although the price fluctuations are staggering, they are not surprising to experts familiar with the U.S. healthcare system.

'At the same hospital, knee replacement prices ranging from $23,000 to $100,000 fully illustrate the chaos of U.S. medical pricing,' said Niall Brennan, CEO of the Health Care Cost Institute. The institute is partly funded by payers.

Key findings

Thanks to a rule introduced by the Trump administration in 2019, it is now possible for the first time to directly compare prices negotiated by different insurance companies with the same hospital for a single service, such as hip replacement.

Joint replacement is one of the most common surgical procedures. Unlike emergency medical situations, patients usually know about the need for surgery in advance, making it possible to shop around.

Part of the purpose of the new rule is to help such patients estimate costs, which is especially important for consumers with high-deductible health plans.

The prevalence of such insurance plans has risen significantly, making patients bear more medical costs in hopes of prompting them to pay more attention to prices and actively compare options.

When comparing, consumers and employers will first notice price differences for the same procedure.

For example, at California Pacific Medical Center Van Ness in San Francisco, joint replacement prices ranged from a low of $22,865 to a high of $101,571.

At Northwestern Memorial Hospital in Chicago, the price range for the same procedure was $4,613 to $50,680.

At New York Health + Hospitals Elmhurst in Queens, New York, hip or knee replacement prices ranged from $14,202 to $45,387.

At University of Florida Health Shands in Gainesville, the price range was $8,114 to $66,734.

Prices for vaginal delivery and cesarean sections also show huge fluctuations, with a difference of nearly $55,000 between the lowest and highest prices at one hospital.

Kaiser Permanente is an exception, as this integrated system is itself an insurer and does not contract with other payers.

The AHA defended the price differences. In a statement, the association said that costs vary by region, facility, and patient condition, all of which contribute to price differences. Additionally, negotiated rates are influenced by factors such as expected patient volume, performance metrics, and the population served.

'The rates reflected in these tables are often not the actual amounts paid, as individual care cases and adjustments vary according to contract terms,' the AHA said.

A tool for employers

Nevertheless, Johns Hopkins researcher and associate professor Ge Bai said the 'incredible' price differences mean employers may have opportunities to save costs. Bai noted that employers can exclude expensive hospitals from their networks, steer patients to lower-priced hospitals, and form purchasing alliances to increase bargaining power.

'This is a wake-up call for the average business owner,' said Anne Ladd, associate director of purchasing innovation at the Purchaser Business Group on Health. 'You hate high medical costs, and in fact they are bankrupting you. But now you can do something about it.'

This data provides employers with a roadmap for choosing hospitals within their networks, but only if combined with quality data.

However, Ladd pointed out that there is often resistance from company executives. Executives competing for top talent want to offer broad medical networks, viewing this as a recruiting advantage, even though they know narrow networks can save money.

For example, a benefits specialist at a mid-sized company might create a narrow network, but an executive's spouse may want to go to an out-of-network hospital. 'Then the pillow talk starts, and soon that hospital is in the network,' Ladd said.