That Surgery Might Cost You A Lot Less In Another Town

Apr 27, 2016
Originally published on April 28, 2016 8:10 am

Need knee replacement surgery? It may be worthwhile to head for Tucson.

That's because the average price for a knee replacement in the Arizona city is $21,976, about $38,000 less than it would in Sacramento, Calif. That's according to a report issued Wednesday by the Health Care Cost Institute.

The report, called the National Chartbook on Health Care Prices, uses claims and payment data from three of the largest insurance companies in the U.S. to analyze how prices for procedures vary from state to state, and city to city.

The takeaway?

Health care prices are crazy.

"There doesn't seem to be a systematic pattern with respect to what's high and what's low," says David Newman, HCCI's executive director. Newman is lead author of an article published Wednesday online in the journal Health Affairs that accompanied the release of the Chartbook.

The reports compare average state prices for 242 medical services — from primary doctor visits to coronary angioplasty to a foot x-ray — to the national average price for those services. It shows that states such as Minnesota and Wisconsin have higher than average prices while others, such as Florida and Maryland, were cheaper overall.

Arizona's health care prices were generally cheaper, about 82 percent of the national average, while next door in New Mexico, care was more expensive, about 25 percent above average.

And prices vary within states, too.

If a Sacramento knee replacement patient doesn't want to drive the 871 miles to Tucson, he or she could drive south to Riverside, Calif., and pay $27,000 less. In Florida, the surgery costs $17,000 less in Miami than it does 180 miles north in Palm Bay.

"For every mile that a consumer drives south on I-95, they will save $100," Newman says.

The HCCI data is some of the most detailed and complete information available on health care prices paid by private insurance companies. It includes payment data from Aetna, Humana, UnitedHealthCare. It doesn't include claims information from The Blue Cross and Blue Shield Association, which is the largest health insurer in the country.

The price variations revealed by HCCI show that the health care market is not following traditional economic and market rules.

"The market just isn't working," says Zack Cooper, a professor of health policy and economics at Yale University.

Cooper says in the past, analysts believed that health care costs were rising because people were using too much health care. That analysis was based on Medicare data. However, Medicare pays the same across the country.

The data show that private-insurance payments vary widely and states that have low Medicare spending, like Minnesota, often have higher prices in the private insurance market.

He says one major factor is the consolidation of hospitals, leading to a lack of competition.

"Where one large hospital dominates the markets, that hospital is able to get higher prices," he says. "Hospitals have gotten increasingly powerful over time."

The new data may give insurers and consumers better ammunition to shop around for lower prices or to negotiate better deals.

But that will require people taking a different approach to choosing health care.

People should be willing to travel farther for services, Cooper says. That would put powerful hospital systems in different cities in competition with one another, perhaps putting pressure on prices.

And there are limits on where competition can bloom in health care, says
Sarah Dash, president and co-CEO of the Alliance for Health Reform.

"A woman is going to go to the one OB-GYN that she goes to. She's not going to run all over town trying to find the cheapest one necessarily," Dash says.

"Where it's shoppable, where it's elective, where it's not an emergency and where the price is knowable, then there are things that can be done," she says.

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If you need surgery - say, a knee replacement - it may be worth your while to take a trip. The procedure can cost thousands less depending on your location. NPR's Alison Kodjak reports a new analysis of healthcare prices shows they differ wildly from state to state and even city to city.

ALISON KODJAK, BYLINE: The report is from the Health Care Cost Institute, and it analyzes a massive amount of payment data from three of the nation's largest insurance companies. The takeaway - health care prices are crazy.

DAVID NEWMAN: There doesn't seem to be systematic patterns with respect to what's high and what's low.

KODJAK: That's David Newman, the institute's executive director. He says some states are way above the national average, while others are cheaper. Arizona's healthcare prices are pretty low - about 82 percent of the national average. But next-door in New Mexico, the average prices are much higher. And even within states, prices can vary a lot, like for that knee replacement. If you live in Palm Bay, Fla., for example, you'll pay $17,000 more than you would in Miami.

NEWMAN: An insurer operating in Palm Bay, Fla., would send a stretch black limousine and driver that person and their spouse or partner down to Miami, put the partner in the Seminole Indian hotel casino with a $100 in chips while they take the knee replacement patient down to the hospital, perform the surgery and then drive them home afterwards. And there'd still be a lot of money to be saved.

KODJAK: These data offer the most detailed look available at private insurance companies are actually paying for health care. And it's clear that the health care market is not following traditional economic and market rules.

ZACK COOPER: And right now, the health care industry is simply broken.

KODJAK: Zack Cooper is a professor of health policy and economics at Yale. He says one driver of high prices is the consolidation of hospitals.

COOPER: We've seen hospitals buying up other hospitals at a pretty amazing rate, to the point now where, in a sense, we see most customers served really by one hospital. And it turns out that monopoly power in healthcare works just like monopoly power in other areas.

KODJAK: And that can drive up prices, he says. One way to fix that would be for consumers to travel further to see their doctors or go to a hospital. That would put powerful hospital systems in different cities in competition with one another and maybe help lower prices.

COOPER: We've got to be able to have an honest conversation with folks out there and say, look, you can't get everything locally, all right? You probably do have to travel a little bit further. And if you do, the returns are pretty tremendously large.

KODJAK: But Sarah Dash, president of the Alliance for Health Reforms, says there are ways to make competition bloom in healthcare.

SARAH DASH: Where it's shoppable, where it's elective, where it's not an emergency, where the price is knowable, you know, there are thing that can be done.

KODJAK: But there are limits.

DASH: A woman's going to go to the one OB/GYN that she goes to. So, you know, she's not going to run all over town trying to find the cheapest one.

KODJAK: Unless, maybe, her insurer makes it worthwhile. Alison Kodjak, NPR News. Transcript provided by NPR, Copyright NPR.