Baby Birth Costs Vary 10-Fold in Hospitals, Study Finds

Baby Birth Costs Vary 10-Fold in Hospitals, Study Finds

The cost of giving birth at a hospital can vary by tens of thousands of dollars, a price range that is “largely random” and unexplainable by market factors, a California study found.Charges for a non-complicated vaginal delivery in the most populated U.S. state ranged from $3,296 to $37,277, and $8,312 to $70,908 for a non-complicated cesarean section, according to researchers at the University of California at San Francisco. Institutional and market factors could only explain 35 percent to 36 percent of the variation in charges, according to the study, released online today in the medical journal BMJ Open.

Health advocates nationwide are calling for more transparency in an industry where pricing variables are largely opaque. Data released by the U.S. Centers for Medicare and Medicaid Services in May showed hospital charges for the same medical procedures vary by thousands of dollars across the country, even within the same city.

“The market doesn’t work and the system doesn’t regulate it, so hospitals can charge what they want,” said Renee Hsia, lead author of the study and associate professor at the UCSF School of Medicine. “The scary thing is, as patients, you don’t have this information.”

Hsia said the wide swing in the charges for hospital births probably exists across the U.S.

I am certain that this variation is not isolated to California,’’ she said. “It’s 12 percent of the U.S. so for that reason it’s somewhat generalizable. The only place where this might be different is certain states where they’re starting to put caps on spending like in Massachusetts.”

100,000 Births

Researchers studied about 100,000 births as well as three sets of variables that could affect costs: patient characteristics, such as the mother’s age and length of stay, hospital characteristics, such as profit or nonprofit status, and market factors including the wage index, which measures the cost of living. They determined these factors combined only explained about 35 percent of the variability in charge.

Anne McLeod, senior vice president of health policy for the California Hospital Association, said her organization doesn’t dispute that charges vary widely, though she considers the study to have “a major flaw” because the authors looked at costs before they are discounted by insurers.

The relevant numbers are the discount prices negotiated between insurers and hospitals, which aren’t public information, McLeod said.

Trade Secrets

Not able to access the negotiated numbers, researchers used a discount estimate of 37 percent based on an analysis of hospital receipts compared with charges, and reported a similarly large variation in pricing.

“The hospitals enter into confidential negotiations with health plans and, like many other industries, people are not required to disclose trade secrets,” McLeod said in a telephone interview. The study “created a broad-based estimate and it’s not indicative of how the actual price is agreed upon.”

While millions of uninsured will soon be covered under President Barack Obama’s Patient Protection and Affordable Care Act, patient advocates warn that the high, unpredictable charges will still hurt mothers with high deductibles in their insurance plans.

“The pricing is insane,” said Anthony Wright, executive director of consumer advocacy organization Health Access California, based in Sacramento. “As more people take higher deductible plans and some people are still left uninsured, those folks are stuck with a bill that is huge.”

Out-of-Pocket Costs

Out-of-pocket costs for mothers with commercial health insurance were nearly four times higher in 2010 than 2004, according to a Jan. 2013 study by Truven Health Analytics, commissioned by Childbirth Connection.

“At a time when you may be stepping back from paychecks, it’s a significant bill,” Carol Sakala, director of programs at Childbirth Connection, said in a phone interview.

The hospitals say that advocates are pointing the finger at the wrong party.

“One of the big reasons for high charges is because Medicare and Medicaid significantly under pay hospitals, so part of your premium makes up for the fact that Medicare and Medical don’t pay their fair share,” Jan Emerson-Shea, a spokeswoman for the California Hospital Association, said in a phone interview. “These advocates never talk about the fact that the government is the biggest cause for overall high charges.”

To contact the reporter on this story: Caroline Chen in New York at cchen509@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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