Why hospitals usually charge more than ASCs for the same procedures by the same surgeons

Across the USA, hospitals tend to charge almost 40% more for identical procedures by the same surgeons when compared with freestanding outpatient surgery centers counterparts. Why?

As experienced healthcare administrators, we are able to examine healthcare costs and pricing information with a uniquely different perspective than our layperson and other industry counterparts.  What’s the reason for this huge price and cost difference?

photo of Maria K ToddWe asked Maria Todd, MHA PhD, our consulting expert for her thoughts on why hospitals charge and expect more for the same identical services and same surgeon. Here’s what she offered as an explanation.

CARE EFFICIENCY

If a patient is kept institutionalized for a longer period of time, risks of hospital-acquired infection (e.g., cross patient contamination, visitor infection,  side effects of hospital procedures, including conditions like sepsis, postoperative respiratory failure, pulmonary embolisms, hemorrhages, and other reactions or infections.etc.) increase. These can also occur in the outpatient surgery setting, but either happen or are recorded less frequently because they may be noticed and documented after the patient has left the facility.  Patients’ normal sleep and meal patterns are also disrupted. Lack of sleep impedes the body’s ability to repair itself. Movement is decreased which can lead to pulmonary and vascular complications. In the outpatient setting, risks of these types are reduced because length of stay is reduced.

READMISSION RATES

When a hospital has high readmission rates, it indicates something is amiss in quality, safety, and clinical decision-making. Readmission rates lead to payment reductions, which must be made up elsewhere, just to cover running costs, so prices go up as does cost shifting to commercial insurance plans and employers.

PATIENT SATISFACTION SCORES

 HCAHPS Scores are a set of 64 metrics that measure patient satisfaction with the services they received. If these scores are low, reimbursement is reduced and penalties are often assessed. The money must be made up by other means. Just as we look at the readmission rates, we look at patient reported satisfaction. If satisfaction is low, prices may be artificially boosted to cover shortfalls in penalized and other reductions in revenues. These rating systems don’t always provide the accurate representation of patient care. Hospitals serving poor and high-risk populations are often unfairly penalized through this system, and particularly hospitals with high patient volumes.

OCCUPANCY RATES

If occupancy is unusually low, the hospital may be losing money through overstaffing. If occupancy is too high, care quality could decline because clinicians are spread too thin. Price makes up for the volume problems. The hospital may manipulate lower occupancy with longer length of stay, resulting in higher costs and higher care efficiency risks as mentioned above.

ADMINISTRATOR & EXECUTIVE COMPENSATION

Hospital executives are paid a lot of money. The average outpatient surgery center administrator makes 90% less than most hospital executives. A hospital administrator at a small hospital may have a head count of 200-300 employees to manage, while an ASC administrator may oversee a staff of 40 or fewer and fewer operating hours than a hospital.

STAFF HEAD COUNT

In the hospital setting, in a small hospital, there may be 15 people employed in the revenue management department to handle billing, collections, coding, denials and appeals, refunds, contract analysis and negotiation, renewals, and more.  In the ASC the same tasks may be handled by a team of 4-6 people or fewer.  In most settings the compensation is higher and benefits package is richer at the hospital. This too, is reflected in pricing and charges.

OPERATING MARGIN

A hospital’s operating margin refers to the facility revenue after subtracting operating costs such as wages, medical equipment and supplies, rent, and other expenditures. To remain operational, hospitals must be able to pay these fixed costs without going into debt.  Adjustments to prices and discounts are one way to balance shortfalls in fixed costs with contracted providers.

BRAND VALUE

Branding is more frequently undertaken and more invested in the process and brand maintenance at hospitals. The public tends to reward esteemed brands with tolerance for higher prices. An unrecognized brand outpatient surgery center will find that no matter how good it is, how warm and friendly the service, a Cleveland Clinic, Johns Hopkins or Mayo “Center of Excellence” is likely to command a higher price and attract heads of state, celebrities, and others who might dismiss a friendly, high-performing, accredited, high-value outpatient surgery center, at any price. But the big box brands spend millions in advertising budget and promotion that the small unassuming outpatient surgical center doesn’t draw in in revenues in a year.

BAD DEBT

Many hospitals and health systems have over $10 million in bad debts, with 6 percent reporting bad debt of over $50 million.  About half of those hospitals indicate they might be able to recover more than 10 percent of what they’re owed, with 9 percent estimating they could recover more than 20 percent.  In the outpatient setting the numbers just don’t climb that high and the number of patients willing to pay cash for a lower price on the date of their surgery makes this expensive metric less burdensome, which is reflected in the prices they charge and the discounts they can offer.

KICKBACKS TO PAYORS, TPAs AND OTHERS

Many PPO contracts require that hospitals pay 4-12% of the revenue they receive from a contract as a rebate to the TPA or Insurer for the steered volumes of patients they received. This can be transparently stated in the contracts or in many cases is done behind the scenes. So for example, an employer is told the price at the hospital is $2500 for a procedure.  In reality, the hospital has negotiated a fee of $2200 and the $300 difference is skimmed off the trust fund payment to fund the claim settlement – unbeknownst to both employer and provider, but the price reported to the public as the negotiated discount rate is inflated. Copayments and deductibles are also in lockstep so the patient often pays more out of pocket as well because their calculations of copayment and deductibles are based on the $2500 number, rather than the $2200 number.

Here at SurgeryShopper.com, we deal directly with the providers and report their prices as they are without any embedded kickbacks, commissions, and other fees. There are no back-room  shenanigans. The price we quote and the amount you pay is the actual price the hospital or outpatient surgery center charges and receives. 

In most instances, outpatient surgery centers are more nimble and can more easily and quickly calculate a bundled price for a surgery procedure and can contract with SurgeryShopper.com to be listed in our database and also offer new bundled prices on the fly when requested.  Stop here first in your search for transparent bundled prices on surgery you need, then compare what you find by researching individual websites of hospitals and ambulatory surgery centers.  But bookmark SurgeryShopper.com so you can make your way back after you’ve satisfied your curiosity.  We’re here to help you get the surgery you need at a more affordable price and to help you coordinate any related travel or other assistance you’ll need to access the care you want wherever you need it in the USA.

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