Knee replacements are a standard procedure at many hospitals, but there's nothing standard about the price.
Minnesota insurers paid as much as $47,000 for a patient's total knee replacement and as little as $6,200 — a nearly eight-fold price difference, according to a study released Wednesday by the Minnesota Department of Health.
The wide range was also seen for hip replacements, vaginal baby deliveries and C-section deliveries.
The report, based on a first-ever local study of insurance company payments to hospitals for four common procedures, is designed to bring transparency to what can be a baffling world of hospital pricing.
"Prices in most cases are really secretive in health care," said Stefan Gildemeister, the state's health economist. "What that translates into is providers are able to charge higher prices than they would be able to do if the veil were lifted off those prices."
Patients with insurance are mostly insulated from the price differences because they often pay a flat co-payment for care, but the continued growth of high-deductible plans is exposing more of them to either the full bill or a hefty portion of costs before insurance kicks in, underscoring the need for more transparency.
Still, above-average payments to hospitals is one factor fueling health insurance premium rate increases.
"This data will help us have a discussion around whether this magnitude of price variation is defensible and how transparency can help shrink it and help reduce the waste in health care spending," Gildemeister said.
The data released Wednesday does not identify hospitals by name, something that state law prohibited when it authorized the Health Department to collect and analyze insurance claim data.
That was a disappointment to the employers that were working with state researchers.
"It is frustrating for those who need the information to make sound decisions," said Carolyn Pare, chief executive of the Minnesota Health Action Group, a coalition of public and private purchasers, including several large Minnesota corporations. "It is like making somebody hungry for something but not having the food you need."
Pare said employers have used data in the past to evaluate their health care costs, but the state's data, which includes 1.1 billion health care claims coming from private and public payers covering more than 4.3 million people in Minnesota, is unique because it gives a market-wide picture that up to now had been missing, even without hospital names.
"One of our employers has already said they will look at this data to look at their own averages," she said.
The study looked at reimbursements that commercial health insurers and self-insured employers paid between July 2014 and June 2015. Because sicker or more high-risk patients result in higher hospital bills, researchers examined claims only for cases without complications. It also examined only hospital surgical charges and did not include additional costs such as medications, rehabilitation services or physician fees.
The Minnesota Hospital Association said surgical payments are just one component in a basket of services that hospitals include as part of negotiations with health plans.
"When we look at this particular report it is pretty sensationalized," said Dr. Rahul Koranne, chief medical officer for the hospital group.
For something like total knee replacement, a hospital could have a deal with an insurer based on the total cost of care, including physician care, physical therapy and other services, as well as the surgical price. Quality of care is also a part of the puzzle, he said.
In the end, though, surgical prices, as well as total cost of care costs, do vary widely from hospital to hospital.
"Hospitals would charge what they think the market will bear or the highest price they can negotiate, irregardless of what their actual expenses are," said Allan Baumgarten, a Twin Cities health care researcher and consultant. "There are certainly hospitals that are more effective in their negotiations with commercial payers in getting higher prices for commonly performed procedures."
Having a large share of the market for patients or procedures makes that easier, he said. Another factor is that hospitals with a relatively high percentage of government health insurance business, which typically pays the lowest rates in the market, will shift costs to commercial insurance clients to make up for lost revenue.
In addition to total knee replacements, the study found that total hip replacement costs ranged from $6,700 to $44,000, a 6½-fold difference. Typical vaginal baby delivery ranged from $2,900 to $12,300, while C-section deliveries ranged from $4,700 to $22,800.
Those mirror differences that other local studies have found on total cost of care.
For instance, the average total costs for a C-section delivery were $4,604 in the state, but the figure ranged from a low of $2,600 up to $5,600, depending on the medical group managing the care, according to Minnesota Community Measurement, a nonprofit group that analyzes cost and quality.
The Health Department plans to release more data on other procedures, such as heart procedures or back surgery, later this year.