Mayo Clinic a bargain compared to national competitors

Mayo Clinic charges less for common medical procedures than its national competitors, a new database shows.

When compared with the other 17 hospitals also named the country's best by U.S. News & World Report earlier this week, Mayo Clinic's fees are frequently below average.

For instance, Saint Marys Hospital in Rochester charges $145,203, compared to $596,878 at Los Angeles' Cedars-Sinai Medical Center, for one of the country's most expensive procedures:respiratory diagnosis with four-day ventilator support.

And Saint Marys' price is only the 12th highest for that procedure among the 18 honor roll hospitals.

The differences in prices are, at times, jarring. Saint Marys charges $26,428 and $31,529, respectively, for pneumonia treatment and cardiac pacemaker implants, while its most expensive national competitors charge $125,000 and $196,000.

"From an overall cost standpoint, we're happy the Mayo Clinic looks favorable," said Dr. Frank Nichols, a thoracic surgeon by training who now serves as medical director of the Office of Revenue Cycle Operations at Mayo Clinic. "I think it's important information."

But Mayo's two Rochester hospitals — Saint Marys and Methodist — are relatively costly for Minnesota, which tends to have lower charges compared to the rest of the country. And even within the Mayo Clinic Health System itself, prices vary wildly from location to location.

The Medicare Provider Charge Data, released earlier this year by the Centers for Medicare & Medicaid Services,includes sticker prices of 100 of the most common inpatient procedures across more than 3,300 hospitals in 2011. In some cases, listed prices were 20 times what Medicare typically reimburses.

Still, experts say six-digit gaps in prices for identical procedures are often difficult to account for.

"Our purpose for posting this information is to shine a much stronger light on these practices," Jonathon Blum, director of the Center for Medicare, told reporters in May. "What drives some hospitals to have significantly higher charges than their geographic peers? I don't think anyone here has come up with a good economic argument."

Decades of experience in health care policy hasn't helped Minnesota-based health care research consultant Allen Baumgarten explain the wide disparities.

"It's all kind of a mystery to me," he said.

But experts like Baumgarten say these sticker prices don't affect patients who have either private insurance or are covered by Medicare, as insurers and Medicare negotiate better prices.

In fact, even the uninsured don't necessarily pay those sticker prices, he said.

A fair number actually have relatively high incomes, Baumgarten said, from working for start-up business, being self-employed or having substantial investments. These "self-insured" often negotiate with hospital administrators and bargain their way to lower bills.

Hospitals and communities also have programs aimed at aiding those who simply can't afford the sky-high sticker prices.

"Only very few people pay those prices," Baumgarten said. "Anybody with private or public insurance is not paying that price."

Emerging inconsistencies

Among the 50 Minnesota clinics included in the data, Mayo Clinic's Rochester hospitals crackthe top ten for many expensive procedures — a reflection of the kind of patients that the world-class clinic attracts, said Nichols.

"Patients in Rochester tend to be sicker," he said.

And their bills are still often $50,000 to $100,000 less than the state's priciest.

University of Minnesota Medical Center, Fairview boasts the state's costliest procedure, a $242,738 treatment for septicemia — an illness caused by bacteria in the blood.

Compare that to a $120,245 price tag at Saint Marys Hospital for the same procedure.

Understanding inconsistent prices across clinics and regions becomes difficult when each hospital sets its prices in its own ways. Some refer to decades-old "chargemasters", whose unchanging prices are often well above above market-rate.

At the clinic, Nichols said there's a very formal, deliberate and detail-oriented process to determine these sticker prices.

Yearly, a fee committee comprised of administrators, physicians, social service providers and medicare workers compares prices , "almost line-item-by-line-item," to market rates and decides what Mayo will charge.

"It's not just an administrator sitting someplace who says we need to make this much money," Baumgarten said. "I've been on the fee committee for over ten years, and I've seen as many things go down over time as I've seen them go up."

"It's probably not commonplace to do the in-depth review we do," said Craig Collins, division chair of the Office of Revenue Cycle Operations at Mayo Clinic.

Variation within Mayo, Rochester

Nichols said regional and structural differences can also account for the wide-sliding price ranges revealed in the data, but admitted, "even within Mayo Clinic there are some inconsistencies," due in part to the difficulty of integrating such a "huge, multi-state institution."

It's common for prices to double across Mayo Clinic Healthcare's Minnesota locations; Saint Marys charges $58,409 for the same spinal fusion for which Mayo's Mankato Clinic charges $26,133.

Even within Rochester city limits, staggering disparities exist.

For major small and large bowel procedures, the Rochester Methodist Hospital's price is listed at $88,492. A mile away at Saint Mary's, the same procedure costs $114,584 — a $26,000 difference.

Nichols attributed these differences to the specialization at each hospital, which he said drives their prices up or down.

"Our non-trauma orthopedic work is done only at the Methodist hospital — (for) anything orthopedic-wise, trauma is done at Saint Marys," he said. "Each hospital has its area of expertise."

'It's not comparing apples to apples'

Interestingly, the high or low sticker prices don't necessarily correlate with quality of care, Baumgarten said.

"I don't think its comparing to apples to apples," said Nichols.

Instead, benchmarks like readmission rates for patients after they receive treatment are better indicators of the quality of a hospital's care.

In that arena, Mayo Clinic is about average. In 2012, the national average readmission rate was 18.4 percent, according to a Centers for Medicare & Medicaid Services report. At the end of last year, the Mayo Clinic Health System was 14.1 percent, and Saint Marys and Methodist Hospitals were both 18.3 percent.

Mayo Clinic was ranked third in the country by the US News & World Report.

The overall landscape of the state's healthcare costs is difficult to characterize, said Baumgarten, because although average state Medicare payments are low, Minnesota employers often pay high premiums.

Many hospitals, said Baumgarten, will point to the discounted Medicare payments and say they have no choice but to drive up prices to private insurers in order to make up for that shortfall.

But Baumgarten said he remains unconvinced that Medicare is truly underpaying hospitals.

"If you go to Florida you have all these hospitals marketing to seniors to 'bring your Medicare payments to our hospitals,'" he said. "These hospitals have figured out a way to deliver care and make money based on what they collect from Medicare patients."

According to Baumgarten, because hospitals anticipate that insurance companies and Medicare won't pay the full sticker prices, they tend to inflate them.

"They set the price knowing that no one will want to pay (it)," he said, "so in some sense it's what (they) think the market will bear."