"I reckon being ill is one of the great pleasures of life," Samuel Butler declared, "provided one is not too ill and is not obliged to work till one is better."

Yes, but Sam never had to contend with the modern hospital--or the hospital bill. Although car dealers talk about "sticker shock," the real shock therapy is reserved for anyone who's gone under the knife lately, only to find a five-figure, multipage, 350-line-item monster lurking in the recovery room. Then the bleeding begins in earnest.

Everyone knows hospitals are outrageously expensive; hospital costs account for the single greatest chunk of health-care spending (almost 40 percent) and are at the heart of the national debate over health-care reform. But some hospitals' charges climb a lot higher than others'. Case in point:

Two Denver sisters recently underwent virtually identical operations: knee replacement surgery. Both are in good health, and they received similar pre- and post-operative care. Both, I should add, happen to be related to me (hi, Mom).

Patient A decided to have her surgery done at Rochester Methodist Hospital in Minnesota, part of the renowned Mayo Medical Center. Patient B went to Presbyterian/St. Luke's Medical Center, the largest full-service hospital complex in the Denver area.

The result? Patient A received a bill from Mayo for $12,625.69, while Patient B's bill from Presbyterian/St. Luke's totaled $25,540.56. Even though Patient A had to fly out of state--and incur a hefty $619 charge to have blood shipped to Minnesota before the surgery--the sister who stayed in Denver wound up with double the bill for the same operation.

The difference in cost has nothing to do with fee-happy doctors or expensive tests, two favorite villains of health-care reformers. Most of the diagnostics were done ahead of time, and surgeons' fees (which were remarkably similar) aren't included in either bill. Nor does the fact that Patient B was hospitalized two days longer than Patient A account for the discrepancy; three-fourths of Patient B's staggering tab was incurred in the first 72 hours of her stay.

In fact, most of the extra $13,000 on Patient B's bill can be traced to mundane areas: surgical and medical supplies (an $8,500 difference for such items as bandages, knee braces, sutures, gowns and the orthopedic implants themselves); routine physical therapy (which averaged more than $250 per day compared to Patient A's charges of about $25 per day); drugs (a $1,000 gap); and room charges ($470 a day for a standard room at Presbyterian/St. Luke's versus $347 a day for a private room at Rochester Methodist).

How can one hospital charge so much more than another for basically the same products and services? The answer is cost-shifting--an accounting practice that developed in response to the complicated multipayer system of health care in this country. Cost-shifting has made the system even more bizarre by inflating prices to the point where little relationship exists between hospital charges and the true cost of the service received.

Like most hospitals, Presbyterian/St. Luke's spends millions each year treating indigent or uninsured patients in its emergency room. The hospital also loses money on some Medicare and Medicaid patients, since the government has set stringent caps on what it will pay, regardless of complications that might occur. Traditionally, hospitals passed those costs on to private insurers in the form of higher charges--but these days most major insurers insist on deep discounts, too, and get them. So the cost keeps shifting, to a shrinking pool of cash-paying patients and small insurers who don't have the leverage to negotiate discounts. When they can't keep up, they drop out, leaving more uninsured cases and aggravating the cost-shifting.

"If you look at which hospitals are taking care of the most Medicare and Medicaid [patients] and uncompensated care, and then look at the charges, you'll see a direct correlation," says Presbyterian/St. Luke's administrator Michael Ratkiewicz. "We have to absorb that in our overall cost structure."
The Mayo Medical Center, on the other hand, operates under a different set of rules. Minnesota has a state-subsidized health-care system, which means that taxpayers foot part of the bill for charity patients. Mayo also has a high volume of out-of-state referrals, including patients seeking highly specialized treatment; because Mayo sees more of these cases than anyone else, it can treat them more efficiently--and less expensively. Also, as a mature, well-endowed provider operating in a relatively stable market, Mayo doesn't have the operational or capital costs of Presbyterian/St. Luke's, such as the $120 million price tag for its new patient tower.

"Mayo tends to realistically price on what [expected] payment is," says Charles Inlander, president of the People's Medical Society, a consumer advocacy group based in Pennsylvania. "They're very efficient, and they're self-selective, to some extent."
Ratkiewicz doesn't see why anyone should get worked up over charges for $35 ice packs and $56 support stockings (see highlighted charges). After all, the vast majority of his patients never pay that much. Their costs are fixed, by prior agreement between hospital and insurer, before they are ever admitted. And Patients A and B are both covered by Medicare, which paid roughly the same amount--$11,000--in each case. Supplementary insurance kicked in a little more, but Ratkiewicz says Presbyterian/St. Luke's will end up writing off more than $14,000 of Patient B's bill.

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