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Fargo hospitals among cheapest in US

FARGO -- Here's the good news: Hospitals here are among the cheapest in the nation.

Now for the bad news: You're still paying more than the government thinks you ought to.

An analysis of 2011 data from the Center for Medicare Services shows that while Fargo's two hospitals bill patients well below the national average for nearly all of the most common medical procedures, both hospitals still charged more than what Medicare determined to be a "fair and reasonable price" for treatments.

The differences range from a few extra dollars more than Medicare covers for a standard doctor's visit at Sanford Medical Center to the average billing cost of an MRI at Essentia Health, which was six times Medicare's rate there.

At Sanford, inpatient treatment costs ranged from 1.4 times to 3.4 times the hospital's Medicare reimbursement. Essentia charged its inpatients between 1.6 and 3.8 times its Medicare rates.

Outpatient procedures strayed more from Medicare's rates at both hospitals. Of all of the 100-plus procedures tracked, MRIs were the farthest out of alignment with the federal government.

Still, those disparities are smaller in the Fargo-Moorhead area than they are in much of the country, where inpatient treatments cost between 2.8 to 4.7 times more than Medicare rates.

The greatest disparity for inpatient procedures came for a heart disease treatment called a coronary angioplasty, for which the average American was billed more than $65,000 -- almost double the cost at Sanford, and 4.7 times an average Medicare reimbursement.

"There is no rhyme or reason to the prices they put out there," said Pat Palmer, founder of Medical Billing Advocates of America. "That's nothing but flat out price gouging. They don't allow that in any other aspect of our life, except health care."

Rates questioned

Of course, the average bills in the 2011 data, which was released last month, are not the prices most people pay for each treatment. Insurance companies haggle with providers over prices before billing an insured consumer for their deductible.

Jerry Jurena, president of the North Dakota's Hospital association, said Medicare reimbursement rates aren't an accurate measuring stick for the cost of a treatment because they don't cover all of a hospital's expenses, echoing a common refrain among hospital administrators.

Palmer, who runs a Virginia-based business that helps patients bring down the costs of medical bills, said she doubts that claim is true. If it is, hospitals have gone too far to recoup costs, tacking "astronomical" profit margins onto Medicare's rates, she said.

Because the federal government foots the bill for Medicare recipients, those rates are meant to reimburse the hospital for the full cost of a procedure -- doctor and nurse pay, facility and equipment costs and so on.

The reimbursement rates are the product of a complex formula with a bevy of variables: the treatment being performed, the hospitals' location, whether the hospital trains medical students, wage levels in the area and more. The rates are monitored by Congress and updated annually.

But Doug Okland, chief financial officer for Sanford Clinic Fargo Region, said Medicare's rates "have not been truly cost-based reimbursement for decades." He pointed to the wide disparity between what Medicare reimburses hospitals for the same treatment as evidence.

For example, a hospital in Fort Worth, Texas received an average of $38,700 for a major joint replacement -- the most common procedure in the U.S. in 2011 -- while a Broken Arrow, Okla., hospital got just $9,100.

Okland and Jurena both said hospitals in North Dakota -- and in rural states, in general -- have traditionally been reimbursed at lower rates than the rest of the country.

Despite that, Jurena said North Dakota hospitals have "learned to live with our reimbursements" to offer some of the cheapest health care in the nation. Along with Montana and Idaho, North Dakota hospitals had the lowest average costs.

Outpatient disparity greater

Okland said Sanford aims to keep prices between 1.5 to 3 times Medicare's rates.

Sanford nearly met that goal with the most common inpatient treatments. Fargo's largest hospital charged between 1.4 times to 3.4 times the federal government's reimbursement rates. But for outpatient procedures -- which includes treatments ranging from typical clinic visits to heart and sleep tests, Sanford charged up to 5.5 times Medicare's rate.

Sanford's markups give the hospital "a very conservative profit ability," Okland said.

Sanford's Fargo clinics and hospital reported an operating profit of about $72 million for the fiscal year ending July 2012, according to the nonprofit's annual report.

The inpatient procedures offered at Essentia Health's Fargo hospital run from 1.6 times what Medicare pays to 3.8 times that rate, and from 1.2 to 6 times the rate for outpatient procedures.

"We're not trying to charge above Medicare to make exorbitant profits. We're trying to get a small profit so we can sustain our operations," said Dr. Gregory Glasner, president and chief medical officer of Essentia's west region.

The division of Essentia Health that runs the Fargo hospital and other area clinics reported an operating loss of about $1.3 million in 2011, according to its most recent filing.

Jurena said so-called cost shifting is driving the disparity between Medicare's reimbursement rates and actual charges. Hospitals need to increase bills for other patients to recoup the overhead that Medicare doesn't account for, or to recapture some of the lost cash from unpaid bills.

Palmer said she's sick of hospitals crying wolf about low Medicare payments and deadbeat patients.

"If you only charge true and accurate and you didn't price gouge, the rest of us could probably pay for our medical expenses," she said.