"I think they're completely made up. They don't bear any relationship to underlying costs," said Dr. Robert Berenson, a health-policy expert at the Urban Institute and a former director of Medicare payment policy in the Clinton administration. "Medicare bases its reimbursement on cost reports that the hospital has to send, so Medicare is paying costs. The charges are a marketplace function of what hospitals think they can get from the market."
Perry Bryant, the executive director of West Virginians for Affordable Health Care, was a bit more diplomatic in his assessment. He said hospitals with expensive services like NICUs spread those costs across the board.
"There is some rhyme or reason, but not a lot," Bryant said. "They don't charge the parents of premature babies all the costs, some of that gets shifted. But does that account for this wide variation? No it does not."
In Beckley, Raleigh General charges 29 percent more on average than Beckley ARH, despite the fact that Medicare judges their costs to be almost equal. Medicare pays Raleigh General less than 1 percent more, on average, than Beckley ARH.
In Morgantown, this situation is reversed. WVU Hospitals charges an average of 23 percent more than Mon General, but based on Medicare's evaluation of the hospitals' costs, it might be Mon General that is overcharging. Medicare reimburses WVU at rates 36 percent higher than Mon General.
Nancy Chockley, the president of the National Institute of Health Care Management, a nonprofit, said the most important factor in pricing could be a hospital's size. Larger hospitals can exert more pressure on insurance companies to pay higher prices.
"We all are looking for logic behind the pricing, and the logic that applies the most is the market power of the hospital," Chockley said. "Health care is almost 18 percent of GDP, and to have such dysfunctional pricing is pretty shocking."
Private insurers don't pay the hospital charges -- collected on a document called a chargemaster -- they negotiate individually with hospitals to arrive at the prices that they pay. And they try not to use chargemaster prices as a starting point.
"Our approach is not to start from their charges because they're not a good representation of costs," said Fred Earley, president of Highmark Blue Cross Blue Shield West Virginia. "There's not a whole lot of rationality across the chargemaster."
The charges vary widely, not only within cities, but also within individual hospital companies.
Saint Francis Hospital in Charleston and Thomas Memorial Hospital in South Charleston are both owned by Thomas Health System. They are about six miles apart in Kanawha County. However, Thomas Memorial charges an average of $7,000 more for the same conditions than its sister hospital.
A Thomas Health System spokeswoman did not reply to repeated requests for comment.
Ultimately, only a tiny percentage of patients -- the uninsured who do not apply for or qualify for charity care -- are presented with a bill for these hospital charges.
The charges still can affect what private insurers pay, though, particularly smaller insurers with less bargaining power.
"There are still insurers that negotiate based on charges, so some hospitals still see chargemasters as important," Berenson said. "Even if you're insured, these variations in charges are not irrelevant."
Reach David Gutman at david.gut...@wvgazette.com or 304-348-5119.