Health Care Costs — Do they Vary Across the U.S.

Comparing quality to price is something we do almost everyday.  Whether it’s buying an expensive flat-screen TV, or simply choosing the freshest fruits or vegetables.  We do it by touch, feel or careful visual inspection.  People who excel at this are called “smart shoppers.”  A skill that some have by instinct.

But regardless of our shopping prowess, we all have opinions on whether we bought  good or bad quality.  Sometimes that opinion is based on the attitude of the sales person, the care shown to us.  Other times, we base it on internet searches.  If still in doubt, we trust other customer reviews on everything from books, electronics, restaurants, clothing, movies and cars to name but a few.

Can we do the same in healthcare?  Are the news reports listing the best hospitals, or the  airline magazines displaying the top plastic surgeons, cardiologists, are they reliable?  And what does it all mean to a person struggling with a chronic illness, living miles away from the 10 best hospitals?

Will the same instincts that guide us in buying food, clothing, homes, cars and electronics help us choose a quality doctor?  Or do we need better information?

Let’s look at pricing.  Generally, we expect to see a relationship between cost and quality.  Not always true, but generally true.  Does that statement apply to medical care?  If we believe care is superior in prestigious university medical centers, is it more costly there?  Or do the same procedures performed in remote rural facilities cost less?

Since health insurance is common, and in many cases administered by national companies, would not prices and reimbursements fall in a narrow range?  Why would an insurance company pay more, if the same procedure is available at a more prestigious facility just a short drive away?  Or do medical prices vary like gasoline pricing?  Which as we know can differ by as much as twelve percent or fifty cents per gallon?

On the other hand, do medical prices vary more like the cost of peanuts and gummy bears in hotel minibars?  But then again, when we’re on vacation, we expect higher pricing and we suspend our frugality, and even use the word “splurge.”  For good reasons, such as a special occasion or extra special care, we accept marked variation in pricing.  Is the same true for health care costs?

Let’s look at one example: a flexible colonoscopy.  Just about everyone understands the importance of cancer prevention and how certain cancers, if detected early, can be arrested or cured.  Colon cancer is a prime example.

Depending on one’s age or family history, a colonoscopy is recommended at certain ages.  The procedure, though somewhat distasteful in its preparation, is standardly employed across the country and is considered routine, safe and effective.  It’s also a procedure that has a definite beginning and end, and is very similar (as anything in medicine can be) from one patient to the next. It’s not like comparing heart surgery or brain surgery.

I decided to look at the cost and insurance reimbursement for this procedure in 19 different cities.  These cities were chosen because I was familiar with some of them, or because they were a city designated as a medically underserved or had a challenged economic environment.

Next, I took advantage of an excellent web site at Fair Health.  This excellent resource envisioned by then Attorney General, and now Governor of New York, Andrew Cuomo was brought to life by the diligence of Fair Health President Robin Gelburd.  The site has a very extensive database that permits consumers to see prices for healthcare services across the nation.  In addition, it helps patients discover what their out of pocket expenses might be if they use out-of-network doctors.

Using this site, I looked at the estimated charges, estimated insurance reimbursement, and estimated out-of-pocket cost for a flexible colonoscopy listed as a medical procedure with the billing CPT code of 45378.  This code designates a “Diagnostic examination of large bowel using an endoscope.”  I deliberately did not add on modifying codes, which are generally associated with this procedure such as CPT 45331 (Biopsy of large bowel) or a higher up code such as CPT 45385 (Removal of polyps or growths of large bowel).  I wanted to keep the procedure simple and expected to see the most conservative costs.

The Fair Health database is organized according to geo-zip codes, which is generally the first three digits of the area postal zip code.  For each of my selected cities, I looked up the zip code for the city’s center, generally based on the location of the town hall.  For estimates on per capita income, I looked up U.S. census data, or reports from city government web sites.

The chart I produced is shown below: (Which can be enlarged by clicking)


Health Care Costs Colonoscopy
Health Care Costs Colonoscopy 19 U.S. Cities.


When I began my medical practice, my concern for reimbursement was limited to my immediate location, Buffalo New York.  I knew that my colleagues in Rochester, New York (70 miles down the road) and in New York City received higher reimbursements for the same procedures.  But when I questioned the insurance company, I was told that my colleagues received higher pay because it cost more to live in those cities.  This was called a cost of living adjustment.  I accepted this explanation because like my patients, I had no informatics system to disprove it.

However in the table above, which lists cities by increasing charge for a colonoscopy, along with per capita income, it suggests that cost of living is not the criterion for provider reimbursement.  The column for estimated charge is the average charge that doctors make for the procedure within select zip codes for that city.  The column insurance paid is the average reimbursement made to providers, generally for in-network providers.  The second from last column labeled “out of pocket” would be the cost passed on to patients for out of network doctors, that is, the additional cost a patient would pay to the doctor after the maximum allowed insurance payment.

The table illustrates a striking difference in the charge for a colonoscopy in Selma, Alabama compared to the same procedure in Burlington, Vermont.  That difference is: $1,813.94 or 350% higher.  Interestingly insurance companies pay $507 for a colonoscopy in Selma and pay $1,777 in Burlington, a difference of $1,270.  That payment would cover the procedure twice in Tucson, Arizona and five other cities.

Since physicians are told that reimbursement varies by cost of living, let’s look at the cost for a colonoscopy in Beverly Hills, California which is estimated at $1,350.99 with an insurance payment of $945.69, and compare that to the cost in Allen, South Dakota which is $1,273.01 with a reimbursement of $891.11.   Allen, South Dakota is listed among the 100 poorest cities in the U.S. with 96% of the population living below the poverty line, the same isn’t true for Beverly Hills.

Perhaps it’s necessary to reimburse doctors at a higher rate because they practice in underserved areas such as Allen, South Dakota, or Potsdam, New York, both remote underserved areas with per capita incomes below $10,824.  Then why is it that providers in cities with per capita incomes in excess of $25,000 differ from each other by payments greater than several hundred dollars, and also differ by similar amounts from remote underserved cities?

If there is such a thing as a bargain colonoscopy, how is it that in Seattle, Washington with per capita incomes of $39,886, the insurance payment is $617, while in Boston and Honolulu; it’s reimbursed at $715 and $763 respectively?

Of further interest in my analysis is the variation in pricing reported across different zip codes within the same city boundaries.

Though these pricie differences are perplexing, the real questions should be: How are these fluctuating prices and payments related to quality of care?  Where is the best procedure performed?  Who are the most skillful providers?  Which providers have the best outcomes and are not likely to miss a cancer?

These are the important questions, which fall into a category called evidence based outcomes.  Such data supports how well providers detect serious lesions, as well as track their false positive detection rate.  This is important because if a doctor falsely suggests a benign lesion is cancerous, it commits the patient to an unnecessary surgical biopsy.

Finally it’s important to know the provider’s complication rate. Although the procedure is generally safe, occasionally it does have serious complications including perforations of the bowel with injury to the spleen or liver.  Just as airplane crashes are unlikely events, they do occur and generally occur because of pilot error. Physicians also can have pilot-like errors. And just like pilots, when these accidents happen, lack of experience, provider impairment, equipment failure, and lack of quality control all play a part.

In future posts, we’ll explore how we choose our health care providers, and when we are suspicious of their skills, the resources available to answer our concerns.