Comparison of Charge (Price)
Differences among Georgia
Hospitals (CON State) and
Hospitals in Arizona/Texas
(non-CON States)
October 10, 2002
Introduction
This summarizes our analysis with respect to charge (i.e., price) differences among
hospitals in three states:
Georgia
Arizona
Texas
Georgia has longstanding Certificate of Need (CON) legislation in place. In order to
compare hospitals in a non-CON environment, we selected Arizona and Texas. Arizona
and Texas have been without CON legislation for many years (i.e., since the 1980s). As
“sun belt” states with rapid growth over the past decade, diverse populations, and a
substantial mix of public, nonprofit, and investor-owned hospitals, Arizona and Texas are
among the most comparable non-CON states to Georgia.
Three major public-use files were used in our study:
Medicare Cost Reports (MCR) – 1999/2000 Fiscal year end
Medicare Hospital Outpatient PPS Select – Calendar year 2001 (HOPS)
Medicare Medpar file – Fiscal year 2001
Tables 1-3 below identify the number of reporting acute care hospitals in each data set
used in our study.
Table 1. Medicare Cost Report Data – 1999/2000
All
Urban
Georgia
Arizona
Texas
144
62
58
43
341
182
Table 2. Medicare Hospital Outpatient PPS Select
– Calendar Year 2001
All
Urban
Georgia
Arizona
Texas
149
65
68
45
367
199
2
Table 3. Medicare Medpar – 2001
All
Urban
Georgia
Arizona
Texas
143
63
67
44
350
194
Please note that the number of reporting hospitals does not always foot to aggregate
totals. For example, there were 4,565 US acute care hospitals with filed 1999/2000
Medicare Cost Reports. However, only 4,527 of the 4,565 could be classified as either
rural or urban. The urban hospitals, as defined in the Medicare data sets, are those
hospitals located in metropolitan statistical areas (MSAs). For instance, that would
include Georgia hospitals located in all Georgia counties within the Albany, Athens,
Atlanta, Augusta, Chattanooga, TN (i.e., Catoosa County GA), Columbus, Macon, and
Savannah MSAs.
The following performance measures (Table 4) were used in this report:
Table 4. Performance Measures
Measure
% Change in Medicare OP charges & room rates if
prices were equal to US medians
Medicare charge per discharge (CMI & WI adj)
Medicare charge per claim (RW & WI adj)
Chest x-ray (WI adj)
Room rate (WI adj)
Gross price per discharge (CMI & WI adj)
Markup
Data
Source
HOPS
Medpar
HOPS
HOPS
Medpar
MCR
MCR
3
Results
Tables 5 and 6 provide comparisons for all of the measures for the individual states for all
acute care hospitals (Table 5) and for urban hospitals (Table 6).
The data suggest the following:
1. Georgia hospitals appear to have substantially lower procedure-level and
aggregate prices than do Arizona and Texas hospitals. This finding is universal
across all charge measures.
2. The best composite measure of hospital prices is the percentage change in
Medicare outpatient (OP) prices and room rates. This measure compares prices
at the procedure level and room rates for Medicare patients. Georgia (all
hospitals) charges would have to increase 12.0% to equal US medians (WI
adjusted), while charges would have to decline in Arizona (26.49%) and Texas
(8.29%) to equal US medians.
3. Data for Medicare charge per discharge (CMI and WI adjusted) and for
Medicare charge per claim (RW and WI adjusted) show prices to be lower in
Georgia than either Arizona or Texas.
4. Procedure-level prices for chest x-rays and room rates, both of which are highvolume measures, are also substantially lower in Georgia.
5. The urban charge comparisons appear to show even larger gaps among Georgia
hospital prices and pricing either at Arizona and Texas hospitals. It could be
argued that the urban charge comparisons are the most meaningful in that more
price competition might be expected in MSAs, which tend to have multiple
competing hospitals with similar service areas.
Table 5. Charge Comparisons – All Hospitals
% Change in Medicare OP charges & room
rates if prices were equal to US medians
Medicare charge per discharge (CMI & WI adj)
Medicare charge per claim (RW & WI adj)
Chest x-ray (WI adj)
Room rate (WI adj)
Gross price per discharge (CMI & WI adj)
Markup
Georgia
MEDIAN
Arizona
Texas
12.00
-26.49
-8.29
9,895.55
136.83
132.15
398.61
7,455.43
1.68
12,579.71
191.49
168.48
781.45
9,356.26
2.07
11,391.32
193.80
162.89
500.41
7,929.66
1.90
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Table 6. Charge Comparisons – Urban Hospitals
% Change in Medicare OP charges & room
rates if prices were equal to US medians
Medicare charge per discharge (CMI & WI adj)
Medicare charge per claim (RW & WI adj)
Chest x-ray (WI adj)
Room rate (WI adj)
Gross price per discharge (CMI & WI adj)
Markup
Georgia
MEDIAN
Arizona
Texas
9.07
-25.49
-10.34
11,271.47
133.01
141.39
429.51
8,099.16
1.81
14,566.53
187.37
170.65
802.05
10,821.92
2.37
13,344.69
192.58
173.54
543.89
9,336.00
2.11
5
Summary
We have included seven measures of charge/pricing differences, which allow
comparisons on both a procedure level and an aggregate charge basis. All measures
indicate that hospital prices are substantially lower in Georgia than in either Arizona or
Texas.
We have reviewed a February 1997 research report by William S. Custer, Ph.D. (Georgia
State University) entitled “Certificate of Need Regulation and the Health Care Delivery
System,” which, we understand, was relied upon by certain advocates of CON
deregulation in a 1997 Georgia legislative debate. The Custer report observed that price
competition had become a more important factor in hospital markets. We do not
disagree. However, the Custer report then argues that CON regulation leads to higher
prices. That opinion is not supported by our findings. To the contrary, prices appear to
be substantially lower in Georgia, a CON state, than in the non-CON states of Arizona
and Texas.
Of the charge measures analyzed in this study, we believe the most meaningful for
comparative purposes are the following::
1. Percentage change in Medicare outpatient charges and room rates if prices
were equal to US medians. This measure is a weighted summary of procedurelevel prices and removes the intensity-of-service issue present in aggregate
charge measures. It is the best pure price difference summary measure
available.
2. Medicare charge per discharge (case mix and wage index adjusted). This
measure is apples-to-apples and removes the effects of cost-of-living
differences. It is affected by intensity-of-service issues.
3. Medicare charge per outpatient claim (relative weight and wage index
adjusted). This measure is a good summary of outpatient pricing. It also
removes the effects of cost-of-living differences.
4. Chest x-ray (wage index adjusted). This is a very high-volume ancillary
procedure done by virtually every US hospital.
5. Room rate (wage index adjusted). This is the largest single procedure-level
price for most hospitals.
In addition, we included a measure for gross price per discharge (case mix and wage
index adjusted). This is a measure often used to compare charges for all hospital patients
regardless of payer class. However, it is affected by the application of a Medicare-based
case mix adjustment to aggregate charges for hospital-wide patients from all payer
classes. We also included a markup measure, which measures the relationship between a
hospital’s charges and its operating expenses. While it is a meaningful performance
measure, it is not based solely on charges.
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Charts 1-7, which follow, display state variations and are based upon the data in Table 5.
Georgia compares favorably to Arizona and Texas on all performance measures.
Chart 1. % Change in Medicare Outpatient Charges
and Room Rates If Prices Equal to US Median
Georgia
Arizona
Texas
12.0%
-8.3%
-26.5%
-30.0%
Chart 2. Medicare Charge per Discharge (CMI and WI Adjusted)
$13,000
$12,580
$12,000
$11,391
$11,000
$10,000
$9,896
$9,000
$8,000
Georgia
Arizona
Texas
7
Chart 3. Medicare Charge per Claim – 2001 (RW and WI Adjusted)
$200
$191
$194
$180
$160
$140
$137
$120
$100
Georgia
Arizona
Texas
Chart 4. Chest x-Ray (WI Adjusted)
$168
$170
$163
$160
$150
$140
$132
$130
$120
$110
$100
Georgia
Arizona
Texas
8
Chart 5. Room Rate (WI Adjusted)
$781
$800
$700
$600
$500
$500
$400
$399
$300
$200
Georgia
Arizona
Texas
Chart 6. Gross Price per Discharge (CMI & WI Adjusted)
$10,000
$9,356
$9,000
$8,000
$7,930
$7,455
$7,000
$6,000
Georgia
Arizona
Texas
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Chart 7. Markup
2.50
2.07
2.00
1.90
1.68
1.50
1.00
Georgia
Arizona
Texas
10
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William O. Cleverley, Ph.D., has been the President of Cleverley & Associates since its
formation in January 2000. Prior to forming Cleverley & Associates, Dr. Cleverley was
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for Healthcare Industry Performance Studies (CHIPS) in 1992 with Dr. Roger Harvey.
United Healthcare acquired the firm in March 1998 and Dr. Cleverley remained on staff
as a part-time employee until December 1999. Dr. Cleverley is also Professor Emeritus
at The Ohio State University where he has taught courses in healthcare finance since
1973.
Dr. Cleverley is the author of 43 books dealing with the application and use of financial
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over 150 articles on healthcare financial issues in a wide variety of both academic and
professional journals.
Cleverley & Associates is a firm specializing in providing benchmarking services to
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