Consumer Guide to Hospital Charges

The amount a hospital bills for a patient's care is known as the charge.  This is not the same as the actual cost nor the amount paid for the care.  This website lists the median charges billed by hospitals for their most common diagnostic-related groups or DRG. 

The median charges for each DRG are derived from a standardized billing form, which lists the actual charges for each patient.  The amount actually collected by a hospital (the amount paid) for each DRG is almost always less than the listed charge.

Charges are used almost universally to measure the relative costs of health care.  While each hospital's charge structure may vary in important ways, charges represent a consistent, though imperfect, way to compare health care costs. 

There are many reasons why charges may differ between hospitals.  Generally, charges vary because no two patients are alike.  Their conditions, reactions to medications or treatment, physician practices, or time of recovery will all impact the charge for care.  Some of the more common reasons charges vary fall into the categories of patient variations and hospital variations.

Diagnostic Related Groups (DRG)

The DRG is the basic unit of analysis for inpatient hospitalization.  The federal government established DRGs as a way to pay hospitals for the care of Medicare patients; many payers now use DRGs.  Each DRG has a numeric weight or case severity rating reflecting the national average hospital resource consumption by patients for that DRG compared to the national average resource consumption of all patients.   (back to top)

Patient Variations

Severity of illness and intensity of care –Some hospitals are equipped to care for more severely ill patients than others.  Patients with the same diagnosis may have complications, more than one disorder or disease occurring at the same time, or other related difficulties and may need very different levels of service and staff attention, causing variation in charges.  Hospitals that treat more severely ill patients are expected to have higher case severity ratings, longer lengths of stay, and higher charges.

Length of hospital stay – Longer hospital stays are likely to result in higher charges.  Some patients, especially severely ill patients, may not respond as well to treatment or surgery and, therefore, may have to stay in the hospital longer.  Other factors, such as older patients who require more services or who have more chronic or multiple conditions, also will require longer hospital stays.

Emergency admissions – Hospitals with no emergency services will likely have lower charges.  One-third or more of hospital patients come through the emergency room.  The costs of emergency services are included in patient charges.

Physician practice and treatment – Individual physician judgment based on patient needs influences treatment decisions.   The kinds of diagnostic tests ordered or preferred treatments also vary somewhat from physician to physician and influence hospital charges.

Physician specialty – Because the education, training, and experience of each physician can vary significantly, a physician may involve other physicians in consulting roles.  In these situations hospital charges can be generated by more than one physician for the same patient.   (back to top)

Hospital Variations

Professional fees – Physician charges, including those of surgeons and anesthesiologists, are normally separate from hospital charges.  The hospital charges listed on this website do not include such professional fees.  The hospital charges may or may not include laboratory work, x-rays, and other professional services performed in conjunction with the diagnosis and service provided.  The decision to include these services in the hospital charge varies by hospitals. 

Payer mix and cross subsidization – Charges vary among hospitals because of cross subsidization, which is used to help fund care for government-paid patients (such as Medicare, Medicaid, county poor relief) and the underinsured and uninsured where payments do not cover the costs to provide care.  Cross subsidization, or cost shifting, means that charges also reflect an amount to help pay for the uncompensated care provided by the hospital to government-program patients and to indigent patients.  The amount that needs to be subsidized or charged will vary from hospital to hospital.  Hospitals that have a relatively high percentage of government-program patients, such as nonprofit hospitals or those in rural communities where patients may have less employer-sponsored health coverage, are forced to recover a greater percentage of their operational costs from privately insured and self-pay patients through higher charges. 

New technology – The equipment hospitals use to provide services differs in age, sophistication, and frequency of use.  Hospitals with the latest technology may have higher charges than those with older, less sophisticated equipment.

Staffing costs – Salary costs differ by region and are typically higher in urban than rural areas.  Shortages of nurses and other medical personnel affect regions differently.  Where shortages are more severe, the competitive staffing costs may be higher, resulting in higher charges.

Types and range of services – Hospitals often offer different levels of care and specialize in one or more types of services.  For instance, a hospital may specialize in heart procedures or psychiatric care, and may show higher median charges than other hospitals for these services because of the expense involved in treating severe cases.  Also, hospitals differ in the range of services they provide to patients.  Some may provide the full range of services required for diagnosis and treatment during the stay.  Others may stabilize patients and then transfer them to another hospital for more specialized care.

Service frequency – The per-patient cost of services is generally higher if the type of hospitalization occurs infrequently at the hospital.  Infrequently used services may cost more than services that are used more frequently.

Hospital cost structures – Hospitals differ in their approach to pricing based on operational costs.  Some hospitals try to spread the cost of all services and equipment among all patients.  Others establish charges for specific services based on the cost to provide each specific service.  Furthermore, some hospitals may decide to provide certain services at a loss while other hospital operations subsidize the losses.  Any of these situations can result in significantly different charges among hospitals for a given diagnosis or type of service.

Capital expenses – Hospitals differ in the amount of debt and depreciation they must cover in their charge structure.  A hospital with a heavy debt load, a new building, or major renovation to pay back may have higher charges than a hospital without such expenses.  Furthermore, hospitals may choose to lease or purchase equipment or facilities.  The choices made about financing of capital projects may affect charges in different ways.   (back to top)