Sunday, March 11, 2007

Health Care Pricing Transparency - Help or Hindrance?

Health Affairs has a Web Exclusive entitled "Shopping for Price in Medical Care" (subscription req'd) by Paul B. Ginsburg. The article raises some interesting questions about the usefulness of pricing transparency and the barriers to publishing meaningful numbers.

As someone who is intimately involved with publishing health care pricing, I've struggled to answer the questions "who does this benefit?" and "who shops for health care by price?". One of the largest problems I face when publishing hospital pricing is that the only data I can readily lay my hands on is hospital charges.

For the uninitiated, getting an operation can have many price tags. In the following examples I will use hip replacement surgery, a well-known New York hospital, and data from several public pricing reports.

The first is the charge. This is the same as the sticker price on a new car. It's the manufacturer's recommended retail price. We all know no-one pays the sticker price on a car, but unfortunately there are plenty of people who receive a sticker price bill for hospital care. The uninsured, who are by definition the least able to afford health care, are charged full price on the bill. As with anything, this is negotiable, but few people realize this.

Average Hospital Charge: $32,800

The next amount you might hear is cost. This is the cost price of performing the service. Back to the car dealer, this would be how much the dealer pays for the car before the price gets marked up.

Hospital Cost: $UNKNOWN, but a good guess for this hospital would be $20,000

Another way the final bill might be computed is negotiated rate. Simply put, this is a bulk purchase price. A car dealer might come up with a steeply discounted price for a customer who will buy twenty cars instead of one. Hospitals do the same by discounting services to health insurance plans who will hopefully push a lot of business their way.

Average Guesstimated Negotiated Rate: $26,000

Then we have reimbursement rates. These are the set prices, give or take, that government pays if the patient is eligible for Medicare or Medicaid. Sort of GSA pricing for surgery.

Average Medicare Reimbursement: $18,000 - $21,000
Medicaid Reimbursement: $20,500

So, how does any of this help you? Can any of this help you?


Well, let's say you're a self-employed computer programmer. You made $60,000 last year, and you owe $20,000 in taxes. You get your hip replaced. You are not eligible for Medicaid, nor the hospital's own charity care policy.

You get a bill for the sticker price, i.e. $32,800.

That's 50% of your annual net income.

Some hospitals make it clear you can apply for discounts, some don't. There's even been confusion from hospitals wondering if they were legally allowed (PDF) to offer a discount.

I once had a guy work for me who was fighting an $80,000 bill under similar circumstances; his HMO had denied payment and he was stuck with the bill. Once he started working on a hospital pricing report he became aware of what insurance companies were likely paying for the same type of surgery. This helped him successfully negotiate with the hospital.

Let's take another example.

You have a decent insurance plan from your employer, but you really want to go to a specific hospital that isn't in the HMO network, maybe it's closer to your house and you want your kids to be able to visit you. You figure you'll just soak up the co-pay. But how much will it be?

In the example above, the surrounding hospitals charge on average anywhere from $15,000 to $49,500 for the same surgery. That makes your 20% co-pay anywhere from $3,000 to $9,900.

Would that factor into your decision to go out of network?

Don't forget that if you do in fact go out of network, your HMO is stuck with the other 80% of the retail price as they have not negotiated a price with the out of network hospital. This drives up the cost of your employer's health insurance premiums, reducing the pot of money the employer may otherwise have for salary raises while driving up the employer's cost of doing business, thereby reducing your employer's competitive pricing in the open market, thereby reducing your job security.

Health Affairs itself has published a study that shows illness and medical bills caused half of the 1.5 million personal bankruptcies in 2001, affecting mostly middle-class people who mostly had health insurance at the beginning of the illness.

My Office

I have about twenty news articles pasted up on my wall of horror story after horror story that could have been avoided if the person had known their rights and options before getting hit with an unpayable hospital bill.


Of course, none of the above includes any bill from your surgeon or your anaesthetist, this just pays room and board, medications, and ancillary services. Surgeons are often not employed by the hospital, although they're the ones ordering all your labs and tests and medications.

This is what leads to the complexity of publishing pricing in the first place: what exactly is the cost of care?

A typical hospital visit may incur an ER bill, a hospital stay bill, a doctor's bill, a surgeon's bill, an anaesthetist's bill, some home care and maybe an ambulance.

Each bill will come from a different provider, and each one will be subject to different discount, charity and payment plan options.

Imagine settling on a car then getting a separate bill for the tires, windows and air filter from three companies you've never heard of.


High deductible health plans are all the rage now, or at least they're trying to be. The idea is that as consumers we will become more price-conscious as we take on a larger portion of the cost of our health care.

The health care industry has done such a great job of insulating us from the money changing hands that we now live in a perpetual state of blissful ignorance where higher prices mean better quality care to the average consumer. It's invisible money, free money; and the less we spend the more someone else might.

The doctor wants to run more tests? Go for it, I'm not paying. Didn't I just have those tests a month ago? Yep, but who knows how to get the record of the results? It's not like a bank statement where I can go online and pull down my most recent lab results. It's on a piece of paper, in a cardboard folder, on a metal shelf, with half my name on it, at some doctor's office. That would take some effort on *my* part. Nah, let the doc run the tests.

"Utilization" is a fancy word the industry uses instead of "consumption". Given that "consumption" could mean use of services or tuberculosis, this is probably necessary, but still, we're forgetting how much we consume. There's no need.

I wish that when I next publish a pricing report I could post the anticipated co-pay for a given health plan. Outside of the five percent of discharges that are uninsured, charges are, in some ways, worthless.

Unluckily for me and you the negotiated rates that lead to your co-pays are secret sauce insider information that is kept as proprietary information. Some insurers are starting to post co-pay amounts on their member-only Web sites, which is great news, but the rest of us are still in the dark.

While true that taken entirely by themselves hospital charges are shallow, uninformative numbers, I think the national conversation that has been started because of efforts to publish pricing will lead to a more informed consumer, one who evaluates the standard of the health care delivered without blind acceptance of price or quality.

There are variations in price and quality.

There are variations in price and quality.

There are variations in price and quality.

That's important to know.

We're getting to a place where providers will be reimbursed at higher rates for providing higher quality and better outcomes. We're getting to a place we're consumers are more aware of their options, and their responsibilities. We're getting to a place where providers will be held accountable for their quality of care or lack thereof.

In the meantime, while we build this, we need every ounce of information we can get our hands on. No-one's crying that there's too much information out there, just that we don't necessarily know what to do with it.

It's a work in progress, and I for one do not intend on sacrificing good on the altar of perfect. We work with what we've got, and we push for more.

The health care industry at large has to stop trying to apply peer-reviewed, scientific methodological philosophies to customer satisfaction.

Information wants to be free, and health care doesn't. Let's find a middle ground and work towards actionable public reporting of quality *and* pricing *and* patient satisfaction.


If you want to learn a little more about the pricing of health care, visit - they have dozens of price reports on hospital stays, prescription drugs, nursing homes and general medical care.


Disclosures and Disclaimers


My employer is compensated through funding to provide analytical research, technology solutions, and Web-based public and private health care performance reports by the State of New York, the State of Illinois, the Centers for Medicare & Medicaid Services, the Agency for Healthcare Research and Quality, the Commonwealth Fund and Bridges to Excellence. I am not being compensated by any of these organisations to create articles for or make edits to this Web site or any other medium; and all posts authored by me are as an individual and do not represent my employer or the agencies I work for.