Transparency in Healthcare Pricing in the US

Some might say that fixing healthcare in America is like changing the tires on a car that’s plowing ahead at full speed on the highway. If that’s the case, then we may have just loosened up a lug nut or two-and that’s a good thing.

Lawyer turned author, Steven Brill, recently wrote a special health report for Time Magazine, Bitter Pill: Why Medical Bills Are Killing Us. This insightful piece highlighted the impact of high hospital prices in the healthcare cost crisis currently engulfing the US. The report featured stories of individuals whose lives were adversely affected, to say the least, by out-of-control hospital prices, shedding light on the fact that over half of all personal bankruptcies in the US are healthcare related. In another bid to increase hospital pricing transparency, Medicare publicly released charge and payment information for popular inpatient procedures at hospitals across the country. (Medicare Provider Charge Data, FY 2011).

Surprisingly, hospitals often discount the importance of the disparity in prices for the same procedure. They state that these charges do not matter or that nobody pays the full charges, and in some cases they’re right. Medicare’s payment system for inpatient procedures reimburses hospitals based on patient diagnosis and the cost of care, irrespective of the dollar amount on the final bill. The hospital can charge whatever they want to Medicare, which has a great system in place to effectively mitigate the role that the billed charges have on the amount they pay.

However, Medicare is not the only payer out there. While moving towards a similar reimbursement model to Medicare, private insurance payers are still paying many services as a percent of the billed charges, especially in markets where hospitals have major bargaining power. Having previously had exposure to this firsthand doing financial consulting for hospitals, I can give concrete examples of major private insurers only able to negotiate discounts as low as five percent off of total billed charges in cities with only one major hospital.

And let’s not forget about the uninsured. After reading Brill’s piece, I wouldn’t dare tell anyone struggling to pay off a large medical bill that the charges billed by the hospital do not matter. After all, if the charges didn’t matter, why wouldn’t hospitals with abnormally high rates take them down a notch? What harm could it possibly do?

Below you’ll find a graph showing the average billed charges for the most common inpatient procedure in 2011 (as released by Medicare in the link above) at multiple hospitals in Practice Fusion’s hometown of San Francisco.

For the procedure in question above, a major joint replacement “without major complications or comorbidities,” the costliest hospital charges were over two and a half times more than the cheapest. Because the released Medicare data for this procedure includes only Medicare beneficiaries with similar case complexities the argument that one hospital’s patients may be sicker than another or in need of more complex care just doesn’t hold to be true.

Even more interestingly, according to hospital safety scores, which measure a hospital’s ability to adhere to best practices for reducing patient harm, there is no correlation between charges and a safer hospital experience for this common procedure. The cheapest hospital here, at least according the final dollar amount on the bill, also happens to be the safest. This flies in the face of all reason; higher charges for a service or good in any other industry will generally indicate a higher quality experience.

Increased price transparency will continue to benefit the consumer and the US healthcare system as a whole. If we know more about how we’re spending our money, everyone is better off, except maybe some of the more profit-hungry hospitals mentioned by Brill. The transparency movement mentioned here ultimately helps patients make better and more informed decisions regarding their care. What’s not to like about that?

Leave a comment »