Healthy Policy: Exactly what price transparency isn't going to do

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March 20, 2006

Exactly what price transparency isn't going to do

From the opening paragraph of this WaPo article:

Hospital bills are about to become less mysterious. Within a few weeks, the Bush administration plans to publish the prices Medicare pays for common medical procedures, a move that advocates for the poor say will pressure hospitals to give uninsured patients the discounts provided to people with insurance.

I hate to get all nit-picky on this, but I have to.

First of all, this is not going to make hospital bills less mysterious AT ALL. There will still be five million billing codes, five million acronyms and foreign phrases, and lists and lists of things patients are charged for. No, this has nothing to do with simplifying bills.

What it does do is list the price Medicare pays for certain procedures.

But I'd like to see just exactly how, especially in the light of Medicare Part D, this listing is going to "give uninsured patients the discounts provided to people with insurance."

Really though, in the interest of fairness, let's look at how hospitals work with insurance companies. The insurance company agrees to cover services at a given hospital, and the hospital agrees to charge discounted prices because of the guarantee of patients.

What happens when an individual comes to the hospital? They have no contract with the hospital. If they're uninsured, they have no guarantee (nor can they make one) that they will return to the hospital for further business. And lastly, if they're poor and uneducated, they have no access to these price lists, have never heard of these price lists, and certainly have no clue how to use price lists to leverage their payment.

That being said, Medicare, with its huge bargaining power, should have control over how much it pays for services, and use that as general tool to influence more uniform pricing. Price transparency is generally a good thing, and something that we could certainly use more of.

But let's not be naive about what price transparency will accomplish.

March 20, 2006 in Consumer Directed Health Care, Health Care Spending, Hospitals | Permalink

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[From Kate Steadman at Healthy Policy] Let's not be naive about what price transparency will accomplish...[read... [Read More]

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Kate Steadmans got a great post on her blog about pricing transparency and what it isnt going to do. Check it out by clicking here. A heated debate has recently flared up over the Bush Administration’s proposal that hospitals disclose... [Read More]

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Comments

It's sadly true. Without bargaining power, knowledge of negotiated rates gets you nowhere. When my uninsured sister had to have an emergency appendectomy, I tried to negotiate with the hospital over her unpaid bill. I was able to determine that Medicaid would have paid less than half of the bill. So I offered the hospital 50%, figuring they would rather take that than get nothing if my sister had to declare bankruptcy. They turned it down flat. The wanted 80% of the bill or nothing. They got nothing. My sister had to file for bankruptcy. The sad part is that all of the doctors involved had agreed to accept half of their usual fees and she was paying them. But once she filed for bankruptcy, she could not pay any of them. So not only did the hospital screw itself over, it screwed over its doctors. Can anyone explain to me why it made more financial sense for the hospital to choose getting nothing over getting 50%? Is there some kind of tax break or state funding issue involved?

Posted by: Jeanne | March 20, 2006 at 04:35 PM

Alas, I wish I was a tax expert... I know more about the financial reporting side of how discounts versus bad debts get treated for hospitals, and in that regard, this doesn't necessarily make sense.... unless the hospital is trying to show revenue growth (discounts get lopped off of revenues, while bad debts are booked further down as an expense with the full value of the debt still in revenues).

More generally, Kate, I think you are underestimating the risk that hospitals will face when if they get shamed by price transparency, but, you are also right that it makes no sense to require that the chargemasters be published since they are basically uninterpretable without a serious computer program. Hopefully the regs will require disclosure by DRG or for some common procedures (ex. appendectomy, CABG, c-section, angioplasty, etc.) that would actually allow for meanginful comparisons since these would be episodes of care. One itneresting idea for uninsured patients would be to make it financially advantageous for hospitals to accept payment equal to the weighted average discount of their private-pay patients, thus providing the uninsured with the benefits of private payor negotiations.

Posted by: Martin | March 20, 2006 at 05:00 PM

Martin, haven't heard from you in awhile, glad you're still reading.

Re: "One itneresting idea for uninsured patients would be to make it financially advantageous for hospitals to accept payment equal to the weighted average discount of their private-pay patients, thus providing the uninsured with the benefits of private payor negotiations." Now that's an interesting idea. Although my quibble with it would still be that it's an incredibly indirect (and therefore inefficient) way to deal with the uninsured acquiring care.

Posted by: Kate | March 21, 2006 at 11:03 AM

I'm not confident that publishing DRG's will be particularly effective in doing much of anything. That being said, even the knowledge of what they are reimbursed won't neccissarily help you in reimbursement situations.

Common situation in my area:

Listed charge for a CBC -- $250
INS B Payment for a CBC -- $20
INS A Payment for a CBC -- $25.50
Medicare Payment -- $10.89
Inside sales charge (to staff physician offices)-- $4.10

I happen to know this, but in the few cases where I've been called in to negotiate for a patient, its useless after the fact (emergency care). I have been able to negotiate reasonable costs on elective care (usually Medicare + 20%).

Posted by: Dan | March 21, 2006 at 03:06 PM

Dan shows us the real reason why transparency is sorely needed. Five different prices for the same thing differing by TWO orders of magnitude screams: SCAM !!!

Let's see what standing against transparency means:

1) We want to keep individual purchasers in the dark
2) We want to keep inefficient cost structures
3) We want to keep the price differential between what individuals and insurers pay

I would rather support selling American ports to Dubai than argue against giving consumers the info they want! How can anyone defend this to the public?

Without putting some real sunshine to the system any discussion of the financing reform is moot:
Open Medicine vs. Single-Payor Healthcare

Private market has its limitations, but this is the case where it can work wonders.

Posted by: The Medical Blog Network | March 22, 2006 at 10:57 PM

Really though, in the interest of fairness, let's look at how hospitals work with insurance companies. The insurance company agrees to cover services at a given hospital, and the hospital agrees to charge discounted prices because of the guarantee of patients.

I don't think so. I have insurance and I see that my insurance company pays only ONE TENTH of the usual and customary fee for lab tests, and gets other massive discounts. I had one procedure that cost $60 and the insurance plan was charged $0.

What's happening is that costs are being shifted from the insured to the uninsured. Why do the uninsured default on their bills? Because they are paying not only their own bills but heavily subsidizing the insured. It's fundamentally unfair.

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Healthy Policy

A journey through policy, progress, and being a patient by Kate Steadman

March 20, 2006

Exactly what price transparency isn't going to do

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