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POLICY: If You Can’t Beat Them, Beat Them Back By Thomas Leith

The Wall Street Journal reported in a June 13th article,
  Page D1
that several major insurers (Aetna, Cigna, Humana, UnitedHealth)
  as well as Medicare are disclosing the prices they have negotiated with doctors
  and hospitals for a number of common procedures. Some are beginning to include
  quality indicators with the pricing information. This is an apparently-growing
  trend that may spell doom for companies like HealthGrades,
  but this wasn’t noted in the article. One interesting thing: apparently at least
  a few insured people have used the system, even though they’ll be well past
  the deductible. Maybe some few will note a link between the premiums they pay  and the Medical Loss Ratio their insurer experiences. On the other hand, the
  article notes that in the absence of any other quality indicator, people may
  think that more expensive implies higher quality and choose the
  high-cost provider.

The insurer’s tools are restricted to their own plan members: this means if
  you’re covered through Cigna you can’t tell what out-of-pocket costs might be
  for somebody covered by (say) United. The article goes on to detail several
  of the limitations inherent in these disclosures, well-known to readers of The
  Healthcare Blog. Tools like these might actually be useful to those with HDHP
  coverage, or the uninsured.

But there’s more. The article says states are beginning to mandate that hospitals
  disclose their charges. Charges amount to the "list price" that almost
  nobody pays, so this isn’t very helpful to prospective patients. The list includes
  South Dakota, Minnesota, and Florida. I wonder who got the states to mandate
  that instead of something useful. Some state hospital associations are evidently
  taking proactive measures, and have created their own websites to disclose hospital
  charges before being told they must. But why would they do this?

Look at this from the New Hampshire Hospital
  Association PricePoint system
:

How much do government programs pay compared to other payment
sources?
In many cases, Medicare & Medicaid reimburse hospitals at rates that do not
cover the costs they incur to provide care. Payments from privately insured
patients generally subsidize the shortfalls created by Medicare and Medicaid
and therefore represent a “hidden tax” on individuals and families not
covered by government programs.

Where have we heard this before?

When you ask for prices, you get median and mean charges with no promise that
  your bill will bear any resemblance to either figure, and this editorial.
  Apparently, they expect they’ll be forced to disclose someday, and this way
  they can control the content of the disclosure. If the legislature gets involved
  the hospitals might not be allowed to put their own "spin" on things. This actually
  is brilliant strategy. They’re not disclosing very much, but they can claim
  they’re being as transparent as they can be, given the vagaries of medical treatment.
  They can lobby commercially-insured patients to lobby congress to increase Medicare
  reimbursements with an implication that the amount they pay in "hidden taxes"
  will go down. But of course it won’t. They do not mention that there are many
  cases for which Medicare & Medicaid reimburse hospitals at rates that exceed
  the costs they incur to provide care. Imagine! Finally, they offer no assurances
  that the costs they incur to provide care are reasonable.

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3 replies »

  1. Barry asks about hospital revenue by admission source.
    The California Healthcare Foundation published a report on this very topic in July 2003. One of their findings is that non-trauma ED admissions account for half of all admissions, and 20% of the margins. They estimate that closing the ED will lose about 1/3 of all admissions for a hospital. This sounds about right.
    On the basis of this, let’s say that about 2/3 of admissions are elective (meaning “scheduled in advance”) and 1/3 are through the ED which implies a certain urgency, but not necessarily a life-and-death-by-the-minute trauma situation.
    The way I read it, admissions through the ED are only half as profitable as other admission sources. So, if you’re turning away scheduled patients because your beds are filled with admits through the ED, you should close your ED and have your employed medical group open a 24-hour doc-in-a-box across the street to snag the insured-urgents without falling under EMTALA and see what it does for you. This is not the conclusion the CHF wants us to draw, however.
    I am sure this report is not the last word on the topic, and I am also sure that every hospital’s going to look different.
    t

  2. As I’ve said before, the biggest potential benefit from pricing transparency relates to hospital procedures and services. While medical care rendered under emergency conditions does not lend itself to price shopping, of course, surgeries and other tests and procedures that need to be scheduled well in advance certainly do. Perhaps Tom could provide some data as to how much of the typical hospital’s revenue is attributable to surgeries and related tests that were scheduled in advance (as opposed to performed on patients admitted through the ER).
    While I agree that hospital charges are not terribly useful in helping an insured patient understand what his cost will be out of pocket or what his insurer will actually pay, the CMS data on the 30 procedures it recently posted on its website is instructive. A quick scan across all 30 procedures showed Medicare payment rates for hospitals in New Jersey, at least, were between 30% and 35% of charges. That would be useful information for an uninsured person attempting to negotiate a reasonable discount from the absurd list price. I hope CMS expands upon this effort and, in the near future, provides similar information for all of its DRG’s.
    It is no secret that some hospitals have much higher costs than others. If high costs are attributable to performing a teaching function or treating a disproportionate number of uninsured patients, those excess costs need to be covered by a state or federal subsidy. If their excess costs are due to inefficiency, poor management, and/or persistent low occupancy rates in a market with excess capacity, they should downsize or close. If pricing transparency can help speed up that process, it’s a good thing, I believe.

  3. I’m on the side of the insurers on this one, as long as they publish the actual reimbursement rates. Charges alone would be darn near useless, as Thomas points out. Providers really have no cause to squawk about this since the EOBs we all receive after every episode of care contains both the charges and the reimbursement. What’s the diff in publishing this information before the episode of care?
    That said, I don’t think people will use this information in the way the optimists hope they will. People won’t switch the family doctor they like to save $1 on a stitch. Ask any woman who likes her OB/GYN what it would take to get her to switch, and large gemstones is where the discussion begins. And certainly in an emergency situation, no one is going to log on the Web to start price-comparing.
    However, perhaps the most beneficial way to make use of this information is when preparing for a planned, covered procedure. You can discuss with your primary care doc why he’s referring you to the more expensive specialist, and ask if there’s another, less expensive provider (or actually come in armed with the name of some). Or when there are several courses of treatment available (e.g. X-ray vs. CT vs. PET), you can ask the doc why he recommends the most expensive one and what are the pros and cons.
    Here’s the key point: This may not reduce the cost of care. In many cases, the most expensive procedure or the more costly doc may be the “right” choice. But at least the information will provide more opportunities for discussion between doctor and patient that will lead to better outcomes. No harm in that at all.
    But then again, maybe I’m being the optimist, because how many sick people have the gumption to challenge a doctor?

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