Using Price Transparency Data Within the Hospital

Last week, CMS unilaterally released chargemaster data from 300 hospitals around the country. As David Dranove summed up well in his recent piece, this is an old hat. Yes, there are big variations in hospitals’ chargemasters. And yes, there is a lot of buzz around consumer price shopping.

A Kayak for hospitals is all well and good, but hospitals are cash-strapped as it is and there is only so much money to be saved by driving down the costs the hospital charges the health care plan unless the waste within the hospital is addressed. I would like to highlight perhaps one of the most exciting things going on under the radar in US healthcare today: using price transparency data within the hospital.

Hospitals are now reimbursed a capitated amount according to each patient’s diagnostic-related group. Capitated payment means, essentially, that the hospital receives a set amount of dollars for each patient that walks through its doors with a given diagnosis — say, $X for a patient with pneumonia or $Y for a patient with MI. Regardless of how many drugs, tests, or scans the hospital uses for the patient, it will still get the same compensation from the insurance company.

Yet, the physician up until now still acts as a kid in a candy store, running up a bill without awareness of cost or value. This is largely because the doctor is ordering from a menu without prices. I have talked to many physicians, in both out-patient and in-patient settings across seven health care systems around the country — they want a menu with prices.

I have seen firsthand the motivation for this, as pay-for-performance model is beginning to take over with my own practice. Gone are the days where doctors’ salaries are unhitched to the cost-effectiveness of care. Everyone is now in the same boat.As a neurologist, I want to share a few examples regarding stroke care that illustrate the potential savings available from educating physicians regarding cost, and also some pitfalls to avoid that could compromise patient care.

CTA and MRA are two imaging methods of diagnosing clogged arteries in acute stroke patients. CTA can be used in most cases, and is more timely and detailed in showing arterial status than the roughly equivalent MRA. This makes it preferable as a diagnostic tool in acute stroke cases. However, MRA provides similar information and is frequently ordered in conjunction with an MRI since it utilizes the same machine, and the MRI test is being done anyway to obtain different and necessary data.

The piece of information that physicians do not often consider is that CTAs are thousands of dollars cheaper for the health system than MRAs. This saving holds true even if an MRI is done and then a CTA is done separately. Having a comparison price tag at the point of ordering informs the physician to think twice about the routine selection of a vastly more expensive test, and leads to savings for all stakeholders, including the health system.

Likewise, in treating hemorrhagic stroke, doctors frequently order Factor VIIA to control bleeding which not only costs $10,000 a dose, much more than the alternative — fresh frozen plasma — but also carries a higher risk of clotting complications. There are specific indications for preferred use of Factor VIIA, but 97% of the time it is used inappropriately.

The good news is that physicians are getting on board with the new model. I know this from my own experience as a stroke director for a hospital administering “Get With the Guidelines”, a nationwide computerized tracking program of stroke care that includes a physician-accountability component. This initiative has led to dramatic improvement in the screening and treatment of elevated cholesterol in the acute stroke patient.

At the same time, we must be careful of being penny-wise and pound-foolish. For instance, TPA is an anticoagulant that is used to treat stroke shortly after it occurs. Although it is very expensive, TPA is critical for post-stroke care, and discouraging its use due to its cost would be inappropriate. Not to mention, it would actually raise overall costs because the hospital would have to deal with sicker patients for longer.

Whether it is prescribing pricey Plavix instead of the equally effective aspirin, giving redundant blood tests, or ordering hypercoaguable workups in older patients, there is so much room for improvement. The trick is in large part to inform physicians — the ones whom the burden of value is being put on in the post-reform world — at the point of care about the relative prices and value of their options, enabling them to make optimal medical decisions, while not sacrificing quality. We are already seeing the impact of putting price transparency in the doctor’s hands in studies emerging form Johns Hopkins (FN) and other leading thought leaders such as University of Pennsylvania Health System and CHOP, where price transparency is being brought not to patients’ iPhones, but to the point of order.

Dr. David Halpert is the Stroke Director for the 200-bed Arnot Medical Services, a regional hospital serving upstate New York. Dr. Halpert is also the Chief Medical Officer of MemberRx, a company sponsored by Penn Medicine, Independence Blue Cross, and DreamIt Health and working with health systems around the country to transition successfully value-based care models.

22 replies »

  1. It okay Indiana Pacers, with a 96 91 victory over the Nets and a now historic start for the franchise, I got your back. I catching up on the DVR from the beginning of the second half to take some notes in retro diary form (with 100% of the idea credit going to Grantland Bill Simmons of course) to see how we in fact got to this point. To start the third quarter, Brooklyn would be leading the way 46 44, with the only difference between the two teams seemingly being the fact that Brooklyn bench outscored the Pacers bench 16 6. And we start NOW!

  2. Thanks for this article. We set up hosputell.com to keep the conversation around price transparency elevated.

  3. Dr. Halpert,

    I appreciate the response. If you’re available for a quick 15 minute conversation please send us a note at info@opscost.com with a time (+time zone) and a number that it would be convenient to reach you at.



  4. Dr. Halpert –

    Thanks very much for the explanation of the history behind confidentiality agreements in the healthcare field. Frankly though, I find it hard to accept.

    In every other field that I can think of from retailing to air transportation to corporate law, price transparency is routine and expected. Among national retailers, most categories have consolidated into two strong competitors and maybe a week third one in most categories. Think of Home Depot and Lowe’s, Walgreen and CVS, Wal-Mart and Target, etc. Yet there is plenty of price competition between them.

    Corporate law is more similar to healthcare in that it is a personal service business where clients hire lawyers for their expertise. Young associates are paid at a much lower hourly rate than senior partners. While hourly rates may be similar from one firm to another, bundled prices can sometimes be negotiated and some firms are better than others in specific areas.

    In healthcare, even within the same practice, a new doctor just out of residency should be willing to work for a lower hourly rate than a 20 year veteran as he builds a practice and his expertise. Some docs are better diagnosticians than others and some practice more cost-effectively than others based on their training, their expertise and their fear of lawsuits or the lack of fear.

    On the litigation issue, it would be enormously helpful if we had robust safe harbor protection from failure to diagnose lawsuits for doctors who follow evidence based guidelines and protocols where they exist. That could reduce defensive medicine significantly.

    Personally, I want to see confidentiality agreements disappear as soon as possible. If there are unexpected adverse unintended financial consequences from doing so, we can deal with those later. I’m more than willing to take the risk that there won’t be any and the positive financial consequences for the healthcare system and the economy could be huge, at least over time.

  5. Insurers do often shoulder the blame, indeed.

    Many plans do have preferred provider networks, obviously, similar to what you are stating. It’s always a trade-off, as you mention.


  6. Barry,

    Well put. The confidentiality agreement is indeed the catch. The original purpose of making providers’ prices non-shareable was to prevent collusion between docs. The reg folks have always rightfully seen the issue of price-sharing as a trade-off between anti-competitive forces (price-fixing) and pro-competitive forces (steering and shopping).

    As we get into 2014, the balance is shifting towards seeing price-sharing as ultimately more pro-competitive than anti-competitive. This is a philosophical as well as regulatory paradigm change. The government has already sent a signal of its intent loud and clear with the release of the chargemaster data last week. This data is not actually much informative (as David Dranove pointed out in his recent piece) — chargemaster numbers are arbitrary and non-correlated with real prices — but the move carries a lot of symbolic import.

    For any interested reading in the FTC’s own words the reg Barry is referring to, you can see it here: http://www.ftc.gov/bc/healthcare/industryguide/policy/statement6.htm


  7. In theory all insurers could use some form of tiered pricing — where a patient who chose (or whose doctor) chose a more expensive hospital would have a much higher co-payment.

    Car insurance companies have used a version of this for years.

    I suppose that its use has been limited in health insurance, because the insured would complain to their employer that they were ‘being denied the best care.’

    Whenever there is a serious standoff between an insurer and a medical network, I have noticed that most of the public blames the insurer.

  8. There are several issues that are relevant here, in my opinion.

    First, doctors working within hospitals that are being paid mainly on a case rate (DRG) or per diem basis need to know how much hospitals actually pay for specific drugs and devices. For services like imaging and labs, marginal costs may be quite low compared to the fully allocated cost including space, related utilities, equipment and general hospital overhead. They probably need to know both.

    In a famous recent case, Memorial Sloan Kettering decided to stop using a colorectal cancer drug called Zaltrap because it cost twice as much as Avastin but was no more effective. Within four weeks of that decision, Zaltrap’s manufacturer, Sanofi Aventis, cut its price by 50%. Market forces can work with timely and accurate information regarding cost and quality.

    For patients, we need to understand that the cost of our health insurance, while nominally paid for by our employer for the most part, is actually paid by employees in the form of lower wages than we would have otherwise been paid. To the extent that we, in concert with our referring doctors, can quickly and easily identify the most cost-effective high quality providers, it would be a lot easier to steer our business to them. For that, we need disclosure of actual insurance contract reimbursement rates paid to doctors, hospitals and other providers along with reasonable quality metrics. The rub is that these contract rates are currently protected by confidentiality agreements which preclude their disclosure. That needs to change and soon.

    Contract rates paid by private insurers vary considerably from one provider to another based mainly on local and regional market power, not care quality. Contrary to what many people think, more care is not necessarily better care and more expensive care often isn’t better care either. When you insulate patients from the cost of their care beyond a nominal coinsurance payment, they don’t care about costs and they don’t want their doctors to care either.

    We need to move away from the fee for service payment model outside of the hospital setting and we need robust, user friendly price and quality transparency tools for both patients and referring doctors. To make this happen, confidentiality agreements covering payments by insurers to providers and by providers to drug and device manufacturers need to be eliminated by regulation changes if possible or by legislation if necessary.

  9. Dr. Motew,

    Glad to hear from you. You are right on — devices and suppliers need to be included in this picture. I would be curious to hear your thoughts on how you are currently selecting devices etc. in your own practice. Happy to start a conversation offline as well.

  10. Bob,

    Not dumb questions at all. The short answer to your first question is that it’s not a simple situation. Factor VIIA is extremely effective in a minority of cases, and so it needs to be available as a treatment choice for docs. The top priority in every health system should be to achieve the best outcomes — not to save the most dollars. However, as Atul Gawande has found, outcomes-based medicine that is practiced with this guiding Polaris will (in almost all cases) also lead to the best economic outcomes for the hospital.

    As for your second question, big ticket items like heart transplants and the like are expensive even in DRG and per-diem cases because each DRG and per-diem price is modeled on the inputs (doctors, devices, meds, materials, organs, etc.). Some procedures (such as heart transplant) are simply more costly and so have extremely high DRGs and per-diems. One thing to keep in mind, though, is that some of the biggest complaints about soaring hospitals bills often come from cash-payers, which is a completely different story.

    Hope this helps.

  11. It’s really important for consumers to realize that more expensive care doesn’t equal better care. And consumers need to understand that the cost is an issue to them. I have had patients demand a serum pregnancy test, rather than a urine test because it is more accurate…when really pregnant is pregnant. Serum quant HCG usually costs 10 times a urine qualitative HCG. Patient response: ‘Well, it’s covered by my insurance, right? The cost isn’t an issue to me.’ This is off topic for this blog, sorry.

  12. George,

    Thanks for writing in. I think there is definitely some value in building shoppers for consumers, like yours and some of the other projects in this area. Would be happy to talk more offline if you would like.

    Keep up the good work.

  13. It will be difficult to understand the impact of reimbursement and charges without truly understanding underlying costs.

    Mandating price transparency of the device, pharma and supply companies would help in this endeavor.

  14. Dr. Halpert,

    Thanks for the insightful piece, which presents a nuanced angle that I, as an outsider to the healthcare profession, had missed. Funnily enough, we (a tech company) recently put a rough ‘Kayak-style’ interface on the data that was released, and have posted it at http://www.opscost.com. Our goal in doing so is to contribute to the dialogue around healthcare costs by making that raw data more accessible – most folks can’t parse a 160,000 row spreadsheet. I’m very interested in whether you think this is an effort worth pursuing, and whether making the data available in this format adds or detracts from the conversation.



  15. And we all know that the financial industry lacks transparency when it comes to pricing their products and services, but banks aren’t given federal grants to improve price transparency. No doubt that hospitals have got banks beat when it comes to receiving corporate welfare!

  16. “HHS to Offer States $87M in Healthcare Price Transparency Grants”


    The dirty little secret why hospital charges are inflated is not because they discount or negotiate actual payments to insurance companies, it is the charge they pass on to consumers who either don’t have insurance or whose insurance doesn’t pay the full “reasonable and customary” charge. Plus the hospital gets to count those unpaid charges as bad debt as a tax benefit. Many hospitals use a secret “chargemaster” to list fees, and most of the time they don’t have any idea what those charges are or how they were determined. Now the taxpayer/consumer has to pay the hospital to clean up their accounting so it can tell the consumer how much its charges are? The truly absurd thing is that HHS has no idea what the “going rate” for hospital fees is anyway; it was the one who designed the system to begin with.

  17. Let me ask two questions, probably somewhat dumb questions but they have a purpose:

    a. If a hospital knows it is getting reimbursed on DRG’s or per diems, then why doesn’t it use the cheaper versions of equipment and drugs? Why does it even make the superexpensive MTA’s and Factor VIAA’s available?

    I suppose that doing so would drive away the very surgeons it needs.

    b. In a world of DRG’s and per diems, how do some hospitals manage to collect over $200,000 for transplants, a few heart surgeries, cancer cases, etc.?

    Especially if the patient is only in the hospital for 10 days

    Are the DRG’s themselves that high? Are the per diems that high? Or do hospitals make their living on outlier cases?

    Thank you.

  18. Nikhil,

    Thanks for writing in. Glad to hear your interest. We have worked on this exact question — what prices are the most appropriate to display to the doc — with leading clinicians in drugs, labs, and rads from around the country. The short answer is: It should always be patient-centric, but it depends on the context. In the hospital, using a standard benchmark such as Medicare pricing for labs and imaging is the favorite choice of physicians and admins — it is preferred to the chargemaster since it is more realistic, and it is preferred to total patient+insurance costs since most transactions are DRG-based or per-diem and not based on copays. In outpatient settings, however, the emerging favorite is to generally always go to what the patient pays. At the end of the day, medicine is about patient impact and quality of care, and so this is our North Star in everything we do.

  19. Bob,

    Thanks for the questions. This stuff has been opaque for so long that even people that work for health plans are still confused about the rules. Hospitals generally get reimbursed in three ways: 1) DRGs, 2) per diem, and 3) percent of charges. The first two are the main methods across public and private insurance, and the third is a legacy of fee for service that is lingering but decreasing.

    As for Factor VIIA, I am not an expert in how it was priced, but you might find the Times from 2011 an interesting further look at this issue in particular: thttp://www.nytimes.com/2011/04/19/health/19surgery.html?_r=0

  20. Price transparency is obviously one of the most important areas where health care costs can be reduced dramatically. Thanks to this article, I now understand that doctors want this, payers want this, patients want this, hospitals want this, … It looks like only thing left is the execution of basic technologies to let practitioners see prices of everything they order and prescribe. This won’t save only doctors from being the kid in the candy shop, but also will save the economy from billions of dollars of waste. Saving lives is a sacred duty hospitals undertake; but saving the wealth of the country for next generations is also as important. A penny wasted during my care is a penny stolen from my child’s care.

  21. Thank you Dr Halpert.

    2 quick questions:

    1 I know that Medicare reimburses on DRG’s as you describe.

    Do all private insurers do the same? I thought not.

    2. Why does America not control the price of Factor VIIA?

    I realize that you cannot do this on your own. But it seems the public suffers from this high price out of all proportion to the benefits of the drug.

  22. Dr. Halpert,

    Thanks for writing this. A hospitalist friend of mine recently told me (rather excitedly…) about the Johns Hopkins results of putting lab test pricing into the EHR, and so I find your expanded look very interesting. I will have to take a look at MemberRx and what you folks are doing with this for health systems. One question that comes to mind, as I was reading this, is what type of pricing is the most effective to display at the physician’s point of care — is it patient copays, total patient+insurance costs, chargemaster numbers, or perhaps some other numbers?

    Would be interested to get your input on this.