The revelations by the Centers for Medicare and Medicaid Services (CMS) Wednesday that hospitals vary widely in what they “charge” for the same procedure—sometimes as much as 10 or 20 times more than Medicare reimburses—confirms what health policy wonks have known for a long time.
There’s no consistency in pricing for health care services, and there’s little or no price transparency for patients without insurance who sometimes have to pay for health care out-of-pocket. This will continue to be a huge problem when the Affordable Care Act takes effect in January. The majority of people buying coverage in the new exchanges will likely choose the lowest-cost policies, policies that are designed to cover only 60 percent of a person’s medical expenses. They will have to pay the rest themselves.
A chart released by CMS suggests that hospitals in the South and in Texas and California may be charging the highest prices. Those are also the parts of the country that have large numbers of residents who are uninsured and will be shopping in the new insurance exchanges. Greater price transparency might help them find lower-cost hospitals and providers if they are in a position to make a choice. Perhaps the government had this consumer predicament in mind when it released the price data for 3,300 hospitals showing wide variation even among hospitals in the same city.
There isn’t any price transparency either for those who now have insurance and who might want to shop around, especially given the high deductible and high coinsurance plans that have become more popular. High out-of-pocket costs are part of a movement to make patients have more “skin-in-the game”, in the theory that “unnecessary” testing and treatments will be reduced if consumers feel the pinch of high-priced medical care.
In his fine piece in Time in March, journalist Steven Brill dissected how hospitals use a chargemaster, a set of fictitious prices they use to negotiate with insurance companies. Brill reported that some hospital executives don’t even know the charges on the chargemaster because they were so seldom, if ever actually used. Nevertheless, these fictional prices are the opening move in negotiations with insurance companies that determine the discounts that insurers extract from hospitals.
Depending on the negotiating skill of the insurance carriers, some pay far less than others for the same service. Caroline Steinberg, a vice president at the American Hospital Association, the trade group for nonprofit hospitals, told the New York Times it was a cat and mouse game that determines what hospitals actually charge insurers who pay on behalf of policyholders and patients who must pay on their own. Steinberg said hospitals raise their prices to cover the insurer discounts.
Whether the marketplace puts an end to the game remains to be seen. It’s possible the release of CMS price data will cause some of the big hospital systems to stop charging stratospheric prices in an effort to compete. Or will the now-transparent prices cause them to spend more money on fancy new technology along with big-ticket advertising in an effort to justify their high prices and attract doctors to their facilities?
In the meantime, what should patients, in this case acting as consumers, do with this newly released information? And what flexibility or choices do consumers have given the fact most go to the hospital their doctors recommend? What do they do if insurers don’t reveal the discounts they’ve gotten from doctors and hospitals? Knowing those discounts might arm consumers with some bargaining power.
And here is another place where more transparency is sorely needed: confusing and unclear Explanations of Benefits statements from insurers, including Medicare. These need to change so that consumers really understand what services they received, the price of care, and the covered charges. Maybe Medicare can take the lead on this as well.