Hospital Price Transparency: It’s complicated

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Hospital Price Transparency: It’s complicated

You cut your finger making dinner. You’re not sure if you need stitches, and you have a high deductible. You quickly check online for the cost and the waiting time at the nearest hospital emergency room. But all you can find is a $307 charge for something described as a LAY CLOS HND/FT=<2.5CM.  What the heck is that? And is it just the price of the stitches, or does it include the cost of the doctor and the emergency room? Meanwhile you are still bleeding. Some gauze and a bandage from your first aid kit is starting to sound like a better option.

Since January 1 of this year, the Centers for Medicare and Medicaid (CMS) have required hospitals to publish their list prices online in an effort to make hospital costs more transparent. Unfortunately, while obeying the letter of the law, this kind of price information is not likely to be at all helpful when a patient is trying to shop for the best value in care – this is true any time but particularly in a situation when a decision needs to be made quickly.

So why don’t hospitals just publish the actual costs in simple language? The truth is, taking a system as complex as hospital pricing and sharing it in a way that makes sense to the average consumer is hard – REALLY hard.

Talking about price for a medical procedure is complicated because of the many factors that contribute to the final out-of-pocket amount paid by the patient. What CMS is requiring hospitals to post is simply the list prices for all their services, i.e. the gross charge for a procedure. But the hospital’s gross charge and the total net cost to the patient are two very different things. The gross charge is the hospital’s retail fee for the procedure (also known as the facility fee), but it is not the same as the cost the patient might actually pay in the end. For example, it does not include what is owed to the doctors, surgeons, anesthesiologists and other providers during the hospital stay.

Additionally, if the patient has insurance, what they pay will depend on factors such as their deductible and the amount negotiated between the hospital and the patient’s health plan. This is not a set amount, but varies depending on the leverage the hospital has with various health plans. Larger hospitals and medical groups have an advantage over smaller ones in negotiating higher prices for reimbursement of services provided to patients. Likewise, bigger insurers have an advantage over smaller ones in negotiating lower prices for their members. Sole community providers (i.e., if a community has only one hospital) also have market leverage when negotiating rates.

The point of price transparency and the CMS ruling are to make it possible for consumers to shop for value. However, just showing a procedure code and a price –  i.e. the hospital’s gross charges –  does not give patients the kind of information they need to choose high value health care.  Price is only one part of the value equation.  The quality of health care and the patient’s experience are also very important components of value.

We at the Alliance applaud the efforts towards more transparent price information:  Anything that provides patients more information on value – cost, quality and patient experience – is a good thing. However, the strategy of posting gross charges falls far short. Much of it makes little sense to the consumer in the way it is being presented and many hospitals are doing very little, if anything, to translate clinical terminology for a lay audience. As a recent story in the New York Times opines, while the ruling is a step in the right direction towards price transparency, it completely misses the mark when it comes to helping consumers be better health care shoppers.

For the past decade the WHA has been providing reliable data on quality to put price in a context that makes sense and helps patients make wise choices. We will soon be releasing data on pricing for the state of Washington. But as our data show, there is great variation in prices for the same procedure across regions, between heath care delivery systems and even within the same hospital, based on negotiated rates with health plans. Although we are able to determine a median cost for a procedure in Washington state, the actual cost to the patient can vary around this median by thousands of dollars. And while we would agree with CMS Administrator Seema Verma that the CMS ruling is a step in the right direction around transparency, we still have a long way to go in making health care affordable.


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