Pricing Data at Work: Transparency Movement Makes Strides

June 11, 2015
The barbarians are at no longer at the gates. They are not at the door, either. They are inside the castle and will soon be making their demands to the King and his knights.

The barbarians are at no longer at the gates. They are not at the door, either. They are inside the castle and will soon be making their demands to the King and his knights.

A year-and-a-half ago, Uwe Reinhardt, Ph.D., one of the nation’s preeminent voices on healthcare economics, used that somewhat notable phrase as a metaphor when talking about the increasing demand for pricing data in healthcare from consumers and other stakeholders when I interviewed him. The barbarians are those who are seeking that data and the castle is the opaque hospital pricing system, housing the King and his knights (aka the hospitals). In other words, he said the time was coming where hospitals and healthcare providers would have to be fully transparent when it came to pricing data.

Fast-forward to this week when a Health Affairs study came out from researchers at Johns Hopkins Bloomberg School of Public Health and Washington and Lee University, in Lexington, Va. revealing the 50 hospitals with the highest charge-to-cost ratios in the U.S. in 2012. The study revealed that the top hospitals, primarily from two for-profit systems, are charging for services up to 12.6 percent times higher than the Medicare-allowable cost. Most hospitals charge in the 3 percent range. In other words, those high-priced hospitals are marking up the price on services more than 1,000 percent.

That flashy bit of news caught the mainstream media’s attention. Outlets like the Washington Post, NBC News, and The New York Times reported on the study. CNBC ran a segment on it.

It is just the latest snowflake in a snowballing movement that is seeing increased transparency through the release of healthcare pricing and payment data. As we know, this movement has been a long time coming, supported by numerous government and industry stakeholders. Earlier this month, the Centers for Medicare and Medicaid Services (CMS) released physician payment and utilization data at the Health Datapalooza conference in Washington D.C.

To my knowledge, this is the first high-profile study that highlights the pricing and payment data that has been released by CMS over the past five years. It’s an important step in the journey to a lower-cost healthcare system. Studies like this will lead to outrageous healthcare prices seeping into people's conscience. Once consumers demand change, change will come.

The Health Affairs study is for policymakers to recognize the absurdity of a for-hospital marking up a service more than 1,000 percent. Only two states have regulated the prices hospitals can charge and that needs to change. Yet, the only way for the policymakers to institute regulations that prevent hospitals from charging $15 for a Tylenol pill is if the people demand it to happen.

It won’t come easily, of course. We’ve already seen rebuttals from Community Health System (which represented a significant portion of those 50 hospitals) and the Federation of American Hospitals. Their argument was that they provide a lot of charity and uncompensated care.

Undoubtedly, that’s true and that response from them, as Reinhardt told me, is expected. Even the researchers at Washington and Lee and Johns Hopkins admitted their data was going to be limited by not including those discounts. Yet as Ge Bai, accounting professor at Washington and Lee and lead author of the study, said to NBC News, saying this ignores the underlying problem.

"I looked at the bill and realized I did not understand the bill.  If I, a CPA, did not understand a hospital bill, how can an average American understand it? We understand the bills for all the other assets we buy. We do not understand the bill for our most valuable asset. That is our health."

Exactly! It’s all about giving consumers a chance to understand better what they are paying for. That’s common practice in every industry except car repair, why is healthcare exempt? Pricing data puts it all out there and removes the secrecy behind this information. It forces hospitals and healthcare systems to be accountable and explain how something could be marked up 1000 times as much.

Another classic rebuttal is that this list price does not reflect what patients pay.  While it’s true those with insurance do not pay off that charging data, the uninsured—who are often, the most vulnerable and least equipped to take on high-priced healthcare— are expected to pay that full rate. Some may get charity care and discounts but that’s still based off that full price and at the hospital’s discretion. Are they giving discounts to everyone? Remember, there is a reason why healthcare is the number one cause of bankruptcy in this country.

The health systems and hospital advocacy groups will tell you they are all for transparency. I tend to believe Reinhardt though, when he said that they’ll make every effort not to have it.

It’s not in their interest for people to know the prices. Imagine a cozy business, where customers come and shop and only after they leave, they find out the prices of what they took home. And they can’t bring the merchandise back. It’s paradise. Obviously, they’ll resist. They won’t admit that, but they’ll resist with everything they have.

While this battle is far from over, the reality is the barbarians are inside the castle. The demands are coming next.

Please feel free to respond in the comment section below or on Twitter by following me at @GabrielSPerna

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