At some point, most people have encountered the frustrating obscurity of hospital billing. Hospitals often cannot provide cost estimates before a scheduled visit or procedure, and only send bills afterwards, which can be surprisingly high even if the patient has health insurance. In a 2018 study, researchers posed as grandchildren seeking information for a grandparent about a primary hip replacement, a common procedure. They found that only 21% of hospitals surveyed could provide a complete price estimate.
To address the issue of hospital price transparency, the Centers for Medicare and Medicaid Services (CMS) introduced a mandate, effective since Jan. 1, 2019, requiring all hospitals to publish price lists for every procedure, service, and medication they offer. In a press release, CMS stated that the policy will “further advance the agency’s priority of creating a patient-centered healthcare system … so that patients have what they need to be active healthcare consumers” .
The Road to Transparency
There has been growing demand for healthcare price transparency. In 2014, the Government Accountability Office (GOA) released a report calling on CMS to take action on this front. Several states, including California and Colorado, implemented laws requiring hospitals to disclose prices for common services ahead of the federal mandate2. Private companies that market price transparency tools attempted to improve patient access to accurate price information, yet these companies had transparency issues as well.
The demand has been partly driven by shifting attitudes toward convenience and control in the digital age. Whereas people can readily find cost information for many other types of products and services on the Internet, patients have limited ability to shop for healthcare quality and value due to a lack of transparency.
The key drivers for price transparency, however, have been rising healthcare costs and the closely intertwined trend toward a market-based healthcare system. Princeton political economist Uwe E. Reinhardt explained in an editorial how in order to “gain better control over the growth of their health spending, employers have recently resorted to a technique long recommended to them by the market devotees among health economists, namely, putting the patient's skin in the game,’ as the jargon goes” . This theory of placing the responsibility on patients has resulted in high-deductible health plans, which require patients to pay more out-of-pocket health costs5. High-deductible plans are often coupled with health savings accounts, which let patients pay out-of-pocket costs with pre-tax dollars in employer-sponsored market and insurance exchanges. Additionally, the Affordable Care Act, by emphasizing insurance “marketplaces,” has set the country “firmly on the path to a new paradigm of healthcare commerce” . In order for patients to make informed purchasing decisions in this new commercial paradigm, they have to be armed with more transparent cost information.
Implementing the Mandate
Although the need for transparency is clear, the CMS mandate has shortcomings. First, it requires that rates be presented in machine-readable Excel spreadsheets, which are not designed to be easy for patients to interpret. The spreadsheet posted by the Hospital of the University of Pennsylvania, for example, contains more than 14,000 entries of eight-digit procedure codes associated with abbreviated procedure names and the charges .
Additionally, the rates are often not what patients, particularly those with insurance, are liable for at the end. The American Hospital Association has released an issue brief warning that upfront pricing information has limited utility, as patients have different levels of insurance coverage and receive hospital care tailored to their individual needs .
The rates also fail to shed light on a key reason for the obscurity of hospital billing: the existence of a standard price deduction for each service negotiated between hospitals and insurers. Healthcare billing experts have suggested that instead of posting chargemasters, hospitals should publish prices that reflect the average payout they receive from insurers . However, since private insurers work with hospitals to negotiate lower rates from the set point, those negotiated rates are generally viewed by hospitals as a trade secret.
This is only the starting point for improving healthcare cost transparency. Among healthcare stakeholders and policy analysts, there are many perspectives on the next steps that should be taken.
For hospital leaders, the CMS mandate has highlighted the need to educate their providers and staff on how to discuss cost information as it becomes more accessible to patients. In a 2017 survey, over one-third of providers reported that they never talked with patients about their ability to pay before delivering healthcare services (LaPointe, 2018). Physician inexperience with having conversations about cost can hinder hospitals’ efforts to increase price transparency.
For policy analysts, hospital cost transparency brings up concerns about the amounts that hospitals are actually charging. Kaiser Health News examined the price lists of the largest acute care hospitals in several large cities, including Los Angeles, New York, and Atlanta. They found that prices vary widely, even for some basic services in nearby hospitals in the same city. The price of a complete blood count with differential can range from $59.86 to $525.46, and the price of a semi-private room can go from $1,910.00 to $9,375.00 per day . Many hospitals have pages on their websites explaining what goes into a price, such as administrative needs, equipment, and technology upgrade costs. Growing awareness of the variations in price may lead to increased public scrutiny of hospitals with higher price listings.
Economists and healthcare policy experts have also noted that greater transparency cannot be a substitute for competition in healthcare . Enabling patients to better shop around for healthcare services may help to promote savings and quality improvement, but only if meaningful competition already exists and the market for healthcare is not monopolized. Given the rising levels of industry consolidation, and mounting evidence showing that consolidation leads to higher prices, the benefits of cost transparency may be limited .
Broader Ideological Concerns
From a broader standpoint, the issue of price transparency brings up ideological questions. Although most people desire greater transparency, there are differing views on the type of healthcare system in which it should feature. For Seema Verma, CMS administrator for the Trump administration, increasing cost transparency in a market-based healthcare system will help “activate patients to be consumers,” whereas universal healthcare in the form of a proposed single-payer system would be the antithesis to patient-centric care, “giving the government complete control over the decisions pertaining to your care”, but potentially reducing and standardizing prices. For others, the shift from “patient” to “healthcare consumer” is an ethical issue . Dr. Leana Wen, the former president of Planned Parenthood, wrote in Psychology Today, "A patient deserves healthcare as a right, but does a consumer?” . These proponents of universal healthcare would argue that cost transparency should go hand in hand with a more socialized system of healthcare, as it does in countries like Sweden and France.
At the end of the day, increased healthcare price transparency is an important step toward improving the quality and value of healthcare, but as a country we will have to decide on what type of healthcare system would best fulfill this goal.
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Fiscal Year (FY) 2019 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Prospective Payment System Final Rule (CMS-1694-F). (2018, August 02). Retrieved from https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2019-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-acute-0
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Brand, K, Garmon, C, & Gaynor, M. (2014, September 22). Reference pricing is not a substitute for competition in health care. Retrieved from https://www.ftc.gov/news-events/blogs/competition-matters/2014/09/reference-pricing-not-substitute-competition-health
Singleterry, D. (2017, March 31). Healthcare debate must confront industry monopolization. Retrieved from https://thehill.com/blogs/pundits-blog/healthcare/326702-healthcare-debate-must-confront-industry-monopolization
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