One of Webster’s definitions of transparency is “characterized by visibility of information especially concerning business practices.” Therefore, transparency means that the business practices are easily discernible to the public. I have long felt that the business practices of the healthcare industry are lacking in transparency, which means it’s difficult to act as an intelligent consumer of healthcare. As consumers, we’re a lot like car buyers before it was possible to go on-line and get complete information on every make and model of car with every possible accessory. Although more information is now available on-line for consumers to learn about the charges and approximate out-of-pocket costs for selected healthcare procedures, such as hip and knee replacements, the actual cost of care is still nearly impossible to find.
Part of the reason for the difficulty in determining the cost of medical care is that consumers generally associate charges with cost. If you buy a bunch of bananas, you know you’re going to pay $1.10 a pound. That is both the charge and the cost to the shopper. When it comes to healthcare, the charges almost always have no relation to the cost to the patient. Even if the patient has insurance with a high deductible, the cost to that person will be whatever the hospital or doctor has negotiated as the price the insurer will pay the provider for that service, regardless of the charges. For example, the charges associated with a hip replacement may be $30,000, but the insurance company may pay only $15,000. If you have insurance with a $5,000 deductible, you will pay $5,000 and your insurer will pay $10,000. Although the payment, $15,000, is 50% of charges, there is no true relationship. The hospital, in this instance, negotiated a rate of $15,000 with a particular insurer. By the way, the hospital may only receive $14,000 from other insurers and even less from Medicare. Another reason why it’s difficult for the consumer to get information about the cost of a service is that the provider is almost always prohibited from disclosing what an insurer pays it for a given service.
"The public deserves greater transparency in our healthcare system."
At this point you should be asking yourself two questions. The first is why are the charges so high in relation to the actual cost or payment received? The second is why are providers prohibited from disclosing what they are paid? You may even have a third question, which is what is the hospital’s actual cost to replace that hip? The answer to the first question is that historically some insurers paid hospitals on the basis of charges. As more insurers moved away from paying charges, the hospitals increased the charges to get more dollars from the few who paid charges. The answer to the second question is that insurers were afraid that if every hospital was aware of what every other hospital was paid, it would lead to everyone holding out for what the highest paid hospital was receiving for that procedure. I have long felt that this explanation was a cop out on the part of insurers and regulators. The insurers should have been able to justify any difference in payment and the regulators should have insisted on an explanation, given that insurance costs have been out of control. Many insurers and politicians decried the fact that consumers never consider the cost in making decisions about their care, but they wouldn’t arm them with the information necessary to make intelligent decisions. This underlying lack of transparency persists to the detriment of the consumer and the premium-paying public.
Now for the third question, what does it actually cost the hospital for a patient undergoing a hip replacement? The answer, of course, varies from one patient to another and from one doctor to another. Some patients will require more days in the hospital or more testing than others, so the costs will vary. Different doctors take different amounts of time to perform the procedure and may use different implants, also resulting in variation in cost. However, hospitals have become more sophisticated in using cost accounting techniques to determine their costs for a given procedure and can even break it out by physician. Some components of cost associated with overhead, such as human resources, do require allocation methodologies. Hospitals are required to submit extensive cost information to Medicare, which is available to the public but difficult to interpret.
With the federal government now responsible for more than 50% of healthcare costs, with the increases in health benefits a drag on our economy and with per capita healthcare costs twice the rate of some other European countries, the public deserves greater transparency in our healthcare system. I would start by systematically providing information to the public on what each payer pays each hospital for the top 20 diagnoses and procedures. That should lead to some very interesting questions about variation in payment and to the cost structures that underlie those payments. It should also lead to insurers and hospitals having to explain those differences.
I look forward to your opinions and comments. --Lou Giancola
Lou,
ReplyDeleteWe're back to the bananas again, which is OK. I can understand some of the variances in costs for a specific procedure. But, they should be directly related to the course of treatment, not the facility, the doctor, or whatever. If someone wishes to be treated by an expensive doctor, that should be considered outside of the equation. If a basic procedure costs (for example) $10,000. then that should be the benchmark. Any additional costs should be calculated based upon quality of care (ex: prevention of infection, adverse reactions, etc). But, the base cost should be the one used for all rembursement calculations. The situation in RI does not lend itself to this type of process, and there is no "base rate" for types of procedures,....the rates are "negotiated" between the insurers and the providers. Hence,...2 people with the same insurance that obtain the same procedure at 2 different facilities could result in one costing the insurance provider significantly more than the other (based upon negotiated reimbursement rates). Unfortunately, the person who uses the less costly facility (unbeknown to them at the onset) still pays the same co-pay/minimum, but gets absolutely no benefit for having used a less costly facility. The insurance providers will not "reward" that patient for having "saved them money",...and will in fact pass on the costs of the patient who used the more expensive facility to them in their next premium bill.
So, you are right. Transparency is critical, but only if it results in some sort of cost savings to the end user. If it doesn't, then all of the transparency in the world will do nothing to reduce the costs of health care.
In some foreign countries, the reimbursement rates are "controlled" and NO ONE can charge more than what is allowed.
What people need to know is that in this country, with all things equal, the same service delivered by the same doctor with the same outcomes can actaully cost 2-3 times more based upon where the service is provided based upon "secret contract agreements" between the insurers and the provider. This variance in cost is merely passed on by the insurers to the subscribers/patients.
Back to the bananas: no educated person would pay $25 for a lb of bananas if they could get them for $3 lb. In health care, no one knows the difference in costs, hence, some buy the $3 lb and some buy the $25 lb, this is exactly what happens,...because the subscribers don't know what the costs are in the first place, and even if they did, they would get no credit from the insureres if they bought the bananas at the lesser price.
Transparency is critical, but the end user can/will only use this data if it relates to the total health care costs. Currently, there is no benefit for a subscriber to be a "smart shopper".