The value in price trans­parency

It’s time for hos­pi­tals to look in­ward for rea­sons be­hind cost dis­par­ity

Modern Healthcare - - OPINIONS / EDITORIALS - MER­RILL GOOZNER Edi­tor

The con­tro­versy sur­round­ing hos­pi­tal pric­ing resur­faced last week af­ter the CMS re­leased hos­pi­tal charges and pay­ments for the top 100 di­ag­no­sis-re­lated groups. The data re­vealed a wide dis­par­ity be­tween DRG pay­ments made to dif­fer­ent hos­pi­tals in the same re­gions or states (See story, p. 8). It also showed a wide dis­par­ity be­tween sub­mit­ted charges and aver­age pay­ments, which re­ceived much less at­ten­tion.

It’s the sec­ond time in re­cent months that the is­sue has made head­lines in the pop­u­lar press. In March, Time mag­a­zine ran a 26,000-word cover story, “Bit­ter pill: Why med­i­cal bills are killing us.” Writer Steven Brill fo­cused most on the ex­or­bi­tant prices that hos­pi­tals nom­i­nally charge with­out shed­ding much light on the dis­par­ity be­tween charges and pay­ments.

In­side the in­dus­try, it’s no se­cret that the charges hos­pi­tals send to Medi­care have al­most noth­ing to do with even­tual re­im­burse­ments. The CMS pays no at­ten­tion to the bills sub­mit­ted to its fee-for-ser­vice pro­gram, which still cov­ers about 75% of ben­e­fi­cia­ries. The agency makes a pre­set DRG pay­ment—usu­ally a third or less of the sub­mit­ted charges— and ad­justs for fac­tors such as the sever­ity of the con­di­tion, whether the in­sti­tu­tion is a teach­ing hos­pi­tal and whether it treats a dis­pro­por­tion­ate share of the unin­sured.

The sub­mit­ted charges also have noth­ing to do with what hos­pi­tals get paid from Med­i­caid, which is run by in­di­vid­ual states and gen­er­ally pays the low­est rates. Nor do they re­flect the pay­ments re­ceived from pri­vate in­sur­ers, which usu­ally ne­go­ti­ate steep dis­counts from pub­lished charges based on the prom­ise of de­liv­er­ing a high vol­ume of pa­tients from the cov­ered lives they rep­re­sent within a hos­pi­tal’s ser­vice ter­ri­tory.

The rap against the so-called charge­mas­ter rates was that they wound up hit­ting those who were least able to af­ford them. When unin­sured peo­ple landed on a hos­pi­tal’s doorstep and re­ceived emer- gency or much-needed care, they of­ten re­ceived eye-pop­ping bills that they ig­nored at their own peril. Many got hounded by ag­gres­sive col­lec­tion agen­cies or filed for bankruptcy.

Re­form, in the­ory at least, re­duced that as a pub­lic pol­icy is­sue. Even if peo­ple re­main unin­sured next year ei­ther by choice or be­cause their state has re­fused to ex­pand Med­i­caid, the not-for-profit hos­pi­tals that con­tain more than three-quar­ters of all hos­pi­tal beds in the U.S. are now re­quired to of­fer char­ity care and fi­nan­cial as­sis­tance to main­tain their tax ex­emp­tion, and they must base their charges for the unin­sured on an aver­age of their three low­est ne­go­ti­ated in­sur­ance rates.

But those re­al­i­ties shouldn’t sub­tract from the im­por­tance of the pub­lic dis­clo­sure of the huge pric­ing dis­par­i­ties be­tween hos­pi­tal charges within the same state or re­gion or be­tween states and re­gions. There’s a lot to learn from the new trans­parency in hos­pi­tal pric­ing.

In Florida, for in­stance, why does the Mayo Clinic in Jack­sonville charge Medi­care $49,538 on aver­age for a per­ma­nent car­diac pace­maker im­plant while South Mi­ami Hos­pi­tal charges $122,838? While the dif­fer­ence be­tween those charges and what the CMS ac­tu­ally pays is much less (Mayo re­ceived on aver­age $16,800 in 2011 com­pared to South Mi­ami’s $25,630), there clearly is some­thing at work be­sides sever­ity of ill­ness or spe­cial pay­ments when two fa­cil­i­ties—both with stel­lar rep­u­ta­tions for qual­ity—have such dif­fer­ent charges and col­lec­tions.

As the pay­ment and health­care de­liv­ery sys­tems move to­ward cap­i­tated pay­ments, nar­row net­works and ac­count­able care, such dis­par­i­ties are go­ing to mat­ter more and more. Pric­ing trans­parency has been touted as a boon to con­sumer-driven medicine. But it’s more likely that the new trans­parency will force more hos­pi­tals and de­liv­ery sys­tems to look in­ward at why they are so out of line with their com­peti­tors. If they don’t, they can be cer­tain that in­sur­ers—both pub­lic and pri­vate—will.

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