Hospital Pricing Transparency

I have continually lamented the fact that there is little transparency in health care pricing. One favorite example is to ask “If you went into Costco, filled your cart and were expected to pay whatever they charged, would you?” You do this every time you enter the hospital, whether you like it or not. The economics of health care in this country are unlike anywhere else in the world.

A new law went into effect January 1, 2019 requiring hospitals to post their pricing on their websites, in an effort to bring transparency to the health care system. While well intentioned, it simply doesn’t provide much help to consumers who would like to know in advance the cost for a hospital test or procedure or even their cost for room and board.

It is understood that pricing is variable. An uncomplicated surgery costs less than one in which the patient develops complications. Chargemaster files, as they are known could be accessed prior to this new law. But having lists available couldn’t answer even the simplest of questions. These lists might be used as a baseline, but it is rare that anyone pays the prices listed. If you have public or private insurance, your pricing is different than the chargemaster’s or another insurers’ prices.

A search of both Dignity and SRMC websites came up blank. Calls to both facilities were met with surprise at the new law. The OSHPD site (Office of Statewide Health and Planning Department) revealed 2018 chargemasters for 769 facilities including SRMC and Mercy Redding. Within those reports are the AB1045 form that lists 25 common outpatient procedures such as Emergency Room charges, CT, X-ray and Basic Metabolic Panel. However, each hospital does not report the same 25 common procedures.

The differences are always intriguing. A few examples of comparing SRMC and Mercy Redding:

*Basic metabolic panel: $806/394

*ER visit Level 2: moderate severity: $645/$2229

*CT head or brain without contrast $2846/3834

It is important to underscore that few, if any, payers actually pay the chargemaster amounts. Most third party payers such as insurance companies, negotiate contracts that fix costs for procedures. Medicare uses DRG (Diagnostic Related Groups) based on the patient’s diagnosis. I was told at one time that a hospital can use the high chargemaster figures as the basis to write-off for uncollected amounts, therefore it benefits them to have high baseline figures.

A recent study shows that Hospital pricing far outpacing physician pricing increases by over 20%. Clearly hospital price increases are a big driver in health care cost inflation.

Dartmouth University developed a program called Small Area Analysis that we used over 20 years ago to look at utilization and cost patterns between different geographic areas. To date, that is the most informative and meaningful way to use OSHPD data. It is important to note that these reports are age, sex and race adjusted.

The fact that there are extreme variations in cost of care and surgical invention rates throughout the country underscore one of the biggest problems with health care in America.

According to the Dartmouth website: “Regional variation in Medicare spending is striking. Among the 306 hospital referral regions in the United States, price-adjusted Medicare reimbursements varied twofold in 2016, from about $7,400 per enrollee in the lowest spending region to more than $13,000 in the highest spending region. From 1992 to 2006, total Medicare spending grew at an average rate of 3.5% per year, but this growth was not spread evenly across regions. These findings have important implications for health policy and the goal of achieving sustainable and affordable health care for all Americans.” This is particularly important as we look at different iterations of “Medicare for all”.

According to the Kaiser Family Foundation health care spending per capita has increased over 30-fold since 1970 from $355 per person to $10,739. Even adjusted for 2017 dollars the increase is 6-fold.

It’s almost comical if you look back at the 4/29/2006 American Hospital Associated Board of Trustees Resolution intending to “Share meaningful information with consumers about the price of their hospital care”. They conclude, “More can be done to explain pricing information to consumers clearly and consistently. Hospitals will lead an effort to create common terms, definitions and explanations of complex pricing information. This will include sharing innovative and understandable ways for displaying pricing information for use by consumers.”

Here we are almost 14 years later and nothing has really changed, except our costs!

Margaret R. Beck

Margaret Beck CLU, ChFC, CEBS started her insurance practice in Redding in 1978. She founded Affiliated Benefit Services.

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