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The Price Is (Not) Right

By Kim Bellard, April 25, 2012

I noticed several recent articles and studies about some of the problems caused by the crazy ways we price care in our health system.  If they made a reality show about it, it’d be less The Price Is Right than it would be Survivor. 

Let’s start with a study published in the Archives of Internal Medicine, titled “Health Care as a Market Good?  Appendicitis as a Case Study.”  The authors studied costs for treatment of acute appendicitis, looking at data in California hospitals.  One might assume a fairly small range of cost for this, given that the treatment options are not wide.  They found that costs varied from $1,500 to $183,000; the patient who cost $183,000 admittedly had cancer, but received no treatment for cancer for the stay in question.  Dr. Renee Hsia, the lead researcher, told The New York Times, “There’s no rhyme or reason for how patients are charged or how hospitals come up with charges.  There’s no other industry where you get charged 100 times the same amount, or 121 times, for the same product.”


Of course, when patients have insurance and go in-network, they usually don’t get exposed to most of the impact of this variation, although increased cost-sharing even for in-network services still makes this an issue.  For uninsured patients, or patients who go out-of-network, it can be much worse.  The Minnesota Department of Health recently alleged consumer protection abuses of a company – Accretive Health -- hired by hospitals to ensure patient bill collection.  According to the report, the company used “boiler-room-style sales atmospheres'' at Fairview's seven hospitals using collection quotas, cash inducements and in-house competitions to squeeze cash from patients before they were treated.”   The practices addressed deductible, coinsurance or other patient responsibilities, either from the current services (yet to be rendered) or from prior unpaid bills.  I wonder if they at least were specific about how much the patients would owe.  I also wonder if they add treatment for the high blood pressure or twisted arms caused by the strong-arming to the list of services. 

Not surprisingly, this problem isn’t limited to Minnesota or to Accretive Health.  For example, the Charlotte Observer and the News and Observer of Raleigh investigated how area hospitals were suing patients to collect debts.  The newspapers found North Carolina hospitals filed such suits over 40,000 times for the five years ending in 2010.  The majority of lawsuits came from two systems, both of which are non-profit.  The investigation notes that some of the hospitals in question made sizeable earnings over the same period, despite their non-profit status, and found numerous instances where the hospitals did a poor job of determining if the patients qualified for programs that would assist with their bills.  It’s tough to get sick, especially when your health care provider slaps a lien on your house for charges that you had no way of predicting in advance.

Then there is what has happened with Fair Health.  This is the database that was set up to settle New York’s 2009 dispute with Ingenix about how that company established “usual and customary” charges, as used by many health insurers around the country to set payment limits on out-of-network services.  It seems that many insurers have decided to adopt a different methodology to calculate out-of-network liabilities, based on a percentage above the Medicare payment levels.  New York regulators believe that many New Yorkers are ending up owing more under the new methodology, even though insurers pay anywhere from 140 to 285 percent of Medicare rates.  It’s not entirely surprising that insurers have adopted the new approach, given that Fair Health wasn’t actually up and running until last year and the Medicare rates are much more predictable than the approach based on “usual and customary.”   I suppose it is possible that Medicare payment levels truly are that low, or that some providers truly deserve payment levels several multiples over what Medicare would pay, but both seem doubtful.  One would think that, say, 200 percent of Medicare payment rates would be sufficient as a payment level, but maybe the patient is getting an appendectomy in California. 

It boils down to some usual culprits:

  • Provider charges aren’t subject to competition.  They can calculate them in virtually any way they want, at whatever level they choose, because their payor customers negotiate more realistic levels and their retail customers usually aren’t told charges in advance.  Virtually no one is shopping services based on price.  It’s crazy that the most vulnerable patients are the ones most likely to be subject to these entirely arbitrary and often unrealistic prices.
  • The data are hard to find and often not very useful.  Many health plans have versions of price or quality data, and there are a variety of state and federal requirements for providers’ posting of some prices.  Be that as it may, consumers usually don’t have a good idea about what set of services they’ll receive, much less how much they will cost.  And it’s not just consumers who are ignorant; physicians are often in the dark about how much things cost as well (see, for example, Sehgal and Gorman).  Many providers probably have some idea of their costs for the services they most frequently provide, but I’m willing to bet that few have any accurate idea about the costs in the rest of the health care supply chain their patients will go through.  Think Apple doesn’t know the prices throughout their supply chain?
  • Consumers don’t care enough.  The vast majority of consumers – even those in consumer-directed plans – still don’t seek out cost or quality information, even when it is available (see, for example, EBRI’s Consumer Engagement Survey).  Consumers also don’t necessarily make great decisions even when they get data – for example, Hibbard, et al. found that when just shown costs, consumers still thought higher cost would translate into higher quality.  The researchers found that the cost data needed to be paired with easier to understand quality of data for consumers to make better choices.

Perhaps they should make a health care version of The Price Is Right after all.  It might be amusing to watch various participants in the health care system try to guess how much things cost.  Then, again, it might just prove boring, because I doubt anyone would “win.”

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