Hospitals post their charges: almost indecipherable, but important!

The recent Trump administration order to have hospitals post their prices has been widely covered in the media, along with both headlines and articles that make it clear that these prices list are far from…clear! For example, Robert Pear’s article in the NY Times on January 13, 2019, titled “Hospitals Must Now Post Prices. But It May Take a Brain Surgeon to Decipher Them” , starts:

‘Vanderbilt University Medical Center, responding to a new Trump administration order to begin posting all hospital prices, listed a charge of $42,569 for a cardiology procedure described as “HC PTC CLOS PAT DUCT ART.”

Baptist Health in Miami helpfully told consumers that an “Embolza Protect 5.5” would cost them $9,818 while a “Visceral selective angio rad” runs a mere $5,538.’

The Arizona Star piece on Tucson hospitals had a more moderate title, “Hospitals post prices, but public can find it confusing”, but made the same points. As a physician (if not a brain surgeon!) I think I can figure out what most of these mean, but the point that they are making is that they are hard for almost everyone to understand. The reason, of course, is that they have simply posted online their “chargemasters”, the price list that they supply to insurers (including Medicare and Medicaid), which are based on the nationally used “procedure codes”; these are numbers which identify different treatments that are abbreviated as above. So, the charge at Baptist for a radiologist injecting dye into an artery supplying your intestines is only a little over $5,000, while Vanderbilt charges over $42,000 to do a surgical procedure to close a shunt artery in your heart that is vital to fetal circulation but normally closes spontaneously after birth. The question is, what does all this mean? And what are you and I supposed to do with this information?

Elisabeth Rosenthal, the emergency room physician turned NY Times reporter turned editor of Kaiser Health News, is more optimistic in her Times Op-Ed on January 22, 2019, “Donald Trump did something right”. She acknowledges the opacity of the posted charges to most people, but says it is a great step forward, because they areaccessible, at least to those who are academic experts, and can be compared, both one hospital to another (“Maybe, just maybe, a hospital will think twice before charging a $6,000 “operating room fee” for a routine colonoscopy if its competitor down the street is listing its price at $1,000”), and to alternative treatments (“With access to list prices on your phone, you could reject the $300 sling in the emergency room and instead order one for one-tenth of the price on Amazon.”) Obviously, these would not be easily available on your phone now, but her hope and expectation is that third parties will develop apps that will take this nearly impenetrable information and make it easily accessible to people, as apps such as GoodRx® have done for drug prices. She emphasizes the magnitude of this change, since before now these prices have been closely-guarded secrets.

Rosenthal makes a number of other important points that illustrate the fact that this system is not only opaque, but deeply morally corrupt. Hospitals are run as businesses, to make money, even when they are ostensibly “non-profit”. Their CEOs and other executives are mostly businessmen, CPAs and MBAs – even when they are physicians, which sometimes happens, they are usually also MBAs – and are hired for their ability to run a money-making operation that happens to sell health care. And sell it, to your insurance company, at what often seems like deeply discounted prices because they are based on absurdly inflated chargemasters. “You don’t really want to change your charges if you have a Saudi sheikh come in with a suitcase full of cash who’s going to pay full charges,” says one CEO. More important, it allows them to reach agreements with insurers to pay a lot less than the official “price”, which in turn allows those insurance companies to brag to you about how much money they saved you. Rosenthal notes this is farcical, raising prices to make you think that you got a discount (‘If a supposedly $1,000 TV is “on sale” for $80, it’s not really a discount. It’s an absurd list price’), and that it emulates practices in other arenas, such as airlines overestimating their flight times to make it seem like they have a better on-time percent.

At a higher level, Rosenthal points out what is wrong is that these inflated charges do make a difference. Your co-pays and deductibles, if you are insured, are based upon the amount that your insurer pays, so that if they have agreed to pay only 20% of the listed charge, $200 for the TV set instead of $1000, you still may pay more than if you bought it for $80 cash. And certainly more than if the insurer were paying 20% of the old list price, say $500. You pay. You always pay. (See, for example, how insulin manufacturers and insurance companies and pharmacy benefit managers, each following their own profit incentives, have made insulin – a life saving treatment for millions of people with diabetes – often unaffordable: Danielle Ofri, “The Insulin Wars”.)

And, of course, there is the nasty little glitch that it is the most vulnerable and most needy, those who are uninsured as well as sick, and often poor, that get charged the full list price, the $1000 for the TV, or the ostensible “uninsured discount”:

When Wanda Wickizer had a brain hemorrhage in 2013, a Virginia hospital billed her $286,000 after a 20 percent “uninsured” discount on a hospital bill of $357,000 — the list price, according to chargemaster charges. Medicare would have paid less than $100,000 for her treatment.

Wait. Medicare? Medicare would have paid a quarter of their list price and a third of what this uninsured person got billed with the “discount”? Yes. And that is a place to start. Hospitals – or the third-party app developers that will let you see these prices on your phone – should be required to list the Medicare-approved payment right next to what they will charge you, or your insurer. That would measurably increase the “light of day”.

Of course, some doctors and hospitals do not want to accept Medicare for this reason – they can charge more money to insurance companies, who pass it on to you in premiums (in addition to your co-pays and deductibles) while claiming to be saving you money. There is a solution to this also, although Rosenthal does not mention it. It is to have everyone in the same insurance program, a single payer, an improved and expanded Medicare for All. This would set the rates and pay them, without co-pays or deductibles for necessary services. Everyone in the same plan would mean that the better educated, wealthier, and generally more empowered would ensure that it worked for them – and thus would work for everyone else, middle-class, poor, and even homeless.

Yes, hospitals and other service providers (physicians, nursing homes, etc.) and drug companies and insurance companies would make less profit. I’m sure that your heart goes out to them (maybe the next requirement could be the posting of the salaries of the C-suite executives at hospitals…). But, after all, what the health care system should be run for, and is run for in every other developed country, is the health of the people, not the profit of corporations.

Amazing, huh? And it could be that way here!

Integrated Health Systems and Cost: The Price is the thing!

When the Affordable Care Act (ACA) was being developed, much emphasis was put on the effectiveness of integrated health systems as a way to save money but still deliver quality health care. Many studies from various research centers had looked at cost to Medicare and found that places – usually smaller cities – with large integrated health systems spent less on Medicare without noticeable decrements to quality. These systems can have a single provider of both inpatient and outpatient care (such as the Mayo Clinic) or close collaborations, including shared electronic medical records (as in Grand Junction, CO). The presumption of policy makers creating ACA was that Medicare spending, which is much easier to track, would reflect overall spending. However, a recent article from the National Bureau of Economic Research by Zack Cooper, Stuart Craig, Martin Gaynor and John Van Reenen, The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured, demonstrates that this assumption was incorrect. Reviewing overall costs in the 306 Hospital Referral Regions (HRRs, developed by the Dartmouth Atlas of Health Care) in the US, they discovered wide discordance between Medicare costs and overall healthcare costs. Indeed, many of the places that were highly-touted for lower-Medicare-costs-but-still-high-quality, notably Grand Junction, CO (which was, for example, cited as a success story by Atul Gawande in his June, 2009 New Yorker article “The Cost Conundrum”) have far higher than average costs overall. (Dr. Gawande has just had a new piece in the New Yorkerdiscussing the implications of this new article.)

The New York Times coverage of this study, by Kevin Quealy and Margot Sanger-Katz, The Experts Were Wrong About the Best Places for Better and Cheaper Health Care(December 15, 2015), includes a terrific feature that allows interactive access to the data collected by Cooper and his colleagues. You can put in a town (really, HRR) and find out where it ranks in terms of both Medicare and private costs. Grand Junction, for example, while ranking 3^rd lowest of the 306 HRRs for per-capita Medicare spending, was the 42^nd most expensive for private insurance spending. Rochester, MN, home of the Mayo Clinic, is another city lauded for its low Medicare costs (14^thlowest), but its private spending is 10^th highest! McAllen, TX, cited by Gawande in 2009 for being #1 in Medicare spending (and now still #4) is only 140^th in private insurance spending. Tucson, AZ, on the other hand, while only in the lower middle (82^nd from the bottom) in Medicare spending, is 7^th lowest for overall costs. The Kansas City region, where I live, was atypically near the middle for both, 142^nd lowest for Medicare and 82^nd  lowest for private costs. New York City is high in both, but it is 2^nd for Medicare and 34^th (quite a bit lower) for private insurance. The map in the article depicts HRRs as low, middle or high for both Medicare and private insurance.

So, what’s up? Were the experts trying to fool us? No, but the flaw  was the assumption that Medicare spending reflected overall spending. The data in this article demonstrates that it does not. It also reveals something about integrated health systems, especially those that dominate their smaller cities, given that some of the “top performers” for Medicare, like Grand Junction and Rochester, MN, were so high for private insurance. The integrated nature of these plans allows them to save money on patients by a variety of methods – they can be seen in ambulatory settings rather than in hospitals or ERs, and they share electronic medical record systems, and thus the information recorded therein, saving money by not having to repeat tests, x-rays, etc. This lower utilization is good for these health systems because Medicare is a relatively low payer, and because they can’t negotiate these rates – Medicare pays what it pays (it is a single-payer system, with minor regional variations). However, the same characteristic – being the dominant player in town – allows such integrated health systems to negotiate much higher rates with private insurers. Thus the mismatch; overall cost is a multiple of price for each service times the number of services delivered. These systems decrease the number of services for people insured by Medicare, for whom they cannot control the price (whether this does or does not decrease quality is a separate question) but they raise the price for services to people with private insurance. That places like Tucson and Kansas City have relatively lower prices for private insurance reflects the absence of a single large dominant system in those cities.

‘“Price has been ignored in public policy,” said Dr. Robert Berenson, a fellow at the Urban Institute, who was unconnected with the research’, in the Times article. Other health policy experts, such as Princeton’s Uwe Reinhardt, have been warning about this for decades. In the effort to pass the ACA, and please both providers and insurers, this point was in fact ignored, and it is the source of most of the common legitimate criticism of the ACA – that in many places decent health insurance policies bought through the health exchanges are unaffordable. With higher prices in these regions, insurers pass on the cost to their customers.  This is illustrated in the NPR story “Obamacare Deadline Extended As Demand For Health Insurance Rises” on December 18, 2015, which documents both the success of ACA measured by the large increase in the number of people signing up for coverage and their frustration at the frequently-high cost of this coverage. Of course, this is completely unrelated to the criticisms leveled at ACA by the Republican candidates for President and their allies in Congress, whose “solution” – abolish ACA – is Marie Antoinette-like. While the French queen is reputed to have said, in response to being told that the peasants had no bread, “then let them eat cake!”, Republicans, hearing that many people cannot afford health insurance on the exchanges even with subsidies, or get Medicaid in states (that they control) which have not expanded it, respond “let them pay out of their own pocket!”

The issues and solutions are clearly laid out by the reliably insightful Dr. Don McCanne is his “Quote of the Day” on this topic. A solution cannot come from a jerry-rigged program that allows either insurers or health systems or both to maximize their profit. It needs to come from a system that starts with price controls, most effectively by a single-payer system such as Medicare. There are, as he notes, still risks – mainly that health systems may under-utilize services when they cannot make profit, leading to lower quality of care. But we can guard against this both on the regulatory end, by measuring quality outcomes and holding providers responsible, and through the market because the incentive to not provide services to Medicare patients because they can be more profitably provided to the privately -insured (the “opportunity cost”) goes away.

The infatuation of both policy makers and providers for integrated health systems is not entirely misplaced. The potential savings from shared data and not repeating tests, and more importantly for caring for people in the most clinically appropriate setting (inpatient, ER, outpatient surgery center, primary care, long-term care) is a real positive feature of these systems. But to the extent that these providers are allowed to use their market muscle to raise prices to insurers which are passed on to beneficiaries, it becomes a real negative.

The key feature of a good health system is that it is not focused on balancing the financial interests of big insurers and big providers, but that it puts the benefits to patients, to the people’s health, first.