How much is that doggie in the window? That is a very common question that consumers often ask when considering a purchase, but not in the US healthcare industry. Pricing in the US healthcare system has been a “wild wild west” situation where prices charged for providing services to patients have historically not been published. Now that some healthcare providers are required to provide pricing transparency, vast differences are becoming apparent in prices across payers and providers.
To understand prices that healthcare providers charge for their services to patients, it must first be understood that prices are based on what the provider negotiates with health insurance companies as well as the prices paid by Medicare and Medicaid. Every healthcare provider has a different contract with every health insurance company that specifies the rates the provider can charge for their services by different types of clinicians. In other words, healthcare providers can have thousands and thousands of different prices given all the different procedures and payer contract scenarios. Medicare prices are dictated by the federal government and are set by procedure at the national level. Medicaid is jointly managed by the federal and state governments, and prices are different state-by-state.
To have the full context for what it means between paying for healthcare services through insurance companies and Medicare/Medicaid, recall from CenturyGoal’s blog on how US healthcare compares to other countries that about 55% of the US population has private insurance and 36% has public insurance coverage (mostly Medicare and Medicaid). The rest of the population is uninsured.
The Hospital Price Transparency Rule
Before 2021, healthcare providers were not required to publish prices for providing care to patients. On January 1, 2021, a new Department of Health and Human Services regulation took effect that requires hospitals to disclose their standard charges, but this rule was not really enforced until July 1, 2022.
Although there have been enforcement actions in some states, there continues to be some lack of compliance with many hospitals not reporting rates. Furthermore, many of the hospitals that do publish price information fail to provide the information in a meaningful and useful way. In addition, when useful data is provided, one must be adept at working with big data to understand it, which rules out the majority of patients from being able to understand pricing for their healthcare.
The Hospital Price Transparency Rule does not apply to other non-hospital healthcare providers such as ambulatory surgery centers, freestanding imaging centers, and other sites of service – only hospitals. There does not appear to be any clear reason for this.
Significant Price Variations Across Payers, Providers, and Procedures
Nevertheless, now that we are seeing some prices, there are interesting observations around the differences in prices when looking at both payers and providers. Payers have very different prices, and their prices are different across the providers with whom they contract. A recent RAND study supports this and illustrates significant variation in hospital prices paid by employers and private insurers.
Highlights from a limited review by CenturyGoal include the following:
- Hospitals’ negotiated prices with payers are very different when comparing hospital-to-hospital – each hospital has different rates with each payer
- Medicare prices are much lower than commercial insurance payers’ prices
- Medicaid prices are a small fraction of Medicare prices
The analysis by CenturyGoal considered approximately one-dozen hospitals from different hospital networks along with information that is publicly available for Medicare and Medicaid. Complete information on prices by procedure (~7,000 CPT codes when considering outpatient treatment) was available for roughly one-third of the hospitals, and the rest of the hospitals were generally split between providing unusable information and no information. For the hospitals that provide workable data, the information is available in big data tables and is inconsistent in format across hospitals. Moreover, it is difficult to obtain and analyze procedure level price data for Medicare and Medicaid. Therefore, significant effort is required to compare prices.
As the chart below shows, hospitals’ prices with payers can vary significantly. Some hospitals do a much better job charging higher rates on average and are able to set some rates well beyond $20,000 per procedure. It is a challenge for the common patient to price compare when they have to sort through big data to compare hospitals for their insurer that pays different amounts to different hospitals.
Many healthcare providers do not take Medicare and/or Medicaid patients. The charts below show the likely reason. Medicare rates average about $100 per treatment compared other payers’ prices that are several times higher.
The RAND study supports these findings. It found that prices paid to hospitals during 2020 by employers and private insurers for both inpatient and outpatient services averaged 224 percent of what Medicare would have paid, with wide variation in prices among states.
When analyzing rates across different types of procedures, there are nearly 200 procedures where commercial payers’ prices average in excess of $10,000 (as shown on the vertical y-axis of the chart below). Yet Medicare rates for these same procedures range from $100 to $2,000 (as shown on the horizontal x-axis).
Another study on hospital prices that was performed after prices were published was developed by the Healthcare Cost Institute. It is aptly titled The Insanity of US Healthcare Pricing and presents consistent findings. However, the study also considered multiple hospitals within one hospital system and even found differences within the same network. The study found wide variation in commercial service prices paid for by commercial payers by provider, by service, and by insurance plan both across and within hospitals within the same hospital system.
As to Medicaid, the Medicaid and CHIP Payment and Access Commission (MACPAC) report on physician acceptance of Medicaid patients reveals that the number of physicians that do not accept new patients on Medicaid is approaching one-third. This varies significantly across types of healthcare providers (e.g., pediatricians vs. specialists).
The chart below (based on TX rates) shows how Medicaid is even lower than Medicare – roughly half the rates of Medicare.
Patients Are the Ones that Foot the Bill of High Healthcare Costs
Even though many patients have traditionally felt as if prices really do not matter because insurance covers it, that is not really the case. Although most private health insurance comes through employers, money is effectively diverted from employees’ wages to fund healthcare insurance. In other words, the employees pay for it. In addition, those same employees pay for Medicare and Medicaid through payroll taxes and other taxes. As a result, the high costs of healthcare in the US (double the cost in all other developed countries) are paid for by the patients.
Moreover, patients are often experiencing firsthand the cost of healthcare as the US. patients’ out-of-pocket costs have been increasing and are now nearly 20% of the total costs, which are paid by patients through deductibles, co-sharing, and co-payments.
What’s Wrong with Vague Healthcare Pricing
According to a study conducted by the Harris Poll and commissioned by Change Healthcare, patients have major pain points with vague healthcare pricing:
- 68% say they don’t know how much an appointment will cost until months after the fact
- 61% say when bills arrive, the bills are more complex than a mortgage payment
- 48% are uncomfortable asking the provider for more details on what they owe
Healthcare providers may be better off by fully disclosing the cost of that doggie in the window. Wouldn’t one be more inclined to buy that doggie knowing the price before agreeing to buy it? Price is not the only consideration in making a healthcare purchase. In healthcare, trusting the provider is more important in many situations. The level of trust increases when important information (such as prices) is forthcoming. However, a challenge for most providers is having the data and tools available to provide useful pricing information to the average patient.
There are Solutions
Tools available today, coupled with proper business and technology expertise, enable healthcare providers to make it easy for patients to understand costs upfront. Providers that take advantage of these capabilities are seeing good returns on the investments.
Additional Sources:
- https://www.forbes.com/sites/debgordon/2022/07/03/new-healthcare-price-transparency-rule-took-effect-july-1-but-it-may-not-help-much-yet/?sh=ca75a2a8e720
- https://www.cms.gov/healthplan-price-transparency
- https://www.hfma.org/finance-and-business-strategy/consumerism/change-healthcare-harris-poll-study-every-step-in-the-process-i/
- https://healthcostinstitute.org/hcci-research/hospital-price-transparency-1
- https://www.ebri.org/docs/default-source/ebri-issue-brief/ebri_ib_564_oopcostsharing-28july22.pdf?sfvrsn=9d57382f_4
Meade Monger, founder of Dallas-based CenturyGoal, is an expert in corporate restructurings, transformations and digital strategy. He is currently a PhD candidate in healthcare research.
