Hospital Price Transparency: A Necessary First Step
Would you purchase a new automobile without knowing the price? Would you purchase a new home that way? Or would you purchase any product in the supermarket without knowing the cost? For a slim slice of America – Silicon Valley zillionaires and Hollywood celebrities – that might be possible. There are always those with so much money, the price of anything is a mere afterthought.
However, for the vast majority of people, cost is the determining factor of most life events, whether it is the cost of a new car, a possible vacation, or a college education for the high school graduate. And, indeed, the pricing mechanism is the key component of our free market economic system. That’s the process by which buyers and sellers conduct transactions. That’s how we determine value. It’s the basis of supply and demand. When government tries to intervene by imposing price controls, it distorts the free market by artificially stimulating demand and restricting supply, thus leading to shortages plus explosive inflation when the controls are eventually lifted.
In January of 2021, a revolutionary development took place in the completely cost-distorted health care market in the United States. Thanks to an Executive Order signed by President Trump in 2019, hospitals are now required to post the price schedules of more than 300 common “shoppable services” in a consumer-friendly format. These “shoppable services” are those that can be scheduled in advance by a health care consumer, such as x-rays, outpatient visits, imaging and laboratory tests or bundled services like a caesarean delivery, including pre-and post-delivery care. They are also be required to disclose public payer-specific negotiated charges and the amount the hospital is willing to accept in cash from a patient.
The importance of this new regulation cannot be underestimated or diminished. We know that hospital care is the greatest cost-driver in American health care today. At $1.3 trillion, hospital care – provided mostly by a small number of gigantic oligopolistic chains ( as a result of mergers and consolidation in the industry ) – gobbles up one-third of all health care dollars in the U.S. The average cost of a one-day stay in the hospital is over $4,000 with the average stay clocking in at nearly $16,000. Hospital profits are also much higher than either the insurance or pharmacy industries. It is indisputable that health care costs can never be brought to heel without addressing the cost of overpriced, inflated hospital care.
As it stands now, insurance companies and hospitals negotiate rates in secret. The consumer has little or no say in the process. That is, until after he or she receives care. That’s when the so-called “Explanation of Benefits” from your insurer arrives in the mail indicating the price of the procedure, the negotiated rate with the provider and the patient’s share-of-cost. Isn’t it nice to be able to charge your customer anything you want for a service weeks or months later? And, hospitals admit to it. Author Marty Markary, Professor of Surgery at Johns Hopkins University, relates the case of a friend who required emergency surgery but was “out-of-network” with the hospital. She was charged $60,000 for the surgery. Yet, an “in-network” patient would have been charged just $12,000 for the exact same operation. When confronted by Professor Markary, a representative of the hospital stated: “We can charge someone out-of-network as much as we want. The law says we can.”
While it is certainly true that a substantial part of hospital care involves emergency and unscheduled medical procedures and treatments ( such as a broken leg or heart failure ) in which total costs are impossible to project in advance, many procedures are elective or non-emergency. And, for these standard procedures, the costs can vary wildly based on geography and the amount of hospital competition ( or lack thereof ) in the region. Delivering a baby hasn’t changed a great deal through history. Yet, the cost of a C-section in San Francisco can be five times the cost in Nashville, Tennessee. Can someone argue with a straight face that the medical skill required to perform this very common procedure is five times more challenging in sophisticated San Francisco than in more laid-back Knoxville?
We know that as medical technology continues to advance, fewer and fewer medical procedures need to take place in the super-priced hospital setting where much of the cost sustains a bloated administrative bureaucracy. Out-patient surgery centers can perform many, if not most, common surgeries at a fraction of the cost. Physicians can also perform many tests – including labs, EKGs, and even echocardiograms in their offices for far less than a hospital would charge. And, the hospitals know it. That’s why part of their growth strategy has been to capture more and more of the outpatient market and charge more for it.
Price transparency is just one small step in the campaign to reduce the cost of health care in America. But, it is an important step. The hospitals and insurance companies have been fighting this proposed change almost since it was first announced. They obviously have no incentive to abandon what Trump HHS Secretary Alex Azar called our “shadowy system” of secret pricing and negotiated rates. It has been highly profitable to them. Yet, for employers who carry the burden of ever-increasing premiums and consumers who carry the burden of ever-increasing deductibles and co-pays, it is about time for this necessary reform. Let us hope it is just the first in a series of market-oriented reforms that puts patients back in charge of their own medical care.
Dr. James Veltmeyer is a prominent La Jolla physician voted “Top Doctor” in San Diego County in 2012, 2014, 2016, 2017, and 2019. Dr. Veltmeyer can be reached at firstname.lastname@example.org and by visiting his website at drveltmeyer.com
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