Why The New Hospital Price Transparency Rules Miss The Mark

Intentions were good, but the new federal rules that were supposed to make hospital bills easier to figure out are instead doing little to help.

Hospital prices and reimbursements have long been a riddle wrapped around a cipher. Why the same surgical procedure, aspirin, or IV vary so much in cost between facilities, health systems, and physicians has never been clearly understood by patients.

Today Americans spend more just on hospital care—$1.2 trillion per year—than the gross domestic product of 170 nations around the globe. There is no other product with so much cost and so little financial explanation to the paying customer.

Even healthcare providers who went into their field to provide great patient care are frustrated by the complexities of medical billing and reimbursement.

That’s why the federal Centers for Medicare and Medicaid Services stepped in. It enacted a new rule on hospital price transparency on January 1 that was meant to be a victory for consumers: “We believe the impact of these final policies will help to increase market competition, and ultimately drive down the cost of health care services, making them more affordable for all patients.”

A year later, clarity remains nearly as elusive as ever, despite significant investment by healthcare providers to comply with the mandate.

The rule requires hospitals to make public five types of charges for each hospital’s 300 most “shoppable” services—ones that can be scheduled in advance, and theoretically, most susceptible to competitive pricing.

Regulators hoped price transparency would encourage patients to shop around among hospitals for the best deals for medical procedures. The problem is that comparison shopping for a hospital medical procedure is almost impossible for non-experts.

For starters, even the most routine hospital procedure comprises dozens of variables—medications, tests, different specialists, recovery complications—that shift from the moment a patient walks through the door.

It’s hard to comparison-shop for, say, childbirth, without knowing whether your delivery will be straightforward or breech, requiring a C-section or epidural, and with a term baby or a preemie that requires ICU nurturing.

Still, the biggest issue muddying price transparency is the extensive behind-the-scenes negotiating between hospitals, insurers, and the government.

Few consumers realize that the price posted on their hospital bill usually bears little resemblance to the ultimate amount paid by insurance or the government. Almost all bills involve financial give-and-take between the hospital, the government, and commercial insurers.

Insurers that agree to send more patients to a particular hospital get better prices—a quantity discount—while government plans such as Medicare, Medicaid, the Department of Veterans Affairs, and the Children’s Health Insurance Program (CHIP) pay bills based on their own price schedules.

The different amounts reimbursed for each hospital procedure are limited only by the number of managed care companies—some 1,300 within the United States—covering the work.

If you need a knee replacement—and your hospital is in compliance with the new transparency rule, with an easily searchable website for procedures’ costs—then you might find a listed price of, say, $30,000.

But what will your insurer actually pay? $20,000? $40,000? A joint project by the New York Times and the University of Maryland-Baltimore County showed wildly differing rates for the same procedures within the same hospital. A recent Wall Street Journal story found some insurers are charged twice as much as competitors for the same procedure at the same hospital in Boston.

Even within an insurance plan, the cost to the consumer varies, depending on the type of coverage. High deductible? An HMO? A Preferred Provider Option? At this point, the typical consumer probably needs to add in the out-of-pocket cost for headache medicine.

The lesson? For a reality check on their likely hospital bill, consumers need to research what their insurance provider will pay at different facilities.

But even armed with that knowledge, most consumers lack the ability to shop around for the best price. Just over half of Americans receive health coverage through their employer, and so are limited by what those plans cover, and how much they reimburse for a particular procedure.

In the face of that reality, the CMS advice to consumers to “use this information to shop for the hospital that works for you” rings hollow.

As required by the new regulations, a hospital may post a procedure price, but the unpredictable variables of medical care, combined with a confusing web of behind-the-scenes price negotiations by health care plans and hospitals, means that price is just a number—and not the amount a consumer ultimately will pay.

Until the massive managed care system is demystified and simplified, true consumer-focused price transparency for hospital bills will remain frustratingly out of reach.


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