What Is Real Price Transparency?

Stanley Feld M.D.,FACP,MACE

President Bush has stated that price transparency is essential for healthcare reform. Price opacity has been frustrating to the individual patient. Patients have not been able to find out the price of services they are buying from hospitals before they have the service completed.

This is especially significant for 46.7 million uninsured Americans. Recently, there has been a series of articles exposing the fact that the uninsured are required to pay at least two and one half times the fees that the insured pay.

We have seen Denise’s frustration. She is an uninsured patient. She wrote an appeal for price transparency to Kinky Friedman the Jewish Cowboy Humorist who was running for Governor of Texas.

We have also seen that hospital systems have proudly declared that they have published their prices on the web in the name of Price Transparency. I have been able to find information for hospitals in Wisconsin and Texas. You can find the retail price for an illness’ DRG and the DRG range of prices for hospitals in the area. You can also study the discounts the hospital system gives to Medicare and a basket of insurance companies. Additionally, the hospital systems’ patient mix is published. This is the hospital industry’s definition of price transparency. The uninsured cannot negotiate the price from this published data.

A few weeks ago I was at a lecture given by the CEO of a large hospital system. He was very proud of the fact that his system published this price transparency information. I asked “If I was one of the 46.7 million uninsured, could I successfully negotiate the price his system accepts from Medicare?” The first answer was an answer to a different question. The second answer to the same question was,“No.” I could not negotiate for Medicare’s discount. I could get a certain discount depending on my financial status. I asked, “If I was a self employed consultant earning a good living could I get a discount?” He said, “The maximum discount I could negotiate would be 20% off the retail price.” I then said, “If I am not able to negotiate a price, what good is publishing your prices?”

The California Hospital Association’s defense of their fees charged by hospital systems is lame at best. “They claim the studies quoted are old from 2004.” My guess is from my small sample the results would be even worse in 2007.

If you have health insurance you would not care about this price transparency discussion. You would think your health insurance company is going to take care of your prices and provide adequate coverage. Today I got a note from a nurse practitioner stating that medical insurance coverage is a racket. The California Hospital Association’s reply was;

“There is no relationship between what is charged, the actual cost of care and what hospitals get reimbursed,” a hospital association spokesperson said. “But we are doing our share. It is unfair to expect hospitals to provide care and also fix the system.”

“Why hospitals have full price rates to begin with is the result of a Byzantine pricing system that is as much a result of the country’s broken healthcare system as the hospitals’ billing practices, said Emerson of the California Hospital Assn. Hospitals in large part have borne the brunt of caring for the country’s uninsured population with uncompensated care in their emergency rooms and by writing off what uninsured patients are unable to pay.”.

“If you’re one of the growing numbers of Americans without health insurance, you are billed top dollar for hospital care.”

“Now, for the first time, a study purports to show just how costly that is — although hospital groups immediately took issue with the findings.”

“Uninsured patients on average are billed 2 1/2 times more than what the insured are billed through their health plans, and more than three times what is billed to patients through Medicare, according to the study appearing today in the journal Health Affairs.”

“In effect, the uninsured are billed at full price, while health plans and Medicare receive deep discounts.”

“Hospitals might charge $12,500 for an appendectomy, for example, but collect only $5,000 from a health insurance plan. Members of the plan actually pay a lot less, through nominal co-pays or deductibles.”

I bet Medicare reimbursement for an appendectomy is less than $5,000. The hospital has to accept the payment. Hospitals determine their retail prices by price shifting as a result of the Medicare discount. The brunt of the price shifting is borne by the uninsured.

“Health plans can negotiate such discounts because they can direct a large number of patients to certain hospitals by making them part of their provider network.”

“Uninsured patients do not have such leverage and may face full hospital prices.”

Why can’t we set up a system where the uninsured can buy insurance with pretax dollars and receive the same negotiated discounts health insurance plans receive? Why couldn’t we subsidize the uninsured who truly can not afford to buy health insurance? Doing this would level playing field for all.

“As a consequence, uninsured patients who are billed full prices are left with exorbitant hospital bills that are impossible to pay, said Gerard F. Anderson, author of the study and a healthcare researcher at Johns Hopkins University”.

“Hospitals shouldn’t be charging three times” Medicare rates, Anderson said, “especially from poor people who are uninsured.”

This is the crux of the problem. Hospitals have multiple prices. The price varies depending on their need to compete for patients or the patients’ insurance plan. They have to accept Medicare by law. The government sets the price. The 46.7 million uninsured do not have this negotiating power.

Think about it. Why should the hospital want to negotiate price? All over the country aren’t hospitals overbuilding with their new found profits. They are going to need patients to fill their buildings. They will have to become more efficient and provide better prices at better quality, if they want to pay their overhead. This will happen only if the patients control their health care dollars. Remember hospitals are tax exempt. They could lose this status if the government had the guts to pass the appropriate law and enforced hospital non compliance.

“According to the Kaiser Family Foundation, a research institute, about 15% of the nation’s 45 million uninsured earn above 350% of the federal poverty income level, meaning they make too much to qualify for hospital discounts in many cases. But they are also too poor to afford health insurance.”

“The solution is for people to be covered under health insurance,” said Anthony Wright, executive director of Health Access California, a consumer advocacy group.

Anthony Wright’s concept is a simplistic view leading to the simplistic concept of universal healthcare. His views, as well as some of our politicians’ views, is that universal healthcare will fix everything. The universal healthcare concept has been disputed. In my opinion universal healthcare can not work. The patients have to have incentive to be responsible for their healthcare and healthcare costs in order for a system to work. We must empower the people to make the stakeholders compete for their business on price and quality.

A few weeks ago John Goodman proposed a brilliant idea in answer to a question about his Wall Street Journal article. He said “Suppose we passed a law tomorrow prohibiting all insurance companies (including Medicare and Medicaid) from paying any medical bills less than $5,000. What would happen? The medical marketplace would transform almost overnight.”

It would be transformed from a demand side healthcare economy system to a supply side healthcare economy system. Patients would shop for the best quality and the best price just like they shop for cars, TV’s and clothing. Hospitals and Physicians would be force to be more efficient, increase quality and be more price efficient.

“(Just thinking about it makes you wonder why we haven’t done this already?)”

My answer to the question is that the facilitator stakeholders are afraid that they will lose control our healthcare dollar. We, the people, would be in charge of our healthcare dollar. We would force all the waste out of the system, waste that the facilitator stakeholders profit from. The waste that lets the CEO’s of hospital systems justify their million dollar plus salaries and the healthcare plans CEO is their billion dollar compensation package. At the same time the healthcare system is at the verge of bankruptcy.

If the waste was eliminated and a competitive system was instituted, innovative systems would be developed to reduce the price and increase the quality of medical care. The people would be responsible for quality medical care at competitive prices because they would own their healthcare dollar.

Hasn’t Wal-Mart’s innovative $4 a month generic drug price begun to establish such a system? The answer is “Yes.”