Thursday, December 12, 2013
Hospital Pricing Transparency-The Next Health Care Mandate
Hospital and Medical Procedure Price Transparency-The Next Health Care Consumer Reform
Given the mandated personal responsibility for health insurance, pay for performance Affordable Care Act methodology, and increased reporting of insurance plan administrative data, it is clear that consumer driven health care is launched. However, one piece of the puzzle is still missing, which is an understanding of the cost of a procedure before you have it done at your chosen facility. Increasingly there has been consumer demand for better disclosure of health care pricing which has resulted in a number of legislative proposals across the country. Also, one state created a unique and highly effective payment model for hospital services over forty years ago and it may be the future for a workable streamlined national model for reimbursement. This article reviews data from the nonprofit organization, National Conference for State Legislation.org, as well as state public health, and the Medicare All-Payers-Claims-Database to show the spread between states for procedure charges. Using the Centers for Medicare and Medicaid site, the public can now obtain patient safety and cost information from the government web site in advance of choosing a facility for a medical procedure. In addition to this price/compare site, Health and Human Services has the Hospital Compare web site which allows parties to search based on safety records also.
The National Conference for State Legislation report illustrates a vast difference in total hospital charges for the same procedure, but the Medicare reimbursement was nearly uniform. The spread between the gross or marked-up charges reflects a combination of under-reimbursement from CMS and a climate of private payer willingness to pay more for the procedures. The CMS report from which this May 2013 article was based reviewed 130 of the most common medical procedures at hospitals to establish the price perspective. The exception to the dramatic price spread between gross charges and actual reimbursement paid was Maryland, because of its model for pricing transparency. For example, the statistical average charge for joint replacement in Maryland in the August 2012 report was $21,230 and the actual reimbursement paid to the hospital was $20,048. This contrasts greatly with the other states who report variances as wide as $60,000 between the billed price and the net reimbursement from Medicare.
I accessed the web site for the Centers for Medicaid and Medicare and performed an EXCEL search for the diagnostic code 482, which is a common code for orthopedic surgery, but not for full hip replacement; then extracted that data for my conclusions below. (The information was drawn from 2009 published data, based on 2007 Medicare payment information.) California had the widest discrepancy between the billed charges and the Medicare payment, reflecting its high labor, rent, and other marginal costs impacting business in that state. But Nevada came in at number two for the most egregious pricing for this procedure code, despite its low labor costs, inexpensive real estate, and low scores for health status, as revealed in Unraveling U.S. Health Care-A Personal Guide in 2013. This means that private insurance companies are paying a much higher cost for this same procedure than other insurers pay in other states. This factoid should be of interest not only to the patient, but to the insurance companies who negotiate contracts with hospitals and clinics.
The five most expensive states for this type of orthopedic procedure were:
State Total Charge Actual Reimbursement
California $68,603 $12,359
Nevada $63,755 $10,358
New Jersey $55,694 $11,054
Florida $50,455 $ 9,353
Pennsylvania $46,672 $ 9,880
The five least expensive states for this same orthopedic procedure were:
State Total Charge Actual Reimbursement
Maryland $14,931 $14,081
Maine $22,832 $10,362
Montana $23,196 $ 9,284
Vermont $23,308 $13,445
North Dakota $24,129 $ 9,787
The Maryland Model- An Alternative Method for Calculating Hospital Payment
Let’s take a closer look at Maryland’s hospital pricing model, called an All Payer Pricing Model, which was established in 1971. Rates for medical procedures are set annually in Maryland, sort of like the state insurance commissioner’s “file and use” policy for insurance pricing. The purpose of the legislation was to provide financial stability to the hospital industry, to create efficient and effective care, to constrain hospital costs, and to find a way to finance the increasing burden of uncompensated care. In order for Maryland to have this type of payment methodology they had to apply for a waiver from Medicare, which pays a percentage of gross charges for everything, rather than this bundled price per procedure. It seems the Maryland model is practical and has worked for four decades, so why can’t we adopt something like this across the country? We already have states with waiver programs for Medicaid. If that isn’t enough of an incentive, Maryland’s hospital cost increases were 2% in 2009 versus 4.5% for the rest of the nation. What an appealing quality for possible business advertisement for the Chambers of Commerce in the Chesapeake Bay State.
State Legislation to Create Hospital Pricing Transparency
States which are leaders in the charge for medical service pricing transparency with laws mandating disclosure of hospital prices include: Colorado, Kentucky, Kansas, Minnesota, Maine, Massachusetts, New Hampshire, New York, and Utah. Utah actually has a web site that allows consumers to view procedure and price information for payers, if you know the ICD9 or DRG code and can use a query form. States with legislation to enact medical service pricing transparency include: New York, Ohio, Oregon, and Pennsylvania.
States with voluntary price reporting for hospital services are Michigan and Washington. While attempting to access hospital procedure price information for Washington State, the National Conference of State Legislation.org web site led me to the Puget Sound Health Alliance.org web site which resulted in a non working link. After hunting around on the Puget Sound Health Alliance web site (funded by health plans, health systems, and employer groups), I could not locate any price/procedure information or report. Theoretically hospitals report their pricing for procedure data to Puget Sound Health Alliance, but it isn’t available for public scrutiny at this time.
Since we are all subjected to the most expensive health care system in the world, I think we deserve to know what the services cost before we sign our lives away, literally and figuratively. And this is the healthpolicymaven signing off wishing you a safe and happy holiday season.