February 28, 2013

Buying Blind – New Study Shows Continued Lack of Transparency in Healthcare Pricing

By Gordon Schnell

It has been talked about for years as a way to rein in the runaway costs of healthcare in this country — making price matter to the consumer.  That is how it is with every other kind of purchase.  Whether it is a car, a house, a college education, a new pair of sneakers, or even a quart of milk, virtually everyone weighs heavily into their purchase decision what it is ultimately going to cost.  And most will do their darnedest to obtain the best possible price, haggling, shopping around, playing one seller off another.  But when it comes to making many of our most important healthcare purchases, price seems to fall largely out of the mix.  It is what it is.

Part of the problem, of course, is that unlike most of our other purchases, with healthcare, someone else — the government or private insurance — usually pays the bill.  But that is not the case for the tens of millions of Americans who remain uninsured.  Nor does it account for the increased share of the cost that even the insured are shouldering through rising deductibles and co-payments and the growing use of fixed-dollar or capped contributions.  The pricing of our medical services really should matter for everyone these days.  So something else must be getting in the way.  And according to a recent study out of the University of Iowa Carver College of Medicine, a big part of that something is the impenetrable black box in which healthcare pricing resides.  It is preventing even the most savvy and hard-bargaining of consumers from price-shopping for their healthcare needs.

The study was the brain-child of Jaime Rosenthal, a senior at Washington University in St. Louis, who for a summer research project wanted to explore the transparency of hospital pricing.  So she teamed up with some researchers at Carver and set out to survey a broad cross-section of hospitals on their pricing for a single, standardized medical procedure.  She devised for the project a fictional 62-year old grandmother who was seeking to privately pay for a hip replacement surgery, known as total hip arthroplasty (or THA).  Ms. Rosenthal and her team then selected two hospitals randomly from each state as well as the 20 top-ranked orthopedic hospitals (according to U.S. News and World Report).  The team, using a common script, requested from each hospital their lowest “bundled price” (hospital plus physician fees) for the procedure.

A THA is a common type of elective surgery and one that should be amenable to readily available pricing information and pricing that is relatively uniform across hospitals.   According to the Rosenthal study, the results of which were recently published in JAMA Internal Medicine, neither is the case.  In fact, it is just the opposite with the majority of hospitals surveyed unable to come up with the requested pricing information and with those that did reporting vast disparities in the pricing.  Here is a summary of the key findings:

  • Only 9 of the 20 top-ranked hospitals (45%) and 10 of the 102 non top-ranked hospitals (10%) could provide a complete bundled price for the procedure.
  • An additional 3 of the top-ranked hospitals (15%) and 54 of the non top-ranked hospitals (53%) were able to provide a complete price only after the research team contacted a treating physician in addition to the hospital.
  • 8 of the top-ranked hospitals (40%) and 38 of the non top-ranked hospitals (38%) were able to provide only partial price information or no information at all.
  • The bundled price for the procedure that was reported ranged from $12,500 to $105,000 for top-ranked hospitals and from $11,100 to $125,798 for non top-ranked hospitals.
  • Hospitals in the Northeast were the least likely to provide the requested pricing information.
  • The most common explanations for not providing the information were that the patient has to see a physician first; it cannot be provided over the phone; or the hospital simply does not have it.
  • Even for those hospitals that provided pricing information, it often took multiple phone calls, frequent transfers between departments, unreturned messages and an overriding sense of uncertainty and confusion.

The results of the Rosenthal study somewhat mirrored the results of a Government Accountability Office study conducted in September 2011 which found that “this lack of health care price transparency presents a serious challenge for consumers who are increasingly being asked to pay a greater share of their healthcare costs.”  Some progress is being made to remedy this critical failing in our healthcare system.  More than thirty states have proposed or enacted some form of price transparency legislation.  At the federal level, the Health and Human Services Department has begun to implement its own initiatives to unlock this prizing puzzle.  Several private insurers have also jumped into the fray with their own designs to facilitate expanded price-shopping among their constituents.  Unfortunately, as this latest study makes clear, we still have a long way to go to get to the point where consumer purchasing decisions will have any real impact on the ever-increasing costs of healthcare in this country.

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