Breaking Further into the Black Box of Hospital Pricing

By Gordon Schnell

It was only a few months ago that a groundbreaking study out of the University of Iowa’s Carver College of Medicine empirically demonstrated what we pretty much already know about hospital pricing.  That it is subject to a complete lack of transparency and a total disconnect from the regular forces of supply and demand.  The study surveyed 120 hospitals across the country on their pricing for a common hip replacement surgery.  It revealed that a majority of the hospitals were not able to disclose how much the surgery would cost.  And for those that could (or were willing to), the pricing ranged anywhere from $11,000 to $125,000 for this relatively standardized procedure.  See Buying Blind — New Study Shows Continued Lack of Transparency in Healthcare Pricing.

Now, the government is piling on with its own corroboration of the slapdash and secreted world of hospital pricing.  Last week, the Centers for Medicare and Medicaid Services (CMS) released detailed pricing data from virtually every hospital in the country for their most common medical procedures.  The data shows, perhaps even more starkly than the Carver study did, that our system of hospital pricing is in a state of serious disrepair.  To demonstrate just how dysfunctional the system is, the Health and Human Services Department (HHS) in its press release announcing the CMS pricing data pointed to some of the more extreme discrepancies in hospital pricing.  For example, it identified for a typical joint replacement procedure a price range of $5,300 to $223,000.  The agency noted huge gaps in pricing even among hospitals within the same geographic area such as a $9,000 to $51,000 range to treat heart failure at various hospitals in Jackson, Mississippi.

In its own analysis of the pricing data, the Washington Post highlighted additional exemplars of this perverse pricing pattern: a $7,300 to $173,000 range to treat particularly complicated cases of heart failure; a $5,000 to $124,000 range to treat a simple case of pneumonia; and a $78,000 to $273,000 range just within Los Angeles to treat breathing problems requiring a ventilator.  The New York Times did a similar study of the data and found that these wide variations “exist even in procedures that are standardized and do not involve patient complications.”

The CMS release of this pricing data is part of the ongoing efforts of the HHS to make this country’s healthcare system more affordable and accountable.  In addition to the pricing data, the HHS will begin funding data centers to help consumers more easily digest the data according to where they live and the particular medical procedure they need.  The agency is also making funding available for states to enhance their rate review programs.  As the HHS made clear in announcing these new programs, the point in all of this is to bring greater transparency to our healthcare pricing so that both businesses and consumers alike can “drive decision-making and reward cost-effective provision of care.”

For their part, the hospitals do not appear to dispute the need to mend the current system.  In its response to the CMS pricing initiative, the American Hospital Association (AMA) acknowledged the problems inherent in the current system and the hospital industry’s willingness to help fix them:

The complex and bewildering interplay among “charges,” “rates,” “bills” and “payments” across dozens of payers, public and private, does not serve any stakeholder well, including hospitals.  This is especially true when what is most important to a patient is knowing what his or her financial responsibility will be.  . . .  The AHA and its members stand ready to work with policymakers on innovative ways to . . . share information that helps consumers make better choices about their health care.

This may be one of those rare occasions where there appears to be a total alignment among all constituencies on at least one way to attack the skyrocketing costs of healthcare in this country.  It remains to be seen whether this push for greater transparency will actually lead to a more informed patient population, or whether consumer purchasing decisions will ever serve to rein in healthcare costs.  But no one could deny that breaking further into the black box of hospital pricing is certainly a step in the right direction.

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