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Some Hospital Price Transparency

detail of a hospital bill, focusing on the total balance.
photo by Brady Delfs, courtesy the Alabama Cooperative Extension System

You take a bad fall on the basketball court or the softball field, and realize you will probably need X-rays. But since you have not met your insurance deductible this year, you wonder: How much is this going to cost?

Now, at least in theory, you don’t have to guess. Assuming you have a willing companion, or enough motor function and pain tolerance to access the internet on your own, you can go to the hospital’s website and look up the price of the X-rays in advance. This is thanks to a new federal regulation that took effect on New Year’s Day after a long, unsuccessful fight by the hospital industry. On Dec. 29, a panel for the U.S. Circuit Court of Appeals in the District of Columbia unanimously upheld a district court decision to reject hospitals’ challenge, effectively ending the struggle.

But there’s more, potentially much more, change still to come for the health care industry’s uniquely opaque approach to pricing. For those who pay the bills, that approach has long boiled down to “It’s none of your business.”

The same set of rules that requires hospitals to publicly post the prices they secretly negotiate with insurers for at least 300 “shoppable services” – that is, procedures that can be planned in advance – also mandates that they provide a complete list of all their pricing. Until now, the industry has treated pricing as a trade secret. So a blood transfusion that has a list price of, say, $1,000 (which uninsured and out-of-network patients will pay) might cost $450 if the patient is covered by Insurance Company A and $325 if the patient uses Insurance Company B.

Hospitals must provide this comprehensive pricing database in machine-readable format. The insurance companies, corporate benefits departments and their consultants will promptly pounce on it. Even the hospitals themselves will use it against one another. In our hypothetical example, Insurance Company A is likely to demand the same $325 price offered to Insurance Company B and its customers. (Remember, patients pay their insurance company’s rate until they meet their deductible, plus the applicable share of any copayment.) But the hospital might discover that Insurance Company B is paying another hospital in town $400 for the same blood transfusion.

In each case, the insurer or provider is likely to demand the better treatment that its competitors receive. The marketplace dynamic will be essentially the same. Hospitals and other providers, individually and collectively, control the supply of services; insurers (together with the federal Medicare and federal-state Medicaid programs) essentially control the supply of patients. Hospitals will try to further differentiate themselves as having superior facilities or talent. In the end, whoever has the upper hand in a particular market will have the stronger negotiating position. But since the results of those negotiations will now be visible, the companies and individuals who pay the costs have at least secured observer status at the virtual table.

There is more to come. In late October, the federal Department of Health and Human Services finalized another set of rules that will, after a phase-in period, require insurers to post pricing for at least 500 “shoppable services” for each of their plans. Patients will be able to access this information via an online tool that enables them to estimate their share of the costs. By 2024, insurers will also need to make the full pricing list available. Importantly, this disclosure will extend to medical tests and prescription drugs.

Like hospitals, insurers adamantly oppose disclosing their contractual agreements with provider counterparties. Their position would be justified if they actually bore the costs of those agreements. If we only paid a flat rate for all the medical services we needed, and insurers covered all the direct expenses of providing our covered care, the amount they paid to providers would be of no concern to us. This was the original structure of most health maintenance organizations. But once you introduce deductibles and copayments – which nearly all plans now have, to make customers aware that health care is not free and get them to behave accordingly – then the pricing of such services becomes a matter of consumer concern.

When you take out a mortgage, bring a car to a garage for repairs or remodel a kitchen, vendors provide you with a detailed written estimate of the costs. They don’t go beyond the scope of that estimate without first checking with you. The health care industry believes such transparency should not apply. If you get a checkup, your doctor may take samples and send them to a lab for testing without telling you what tests are being ordered, why they are being ordered, and how much it will cost. In fact, the doctor has no idea how much you will pay for tests or prescriptions. Genuine cost containment will come only when someone – ideally a provider, but, if necessary, the patient – is in a position to ask whether the “doctor’s orders” are worth what they cost, compared to other alternatives.

Price transparency won’t be the sole solution to out-of-control medical costs. But no solution is possible without it.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, The High Achiever’s Guide To Wealth. His contributions include Chapter 1, “Anyone Can Achieve Wealth,” and Chapter 19, “Assisting Aging Parents.” Larry was also among the authors of the firm’s previous book Looking Ahead: Life, Family, Wealth and Business After 55.

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