IF YOU LISTEN LONG ENOUGH, you’re bound to hear stories of consumers totally confounded by how things work in healthcare.
This is one of those stories. It’s based on a column from Daniel Borenstein, a columnist in the Contra Costa (Calif.) Times, that I found while researching the California healthcare reform initiative. His story is a microcosm of the trouble with the healthcare system today and the difficulty that everyone has in being transparent with healthcare prices.
Borenstein is a cancer patient, and was receiving chemotherapy to fight it. As part of each of his first three rounds of treatment, he was given Neulasta, a drug designed to strengthen the immune system during cancer treatment.
Borenstein’s oncologist’s office had charged his insurance company $4,230 for each injection. It paid a negotiated rate of $2,712. His hospital had charged the insurance company $15,472 for the same type of injection. “And amazingly, the same insurance company had paid most of it,” he wrote in his February 3 column.
It’s not surprising, then, that the columnist linked the higher cost for his hospital injection with a report issued in January by large health purchasers, in which a study found that insurance carriers paid $18 billion for care that cost hospitals $13 billion to deliver in 2005. The study found wide variations in hospital prices.
There are a lot of different spins on that report. For example, Peter Lee, chief executive of the Pacific Business Group on Health, sees it this way: “The report underscores what we have long suspected: that some hospitals are basing their prices to private insurers and patients on what they can get away with.”
But the California Hospital Association asserted that state hospitals’ operating margins are shrinking and that the difference in billings and costs is necessary to cover losses, estimated at $7.1 billion, for treating uninsured patients, Medicare beneficiaries and Medicaid recipients.
Those explanations were shaky to Borenstein. He termed the disparity between the cost of the physician office-delivered injection and that in the hospital “a bit extreme.”
His main point of contention is the “shroud of secrecy” that seems to envelope the healthcare pricing process. The Byzantine process leaves Borenstein – and most consumers – scratching their heads.
“The hospital starts with an asking price that it doesn’t expect to receive and the insurance company counters with a lower number,” he wrote. “The compromise price is never publicly disclosed. Indeed, some hospitals fight vigorously to keep that data secret, to keep insurance companies from sharing it with one another.”
It’s no wonder that, to Borenstein and others, medical prices seemingly rise without restraint, rhyme or reason. Lack of publicly available pricing information disables efforts to identify providers who charge unjustified high prices, or conversely, to reward low-price providers or give conservative pricers the ammunition they need to negotiate with payers.
Hospitals shift costs from private insurers to cover underpayments from public payers, such as Medicare and Medicaid. But that approach is wearing thin with Borenstein, who sees that practice as a hidden tax on those who pay for insurance, which includes employers who provide insurance and those whose care is covered by insurance.
Transparency of healthcare pricing, while important for individual consumers, is of more importance to payers, because that gives them more leverage to honestly negotiate with providers on pricing. That’s the conclusion of the January report, which was commissioned by CalPERS, the state’s employee benefit program for state and local government workers.
“Because hospitals are not required to disclose their actual prices for specific healthcare services, private insurers and patients have no ability to ‘shop’ for healthcare based on quality and costs,” the report concludes.
The underlying concern I find in Borenstein’s experience is that most people will make an assumption that a pricing approach that appears to be so capricious, idiosyncratic and secretive is bound to be guilty of something nefarious.
I am really interested in the healthcare industry’s response to this. How do you answer this columnist’s assertions? Where does the fault lie, and how is this fixed? Can the system, as it exists today, provide enough price information to improve comparison shopping?
I’d like to include your responses in an upcoming issue. Please e-mail me at fred.bazzoli@medtechpublishing.com.
Mr. Borenstein and I – and many others – are interested in your feedback on this important topic.