Pricing Transparency
Posted by Mitch Mitchell on Aug 3, 2006
In healthcare these days, the big talk seems to be towards the concept of what's known as pricing transparency. Basically, this says that hospitals should be posting their prices for services such as x-rays, lab tests, surgeries, etc.
There is a good reason and history why this wasn't done in the past. For one, hospitals were afraid of being sued for price fixing, or collusion as the official title. In meetings where members of more than one facility were together, there was great caution on the types of conversations that could be held, because no one wanted to be accused of this.
Two, hospitals don't get paid the same thing by an insurance carrier. As a for instance, let's look at Medicare. Each year, hospitals do what's called a cost report for their major payers, one of which is Medicare. Both sides get together, with the hospital trying to show Medicare what the hospitals costs were, based on many parameters. When each side finally agrees with the numbers, Medicare makes a determination as to what percentage that hospital will get paid for the following fiscal year. So, based on costs, one hospital might be getting 35% of Medicare's reimbursement, while another hospital down the street might be getting 55%. This same type of formula goes on with other insurance companies also. What this means is that, for the exact same service, one hospital might have to charge more because their costs are higher than the hospital down the street.
Now, for hospitals that are the only one in their market, it may not make much of an impact. For a hospital I did a consulting assignment for in North Dakota, the next closest hospital to them was over 90 minutes away; in one direction, the next closest hospital was 3 hours away. If they posted their prices, it's unlikely their consumers would decide to drive much further just to shop for a lower price. However, if there are multiple hospitals within 15 or 20 minutes of each other, I could see where that might cause some issues. Even here in Syracuse, where there are 4 major hospitals, I could see where they might worry about posting their prices online because there are a number of hospitals within 30 minutes of Syracuse where patients could possibly find lower prices.
Finally, there's the issue of physicians being associated with certain hospitals. There's no benefit to a hospital in posting their prices if, because of contractual obligations, that patient's physician doesn't have privileges at that facility. I can just imagine the contract battles that could come up because a physician's group wants the hospital they're presently affiliating with to drop their prices because the physician's are losing business, or the physicians are tired of hearing from their patients how they could be getting the same services for less money elsewhere.
I guess I'm against this whole idea for those reasons, and many more. Those in healthcare will understand; those outside of healthcare probably won't. I'll just say this; if those looking for always cheaper services are willing to take some steps backwards in technology and medical advances, by all means go for it. But you'll be losing cancer centers, dialysis centers, and many other services that not only help extend patient lives, but drive up hospital costs.