Price Transparency in Healthcare?
Does price transparency matter in the healthcare delivery market? The answer is and always should be “Yes!”. It’s always best for there to be clarity about the price of a product or service before an individual agrees to pay for it. The question here is whether price transparency affects the way a patient (the consumer) chooses services provided by a physician or hospital (collectively the provider). If a third-party payer is involved, like a government agency or an insurance company, then the answer is likely to be “No!”. The reasons for this requires an explanation.
In a free market, price is considered to be like the central nervous system. It responds with lightning speed to market forces and adjusts to fluctuations in supply and demand. Because of the presence of healthcare third-party payers and their payment agreements, prices are fixed and cannot fluctuate in response to the usual forces of supply and demand. So, you can see that by having an arranged and fixed price, the healthcare delivery market has, in effect, had its central nervous system removed. This prevents people from being able to use their heads to choose which services they want and what they want to pay for them!
When insurance companies got involved in the business of selling pre-paid medical care nearly 60 years ago that included the interaction between the doctor and the patient, that is the point in time when we saw the exponential increase of healthcare costs in this country.
In no other industries guided by free market principles do we see a customer that has no responsibility for the majority of the payment, nor do we see the one paying for the bill not consuming the services. This is exactly what’s happening when you’re visiting your doctor and using your insurance card. In fact, the health insurance industry’s intervention into the doctor-patient relationship coupled with governmental overreach has resulted in a majority of the fundamental rules of economics being broken. This is not to say that there are not ways for providers to operate in a competitive market today. They would have to do so outside of the current system that involves and includes traditional health insurance and government entities.
Because most traditional interactions between a doctor and a patient have an intermediary or a broker that we refer to as the health insurance company, the financial negotiations are now happening by a third party that deals with those parties individually. The health insurance companies interact with the patient via the employer and with the Doctor separate and apart from each other.
Insurers negotiate with providers to pay them a fee that is associated with a certain code that corresponds with the treatment they provide to the patient. Unless the provider submits a service associated with a code, then no code can be used and ultimately no payment will be made to the provider. This is commonly referred to as a Fee For Service service model and it is this model that has contributed to Medicine becoming so reactive and expensive. Unless the doctor sees you in his office and performs a service that is materially covered by a code, your provider can receive no payment from you or your insurance company.
In exchange for accepting the Insurer’s rates, the Provider is then included in the Insurer’s network. This is often referred to as being in-network. The rates that the Provider accepts to become an in-network provider are often called the allowable rate. This allowable rate is the total dollar amount due to the Provider for the services rendered to the patients. However, the insurance company doesn’t pay the full allowable to the provider. It’s a shared expense with the patient only after they’ve met their entire deductible. After the deductible is met, the patient is responsible for paying some portion of the bill which is called their co-insurance. This amount is usually a percentage of 20%-30% if you stay within the network and much higher if you go out-of-network. Once those obligations by the patient are met, the insurance company pays the balances up to some limited amount called the Lifetime Maximum but these are rarely ever achieved for the majority of people.
So, as we’ve seen from this explanation, the price list of the Provider is no longer a factor. The allowable rate which is a negotiated dollar amount in a contract between the Provider and Insurance Company is now essentially the price to the patient. There is currently a large scale effort to have providers disclose publicly their price list with the thinking that this transparency will aid the patient in making a decision. For the sake of providing meaningful information to the patients so they can more effectively “shop” for a provider, I would submit that providers would have to publicly display every contracted allowable amount for every contract they have executed with an insurer (both public and private). A gargantuan task whose complexity is only exceeded by the confusion it will cause anyone trying to decipher it in order to make a wise purchasing decision.
It’s also important to realize that most, if not all, insurance contracts have language that state that the Insurance company will pay the Contracted Allowable Amount or the Provider’s Charge, whichever is less. This particular language compels the Providers to hyperinflate their Charges (Prices) to a rate that will allow them to capture as much reimbursement as possible. To be fair, this is the act of being a good fiduciary on the part of the Provider but between various laws and contracts with the insurers and suppliers, the Providers are forced to have one Price List for all types of Patients.
If a Provider takes care of Medicare and/or Medicaid patients, then they are under the scrutiny of the Federal Government. The Federal Anti-Kickback Statute is very specific in dealing with discounting of pricing, which is essentially the establishment of a secondary pricing for various patient types. The Federal Statute explains the law as such:
“The Federal Anti-Kickback Statute does not prohibit discounts to uninsured patients who are unable to pay their hospital bills.”
“Discounts offered to underinsured patients potentially raise a more significant concern under the Anti-Kickback Statute”
In plain language, if you have insurance you will more than likely NOT get a discount. However, if you do not have insurance, the law allows for a variation in the price list. Fortunately, medical cost sharing is not considered insurance and therefore qualifies for discounted pricing from Providers.
So we may have some flexibility, right? Unfortunately, no. If you happen to be in Texas or any other State that prohibits multiple price lists, all flexibility is gone. My home State of Texas has within its Insurance Code 552.003, a rule that is quite limiting to Medical Providers that prohibits them from providing cash pricing to those that might be uninsured or underinsured. The codes reads as follows:
“A Medical Facility commits an offense if the Medical Facility knowingly or intentionally charges two different prices for providing the same product or service.”
Therefore, we’re left with government mandating a single price list and contractual language that states you’ll get paid the lesser of what we negotiate or your charge, whichever is less. The response of the Medical Providers has been to increase the prices. This being the case, the Providers are left with extremely high prices that everyone recognizes are more fiction than fact.