Hospital prices go public: Does it matter?

January 2nd, 2019 / By Steve Delaronde

As of January 1, 2019, hospitals must post their prices on the internet for patients to review. The intent is to provide patients with price transparency and allow them to compare hospital charges when making healthcare decisions. The reality is that this information will have little relevance to consumers and provide little value.  Let’s examine the reasons.

First, prices posted are the list prices charged by hospitals and not the actual prices paid by most patients. Patients with private insurance pay a rate negotiated by their insurer. These rates are often substantially lower than the list price, however the actual percentage that a charge is discounted will vary by procedure. Uninsured persons are responsible for paying the list price, since there is no entity to negotiate discounted prices on their behalf except themselves.

The list prices of billable items and services maintained by hospitals is called a Charge Description Master (CDM), or chargemaster. The primary purpose of the chargemaster is to serve as an anchor for hospitals to negotiate prices with insurers. It is not intended to provide a realistic reflection of the actual cost of delivering a service. Additionally, the list price does not consider the actual patient contribution determined by the type of insurance product they purchase, which may include copays, coinsurance and deductibles.

Chargemaster apologists will say that the list price will at least allow the patient to approximate the cost of services before they are rendered. Some cite the use of list prices of new cars as a similar example of where the manufacturer’s suggested retail price (MSRP) correlates very closely to the transaction price. The correlation between MSPR and the actual car sales price is between 0.90 and 0.99, where 1.00 is perfect correlation. The correlation between hospital charges and actual transaction prices, however, is much lower, at 0.34.

If a list price from a hospital’s chargemaster does not provide the patient with the information needed to make medical decisions based on price, then what is needed? The actual negotiated price which factors in a patient’s copay, coinsurance and deductible would be most useful for the privately insured patient.  Unfortunately, the luxury of price shopping is most useful for elective, non-emergent procedures, such as physician office visits, lab and diagnostic tests and non-emergent surgery.  However, knowing urgent care visit prices, ER facility fees, ambulance fees and daily inpatient and intensive care unit prices would help patients develop a price-based plan for dealing with an unforeseen medical emergency.

Finally, price is only one piece of information needed to make a value-based, informed decision. The other is quality. Knowing the volume of procedures performed, as well as meaningful outcome measures and patient satisfaction rates would provide patients with a more objective decision-making tool than relying completely on a physician’s or friend’s recommendation. Quality is a much more challenging construct to measure, since its definition is not universal and it may be more difficult to obtain data regarding quality. While any attempt to make price and quality information available to consumers represents progress towards achieving the goals of the Triple Aim—lower cost, better quality, and a better patient experience across the entire continuum of care—the availability of hospital charge data will not be that useful.

Steve Delaronde is director of consulting for populations and payment solutions at 3M Health Information Systems.