After all the misunderstanding with our health insurance policy changes, anything to end the confusion, secrecy, and overbilling of our medical expenses, I am eager to see happen!
This morning, Health and Human Services Secretary Kathleen Sebelius is announcing a groundbreaking initiative that will take a lot of the secrecy out of hospital billings.
Acting on the suggestion of her top data crunchers at the department’s Centers for Medicare and Medicaid Services (CMS), Sebelius will release a data file that shows the list — or “chargemaster” — prices by all hospitals across the U.S. for the 100 most common inpatient treatment services in 2011. It then compares those prices with what Medicare actually paid hospitals for the same treatments — which was typically a fraction of the chargemaster prices.
CMS public-affairs director Brian Cook told me that Sebelius’ action today comes in part in response to TIME’s special report on health-care-pricing practices in the March 4 issue, “Bitter Pill.”
In the same announcement, Sebelius is offering $87 million to the states to create what she calls “health-care-data-pricing centers.” The centers will make pricing transparency more local and user friendly than the giant data file she is releasing this morning.
There are two reasons why Sebelius’ release of this newly crunched, massive data file is a great first step.
First, it reveals the vast disparity between what hospitals charge for pills, procedures and operations and the real cost of those services, as calculated by Medicare.
As I explained in “Bitter Pill,” Medicare uses expense data submitted by all hospitals to determine the actual cost of all treatments — including allocations of overhead such as rent or administrative salaries — and pays accordingly. In other words, Medicare takes seriously — and enforces — the idea that nonprofit hospitals should be nonprofit.
The first line in the more than 163,072 lines of data in the CMS file being released today covers the treatment of “extracranial procedures” (“without complications”) at the Southeast Alabama Medical Center in Dothan, Ala. When Medicare reviewed the list prices on bills it received for 91 patients getting that treatment at the Dothan hospital in 2011, the average chargemaster bill claimed by the hospital was $32,963. Medicare only paid an average of $5,777.
Doctors may be being shortchanged in their payments from Medicare. But if you think Medicare is paying hospitals less than cost, recall this quote in “Bitter Pill” from a top CMS official:
I was driving through Central Florida a year or two ago, and it seemed like every billboard I saw advertised some hospital with these big shiny buildings or showed some new wing of a hospital being constructed … So when you tell me that the hospitals say they are losing money on Medicare and shifting costs from Medicare patients to other patients, my reaction is that Central Florida is overflowing with Medicare patients and all those hospitals are expanding and advertising for Medicare patients. So you can’t tell me they’re losing money … Hospitals don’t lose money when they serve Medicare patients.
The second reason the compilation and release of this data is a big deal is that it demonstrates the point I tried to make in spotlighting the seven sample medical bills in “Bitter Pill”: most hospitals’ chargemaster prices are wildly inconsistent and seem to have no rationale. Thus, the release of this fire hose of data — which prints out at 17,511 pages — should become a tip sheet for reporters in every American city and town, who can now ask hospitals to explain their pricing.
For example, Sebelius points out in her announcement that “average inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Oklahoma, to a high of $223,000 at a hospital in Monterey Park, California. Even within the same geographic area,” she notes, “hospital charges for similar services can vary significantly. For example, average inpatient hospital charges for services that may be provided to treat heart failure range from a low of $21,000 to a high of $46,000 in Denver, Colorado, and from a low of $9,000 to a high of $51,000 in Jackson, Mississippi.”
These wild pricing gaps are everywhere. Who would have thought that Maimonides Medical Center in Brooklyn charged an average of $43,940 for a heart attack with no complications (and no death), while the more prestigious Mount Sinai Hospital in Manhattan charged $16,611? Who knew that the same treatment at Chicago’s Northwestern Memorial Hospital averages $41,820 in charges, but at nearby Evanston Hospital it’s $22,994?
The hospital lobby, led by the American Hospital Association, is going to howl that Sebelius’ publication of these chargemaster prices is unfair. Only a minority of patients are actually asked to pay those amounts, they will argue. Insurance companies, which cover the majority of patients, receive huge discounts off of the list prices, though they pay substantially more than Medicare.
That’s true, but in the through-the-looking glass world of health care economics, those who are asked to pay chargemaster rates are those who are underinsured or lack insurance altogether. Moreover, insurers typically negotiate discounts off of the grossly inflated chargemaster prices ($77 for a box of gauze pads!) — so the chargemaster matters for insured patients too.
So, what should Sebelius and her team do next?
The feds need to publish chargemaster and Medicare pricing for the most frequent outpatient procedures and diagnostic tests at clinics — two huge profit venues in the medical world. This will be harder — the government doesn’t collect that data as comprehensively — but those outpatient centers and clinics provide a huge portion of American medical care.
But an even bigger step in transparency would be collecting data that Medicare doesn’t have: exactly what insurance companies pay to the various hospitals, testing clinics and other providers for various treatments and services. After all, as the hospitals themselves concede in downplaying their chargemasters, these insurance prices are the ones that affect most patients. But it’s also where there is close to zero transparency.
Here’s why it matters so much. Suppose you have a knee replaced at Hospital X. Aetna’s discount there might mean it pays $11,000, while United Healthcare’s discount might mean it pays $22,000. Or the prices could be reversed. No patient has any way of knowing. But if you’re on the hook for 20% co-insurance for each policy, then you’ll pay $2,200 with an Aetna policy or $4,400 with a United policy. It looks like you have the same insurance — a 20% co-pay — but you don’t. Similarly, the same insurer might have dramatically different discounts for hospitals that are both listed in the insurance company’s network, meaning you’ll think your coverage should be the same. Suppose, for example, the knee surgery at Hospital X is $11,000 for an Aetna patient, but at Hospital Y it’s $22,000 for an Aetna patient.
Neither insurance companies nor hospitals want to reveal the details of the discounts they have negotiated. But patients know, bill by bill, because they get an Explanation of Benefits from their insurance company when a claim is paid, telling them what the insurance company paid.
Perhaps states could use the money Sebelius is offering for those new pricing centers to collect this data from insurance companies, which are regulated by the states. Insurers and hospitals would vehemently resist, claiming the deals they negotiate are proprietary trade secrets. (They also fear they’ll be embarrassed by all the disparities that show them negotiating bad deals compared with their competitors.)
Failing that, there is another solution: these state pricing centers could gather the information from patients who volunteer, in exchange for a promise that their names won’t be used, to submit their Explanations of Benefits. After all, a hospital or insurance company can’t claim a patient can be prohibited from talking about or making public his or her own bill.
The state pricing centers could then do what CMS just did with hospital billings to Medicare: average all the results for what each insurance company pays to each hospital or clinic for various services. That’s the next frontier in billing transparency.
