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Variation in Health Cost Prices – What a Mess

Health Cost Transparency - A Big MessOver the last few months, some major ‘events’ have developed regarding medical cost transparency issues. Now is the time to channel our collective outrage to change how we pay for health care in the future.

In March, Steven Brill wrote a compelling (and disturbing) article in TIME magazine, “Bitter Pill: Why Medical Bills Are Killing Us.” For the first time ever, TIME dedicated almost the entire publication to just one particular article – due mainly to the complexities baked within the hospital pricing method(s) currently in place in our country. When you have time, this is definitely worth a read. Whatever a hospital will charge for a particular service, the actual payment will vary tremendously by the payer community left with the tab – Medicare, Medicaid, private insurers, or individuals without insurance coverage, etc.

Also in March, the International Federation of Health Plans released the 2012 Comparative Price Report showing just how extraordinary the costs of various health procedures are in this country versus the costs found in many other developed countries. After the Brill article, few of us need to question the validity of this particular report. The price differentials between the U.S. and all other countries are abhorrently grotesque.

On May 8, the federal Centers for Medicare & Medicaid Services (CMS) publicly released hospital inpatient charge information from hospitals in the U.S. The data released was the first time the federal government provided this information publicly. According to the CMS website, “As part of the Obama administration’s work to make our healthcare system more affordable and accountable, data are being released that show significant variation across the country and within communities in what hospitals charge for common inpatient services.” Without question, CMS unleashed a great deal of data showing how diffused and opaque hospital charges are for inpatient services, even within our own cities!

On June 3, the CMS yet again publicly released additional data on hospital outpatient charges, in addition to Medicare spending and utilization. It is quite apparent that federal officials are deliberately making health care costs more transparent for public consumption (and scrutiny). Health Datapalooza is an annual gathering in Washington D.C. that focuses on health data transparency. Now in its fourth year, Health Datapalooza has grown from about 50 attendees to more than 2,000. The idea is to have entrepreneurs take this massive data and create applications to help the public navigate through a seemingly complex world of healthcare costs.

This deluge of data becoming publically available allows a greater dialogue about the transparency of health costs and its impact on those who pay the bills.

A little bit of sunshine can be a great disinfectant – don’t you think?

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Comparative Effectiveness Research? It’s About Time!

David P. Lind BenchmarkI’m all for it.

An earlier blog of mine described the dysfunctional health care delivery “system” that we have in this country. The intent of my blogs is not to point fingers, as assessment of blame does little to solve the problems we have within our own state and country.

A recent California study was published about the associated cost to remove an appendix. As typical, the cost for this procedure could be as little as the price for a refrigerator – or a house! The cost disparities were alarming, ranging from $1,500 (refrigerator) to $180,000 (house). How can this happen?  Why is this allowed? Are the outcomes of the procedures better at a higher price?

Don’t know. That’s part of our problem.

That is why I see a glimmer of hope for a new initiative (generated by the health reform law) called, Comparative Effectiveness Research (CER). In a nutshell, CER includes research to evaluate risks and benefits of medical treatments, services, procedures, and drugs that treat, manage, diagnose or prevent illness or injury. Too often we have extreme variations on how procedures are performed, both by region and by health providers. CER will attempt to help bridge this gap of extreme variation using sound research when comparing health outcomes. Reducing variation chasms can save lives AND potentially big bucks.

Don’t take my word on this subject. The  Dartmouth Atlas of Health Care does a good job of documenting the variations of health care that is delivered in this country.

CER will be funded through a fee that will be assessed to plan sponsors and issuers of individual and group policies. Plan sponsors will be required to pay $1 per member per year beginning with policy or plan years ending after September 30, 2012. The fee increases to $2 per member annually for policy years ending after September 30, 2013. The fee will discontinue after September 30, 2019. See the published Federal Register on this fee.

I admit, paying additional fees within your insurance premium does not sound good – especially when premiums have increased by over 141 percent during the last 13 years in Iowa* (about the same nationally). But perhaps CER will more than pay for itself by providing a sound practice of comparing the risks and benefits of two or more medical treatments based on health outcomes and clinical effectiveness.

We can only hope.

*2011 Iowa Employer Benefits Study©

Clueless on Health Care Costs?

David P. Lind BenchmarkEver try to figure out what your health care providers actually get paid?

I didn’t think so. As a patient, you probably check to make sure that the doctors, hospital and pharmacy are considered “covered” by your insurance plan. Why? That keeps your out-of-pocket expenses down because of discounts your health plan negotiated with these providers.

But as patients/consumers, we’re clueless about the negotiated discounts with any given health care provider. We’re out of the loop. Discounts are negotiated privately between insurance companies and health care providers. They’re not posted anywhere, and no one is required to share that information.

But here’s the rub for you, the employer:

Negotiated discounts can vary greatly between insurance companies and will affect your underlying costs.  So which carrier has the deepest discounts?

Competition between insurance companies for pricing purposes is a good thing, but the level of competition needs to be transparent to employees and patients for market forces in health care to flourish—and eventually hold costs down.

True market forces are hindered by the current confidential pricing process.

Enter Consumer Driven Health Plans. Under this concept, an employer allocates a sum of money annually to offset employees’ portions of a high-deductible plan (health savings accounts are part of a consumer-driven plan). Employees are motivated to get the best health care deal they can find.

That’s good, but consumers are most effective when they understand the true cost of a given product or service BEFORE the purchase is made. Encouraging employees to become better consumers is not enough if they don’t know the true cost and value they receive.

We are far from a patient-centered market in health care. This needs to change—and until it does, we as consumers, will be kept in the dark.