Top reasons health care costs are nontransparent

By Gregg Kennerly May 28, 2019

Have you ever tried to find out what the cost of a medical procedure will be in advance; almost impossible, right?

This frustrating situation is perpetuated by a number of factors that have combined to create a perfect storm of budget-wrecking surprises for millions of Americans.

Let’s take a look at some of the reasons behind this phenomenon.

There is no “retail price” in health care. Virtually all providers are paid under contracted rates. Prices for most patients and procedures are tied to nothing except the per-procedure cost negotiated in a health network contract.

Typically, these prices are simply tied to a discount off of the cost that was artificially set in the first place. No one at the hospital registration desk has any idea what the charge will be. Hospital bills for out-of-network procedures are based on the hospital’s “Chargemaster.”

This is the huge file of totally arbitrary prices that are admittedly “made up” by administrators. An appendectomy, for instance, may cost $8,800 at one facility and $31,000 at another. How is this fair to anyone? Especially given the $31,000 surgery usually doesn’t have a better outcome.

• Provider contracts with PPOs and HMOs create proprietary secret pricing. The prices negotiated between hospitals, physicians and insurance networks are closely guarded by both parties.

Hospitals are constantly trying to get highest reimbursement possible by using their relative market share of available hospital beds as leverage, while payers, such as insurance plans, PPOs and HMOs are always trying to pay less.

This is capitalism, and represents an attempt to attach a “real value” to services. The problem is these agreed upon prices are also all over the board, never published and definitely not available to patients.

• The insured population pays the cost for those with no insurance. This needs to be addressed. No hospital in the country will let you bleed out on the front steps. Everyone is getting treatment, but not everyone pays. So prices for the insured population somewhat reflect the indigent and Medicare population of the area.

• People are afraid to ask the cost of medical services. What else do we consume without asking what it will cost? Nothing! Consumer directed plans such as HSAs which are designed to get consumers more involved with health costs, have been somewhat successful with teaching employees to ask questions and accumulating money in an HSA to pay for smaller expenses.

• The current delivery system has a vested interest in keeping the status quo. The big get bigger and gobble up competing facilities and providers with their larger scale and leverage with insurance companies and health plans. Merger and acquisition deals in the health care industry are all based on the predictable stream of cash coming from the current contracted network arrangements.

The murky world of how medical services are priced is fertile ground for hospitals and providers to capture big margins from insured patients to offset losses incurred with Medicare, uninsured and indigent patients.

• Although there are some efforts to better define what is fair reimbursement for medical services (google reference-based pricing), Medicare is still the only program where a fixed value is placed on health care services. Hospitals hate Medicare reimbursement, and most claim to lose money on all Medicare patients.

Many health plans and HMOs tie their reimbursement levels to a “percentage of Medicare payable.” For instance, a contract with a provider may provide reimbursement at “130% of Medicare” for a given procedure. The problem is these percentages are not uniform across networks, plan designs, metropolitan areas or even large employers.

All large national employers are self-funded to some degree, and are serious about controlling their health costs. They are either setting up their own on-site clinics, or contracting directly with hospitals and physician groups for better discounts.

The medical economy in the United States is almost unfathomably large and complex. Although we have probably the most innovative, advanced health care in the world available to us, the cost of the best care is out of reach of many for economic, geographic or cultural reasons.

While “Medicare for all” is a popular idea and slogan for some folks at the moment, in my opinion, such a change would quickly have a far-reaching impact that would by no means have all positive results. It would reduce innovation and the capital investment driven by the profit motive, inevitably reducing access to care on a timely basis.

The trade-off may or may not be worth it to most Americans. In the meantime, we grind on with the highest health costs in the world.

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