Health care prices

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Unlike most markets for consumer services in the United States, the health care market generally lacks transparent market-based pricing. Patients are typically not able to comparison shop for medical services based on price, as medical service providers do not typically disclose prices prior to service.^[1] Government mandated critical care and government insurance programs like Medicare also impact market pricing of US health care.

Contents 1 Price Transparency Issues 2 Health Care Marketplace Distortions 2.1 Government Mandated Critical Care 2.2 Medicare and Medicaid 3 Price Setting 4 External links 5 References

[edit] Price Transparency Issues

In a market with transparent pricing, the price of a particular service is openly advertised ^[2]. For example, companies that provide automotive oil changes often advertise their prices, and consumers have access to these prices when choosing a service provider. In contrast, in the US medical industry, patients generally do not have access to pricing information until after medical services have been rendered. A study conducted by the ^[3] found that only 25% of visitors asking for pricing information were able to obtain it in a single visit to a hospital.^[4]

Since the majority (85%) of Americans have health insurance, they do not directly pay for medical services.^[5] Insurance companies, as payors, negotiate health care pricing with providers on behalf of the insured. Hospitals, doctors, and other medical providers have traditionally disclosed their fee schedules only to insurance companies and other institutional payors, and not to individual patients.

Uninsured individuals are expected to pay directly for services, but since they lack access to pricing information, price-based competition may be reduced. The introduction of high-deductible insurance has increased demand for pricing information among consumers. Recently, some insurance companies have announced their intention to begin disclosing provider pricing as a way to encourage cost reduction.^[6] Consumer websites such as Wisconsin’s PricePoint ^[7] have also emerged which provide benchmark prices for medical procedures and services, often on a narrow and geographically limited basis. A Denver-based company, Financial Healthcare Systems ^[8], has created a Web-based software program called ACE Logicus that allows providers to integrate data with insurance companies, thus presenting patients with real-time estimates of out-of-pocket liabilities prior to procedures. Another company that has endeavored to lift the veil on prices is Accuro Healthcare Solutions, with its CarePricer software ^[9]. CarePricer evaluates historic claim data and uses that data as the primary basis for the treatment estimates; whereas, FHS’s ACE Logicus software relies upon data from actual contracts between the insurance companies and providers.

[edit] Health Care Marketplace Distortions

In a free market, prices are set by buyers and sellers of a good based upon the buyers' demand for the good and the sellers' supply of that good, (see Market economy). In the US health care market, several distorting factors act to prevent normal market function. These distorting factors include government-mandated critical care, government subsidies for critical care, and the Medicare and Medicaid public insurance systems.

[edit] Government Mandated Critical Care

In the United States and most industrialized nations, emergency medical providers are required to treat any patient that has a life-threatening condition, irrespective of the patient's financial resources. In the US, the Emergency Medical Treatment and Labor Act (EMTALA) requires that hospitals treat all patients in need of emergency medical care without considering patients' ability to pay for service.^[10]

This government mandated care places a cost burden on medical providers, as critically ill patients lacking financial resources must be treated. Medical providers compensate for this cost by passing costs on to other parts of the medical system, through increased prices for other patients and through collection of government subsidies.^[11]

[edit] Medicare and Medicaid

Medicare was established in 1965 under President Lyndon Johnson as a form of medical insurance for the elderly (age 65 and above) and the disabled. Medicaid was established at the same time to provide medical insurance primarily to children, pregnant women, and certain other medically needy groups.

Medicare and Medicaid are managed at the Federal level by the Centers for Medicare and Medicaid Services (CMS). CMS sets fee schedules for medical services through Prospective Payment Systems (PPS) for inpatient care, outpatient care, and other services.^[12] As the largest single purchaser of medical services in the US, Medicare's fixed pricing schedules have a significant impact on the market. These prices are set based on CMS' analysis of labor and resource input costs for different medical services.

As part of Medicare's pricing system, Relative Value Unit (RVUs) amounts are assigned to every medical procedure.^[13] One RVU translates into a dollar value that varies by region and by year; in 2005 the base (not location adjusted) RVU equaled roughly $37.90. Major insurers use Medicare's RVU calculations when negotiating payment schedules with providers, and many insurers simply adopt Medicare's payment schedule.

[edit] Price Setting

Medical providers receive fees set by CMS when providing services for Medicare patients. These Medicare fees are considered the lowest acceptable payment for the service rendered. Also, many charges that would normally be paid by other insurance companies are "bundled" or denied and considered part of the visit. A good example would be an EKG. Medicare will pay for the office visit, but other expensive items such as the disposable electrodes that are used on each new patient as well as the EKG paper are not reimbursed and those charges are absorbed by the physicians office. The physician is not even compensated for having the technical proficiency to have read the Electrocardiogram (EKG), as it is automatically considered part of the office visit itself.

All insurers use Medicare as a gold standard when establishing their acceptable payments for services, however what a physician can negotiate as a single doctor in one office versus a large group of doctors covering most of an area is very inequitable. Providers in large groups have negotiating power to agree to a higher payment. Keep in mind however, that the Medicare price that the insurers are negotiating is never from the current years Medicare fee schedule. Instead they usually use a percentage of Medicare from 5 to even 10 years ago. It is not uncommon to see insurance agreements of 130% or even 140% of the 1997 Medicare fee schedule. Most insurers, however, only offer closer to 80% - 100% of a schedule that is seriously outdated.

Medical providers cannot set rates for uninsured patients that are different from their standard fee schedule. They may however create a prompt pay or cash discount that will allow for a percentage off of the normal fee to make the charge more comfortable for the uninsured and this is always equal to or less than the Medicare rate. The fee charged to any other uninsured patient must be the same. Medical providers can accept different payment amounts from one insurance company to another and these are always equal to or greater than the Medicare rate. Medical fees charged to other insurance companies are often 3 to 5 times higher than rates charged to Medicare, because the fee schedule is set to capture what the highest insurance company's reimbursement allows so that the doctors office does not leave any possible revenue behind. Many medical providers offer self-pay discounts and many more offer hardship assistance when the patient in question meets federal poverty guidelines. There is usually a set of forms and questions that will require the patients signature to gain this assistance.

This complex fee schedule system adds to our healthcare systems dysfunction in the United States and the way primary care physicians are inadequately reimbursed is why there are fewer and fewer solo practice doctors in our communities. This is also why primary care office appointmets are often hard to obtain. The only way most primary care physicians can compensate for the decreasing reimbursements from insurance companies is through increasing volume of patients seen each day.

[edit] External links

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• Healthcare Financial Managment, on Transparent Pricing
• Definition of Price Transparency
• Price Check: The Mystery of Hospital Pricing (California HealthCare Foundation study, December 2005)
• US Census Statistics on Uninsured
• Aetna PR Release on Disclosing Provider Pricing in Cincinnati
• Information on Emergency Medical Treatment and Labor Act
• Dept. of HHS Report on Govt. Payments for Indigent Care
• Centers for Medicare and Medicaid Services
• AMA Description of RBRVS
• DoctorPricing.com - Medical Price Database

[edit] References