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.
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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 California Healthcare Foundation[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.
Organizations such as the American Medical Association (AMA) and AARP support a "fair and accurate valuation for all physician services".[6][7] The AMA sponsors the Specialty Society Relative Value Scale Update Committee, a private group of physicians which largely determine how to value physician labor in Medicare prices. Among politicians, former House Speaker Newt Gingrich has called for transparency in the prices of medical devices, noting it is one of the few aspects or U.S. health care where consumers and federal health officials are "barred from comparing the quality, medical outcomes or price".[8][9][10]
Recently, some insurance companies have announced their intention to begin disclosing provider pricing as a way to encourage cost reduction.[5] Other services exist to assist physicians and their patients, such as Accuro Healthcare Solutions, with its CarePricer software.[11] and Zepherella [12] with its No-Surprise Healthcare Pricing. Consumer websites such as Wisconsin’s PricePoint [13] and Portland, Oregon's Sprig Health [14] 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 (FHS),[15] 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. FHS’s software relies upon data from actual contracts between the insurance companies and providers.
For consumers seeking price information before treatment, the Healthcare Blue Book offers a free website that allows users to search for fair prices on thousands of inpatient, outpatient, surgical, diagnostic, laboratory, cosmetic surgery and dentistry procedures and services. The company’s fair price is the cash price that should be paid for a service or product at the time of treatment.[16] It is the payment amount that many providers accept from insurance companies as payment in full. The fair price is calculated from billing and medical payment data. This amount is typically lower than a provider’s “list price”.[17] Specific prices are available by US zip codes.
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.[18]
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.[19]
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.[20] 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 units (RVUs) are assigned to every medical procedure.[21] 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.