Health care prices

Unlike most markets for consumer services in the United States, the health care market generally lacks transparent market-based pricing.^[1][2] 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][2][3] Government mandated critical care and government insurance programs like Medicare also impact market pricing of US health care. According to the New York Times, "the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care."^[2]

Price transparency issues

In a market with transparent pricing, the price of a particular service is openly advertised.^[1][4] 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^[5] found that only 25% of visitors asking for pricing information were able to obtain it in a single visit to a hospital.^[6]

Since the majority (85%) of Americans have health insurance, they do not directly pay for medical services.^[7] 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".^[8][9] 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".^[10][11][12]

Recently, some insurance companies have announced their intention to begin disclosing provider pricing as a way to encourage cost reduction.^[7] Other services exist to assist physicians and their patients, such as Healthcare Out Of Pocket,^[13] Accuro Healthcare Solutions, with its CarePricer software.^[14] Similarly, medical tourists take advantage of price transparency on websites such as MEDIGO, which offer hospital price comparison and appointment booking services.^[15]

Government-mandated critical care

In the US and most other 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 Active Labor Act requires that hospitals treat all patients in need of emergency medical care without considering patients' ability to pay for service.^[16]

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 by increasing prices for other patients and through collection of government subsidies.^[17]

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.^[18] 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.^[19] 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. The AMA-sponsored committee in charge of determining RVUs of medical procedures that inform Medicare's payment to physicians has been shown to grossly inflate their figures.^[20]

See also

• Charge description master

References

External links

• Dept. of HHS Report on Govt. Payments for Indigent Care
• Centers for Medicare and Medicaid Services
• AMA Description of RBRVS
• Price Check: The Mystery of Hospital Pricing (California HealthCare Foundation study, December 2005)