Kudos to the Obama Administration for taking the first step toward “reforms” that could actually have a helpful effect on health care costs in the U.S. No, it has nothing to do with the so-called Affordable Care Act. Rather, the Center for Medicare and Medicaid Services has, for the first time, released data not only on the amounts hospitals bill for Medicare-covered services, but the amounts the hospitals were paid as well.
One of the biggest hindrances to cost savings and efficiency in the health care sector is the lack of transparent pricing information. (The other is the fact that consumers of health care typically don’t pay the bills directly, so they generally don’t take cost into account when deciding whether to consumer health care services. But that’s another can of worms.) An article in the March 10, 2011, issue of The New England Journal of Medicine explains the important role price transparency could have in reducing the upward trend in health care costs. Likewise, the November 2008 issue of Health Affairs includes articles explaining how a lack of transparency in the price of medical devices increases hospitals’ costs (and hence, insurers’ and patients’ costs).
Price transparency, if nothing else, allows researchers, insurers, patients and (almost unfortunately) policy makers to identify high- and low-cost providers. And the variance can be very large, even within local markets. For instance, where I live (Columbia, MO), there are two major hospitals (or hospital systems): University of Missouri Health Care and Boone Hospital. A quick review of the Medicare data shows that University Hospital charges prices that are, on average across DRGs, 42.6% higher than Boone Hospital–with charges for some codes more than 100% and as much as 150% higher.
Of course, what a hospital charges and what it receives under Medicare agreements are different things. In every case, even when the price UMHC charges is lower than Boone’s, UMHC receives more money for each DRG paid, and on average receives 49% more in payments than does Boone. For no diagnosis category listed does UMHC receive less than 9% more than Boone (and the top DRG is 99% more).
Now, UMHC is a teaching hospital, part of the University of Missouri School of Medicine. Medicare guidelines recognize the additional cost and value of training new doctors and allows for higher reimbursement rates. However, one should ask the question of whether–on average–a 49% cost premium is appropriate. UMHC is also a Level 1 trauma center, which may be associated with higher costs–or higher cost treatments. However, the data are reported based on DRGs, which should control for much of the variation in the types (and costs) of medical services being reimbursed.
There are undoubtedly explanations for some of these observed differences. But without the data available, the questions cannot even be asked. And until such questions are asked, there is a lower likelihood of meaningful reform in the actual cost of healthcare. Perhaps this initial glimpse behind the curtain of healthcare costs will lead to even greater transparency in the future; not just after the fact (these data are for 2011), but for consumers who may be deciding how to spend their healthcare dollars.
As I wrote this, I couldn’t help but think of this movie clip. Enjoy!