Last week the healthcare world was a buzz about the hospital
charges released by the Centers for Medicare and Medicaid Services (CMS) that
showed significant variation in charges not only across the country but within
This variation plays out right here in Memphis, as pointed
out in the Commercial Appeal editorial.
In a blog post on MemphisFlyer.com, John Branston recognizes that although these
are the hospital charges, Medicare does not pay these charges and neither do
Medicaid or private insurance companies. So, he asks the real question: is this a big deal? So what?
I think it is a big deal and does matter, although maybe not
for the stated purpose of "shopping for care". I ask you to:
Realize that more
transparency is better than less transparency. We would not even be having
this discussion in such a public way if Medicare had not released the charge
data. Although those on the inside knew this variation existed and that there
is no relationship between charges and the cost to provide care, most
“outsiders” did not know. The major Memphis-area print media outlets all
covered this release, in both articles and editorials, making this issue
visible to their readers and our community. Hospitals themselves were
transparent in their explanations of why and how charges vary so much and got
so high. The bottom line is people now know.
Don’t let the transparency
conversation stop at charges. Now that you know there is no rhyme or reason
to how hospitals charge for services and that most of us don’t pay these
charges any way, don’t stop pushing for more information. If charges are not
what we really pay, then what do we pay? Is there any more rhyme or reason to how the prices we actually pay
are determined? How do these prices compare between hospital systems?
Understand that price
transparency will be even more important as benefit designs change. As more
people are covered under high deductible health plans, the price they pay,
especially while in their deductible phase, will become much more transparent and
important to them. They won’t be paying a co-pay, but will pay the full price
that their health plan or self-insured employer negotiated on their behalf.
They will need to know this price before they get care and will, most
likely, want to compare prices among different providers as they decide where to
go to get care. We must have payment systems that allow the price to be
presented to people in a practical way that helps them make their own
Remember that price
is only one part of the “value equation” and we need quality transparency too.
We all make the price-quality evaluation every day when we buy our goods and
services. There are times we are willing to pay more because we get a higher
level of quality. There are other times where we buy the lowest priced product
because there is no real quality difference among competitors. Consumer
research shows that people respond best when health care price and quality information are
presented together. This is important because many patients
equate the most expensive care with the highest quality care. We know there is
not a direct correlation between price and quality and, therefore, we need to
provide both to people so they can make their own informed decision.
And, on a practical
note, check your contracting processes to be sure you are not basing payments
on charges. Methodist Healthcare's CFO admits in a
Memphis Business Journal article that charges got this high in the 1980s and
1990s when contracts between providers and payors (such as health plans and
self-insured employers) were based on a discount-off-charges. Most contracts have moved away from a
discount-off-charges, but it lingered longer in the method used to pay for
hospital-based outpatient care as well as other providers that are in the
network (such as non-system hospitals, home health, DME, kidney dialysis), so
check out those parts of your contracts. And, remember that you can’t compare
discounts between hospital systems. Using the CA's joint replacement charges as an
example, you would have to get a 39% discount at Methodist to end up paying the
same as a 30% discount at Baptist.
Medicare’s release of hospital charges has shed light on the
very important issue of how we pay for care and pointed out that in many cases,
how and what we pay for care is not related at all to the cost of providing
that care or to the quality of care received. Now that more people know that,
we need to build a ground swell of support to change how we pay for care. We
need to rationalize payment methodologies and we need to have a payment system
that makes the price-quality relationship explicit, paying for quality not
visits or procedures.
MBGH’s 2013 Annual Conference will tackle many of these
issues. Titled “Follow the Money: You Get What You Pay For” national and
regional experts will help us understand
that we can’t achieve this rational payment system that is tied to quality of
care unless we fundamentally change how we pay hospitals and physicians. Learn
more about the conference and register here.