MedCity Influencers, Consumer / Employer

The price is not right

Last year’s price transparency laws were an important step for the industry, but there is still much work to do. The only way we can ensure a better functioning healthcare system is to create clear pricing. We need to base that pricing on consistently-defined and well-communicated healthcare service units.

A well-functioning market needs clear information on the items purchased and their cost. Our healthcare system, however, rarely provides such information. This deficiency has led to economic disorder, with ever-expanding and poorly-controlled costs throughout the industry.

Many have realized this flaw and worked to make the healthcare system more transparent. These efforts include the new price transparency laws that came into effect in 2021. Yet, there are issues with this initiative’s implementation, communication, and public understanding. Those issues reflect the problematic nature of healthcare data — and they also show the work needed to create an efficient and fair market.

Since the introduction of these price transparency laws, more people have discussed the issue, with some of the biggest names in journalism covering the topic. The Wall Street Journal examined data from Boston hospitals, and found significant price variation among “emergency evaluation and management (e&m)” procedures. The New York Times went a step further. They found many examples of similar price variation both with and without insurance.

The broader discussion around price in healthcare represents important progress. Yet, we’re only scratching the surface of the problem. For all their good investigative work, these articles (unintentionally) misrepresent healthcare pricing. This accidental misrepresentation reflects the frustrating opacity ingrained in the industry — the price data used in the articles’ examples represent a piece of a full picture. Price transparency does show prices for procedure codes, but a “procedure code” does not mean the same thing at every place, or at every time. What’s included with what we’d consider a complete “procedure” or “service” varies. Complete “services” often come with a host of other billed items.

For example, the New York Times article states that “[t]he price for a colonoscopy at Beaumont Hospital-Royal Oak is … $728 with a Blue Cross plan.” The CPT code for that procedure is 45380 (“Colonoscopy”). In the price transparency file from Beaumont, attached to that procedure code is revenue code 360 (“Operating Room”). Thus, the “price” that the article is referring to is only the price of a sub-component of the colonoscopy, the operating room. In reality, a colonoscopy will include additional inseparable components, such as surgeons’ fees, anesthesia fees, recovery room fees, and pathology fees. With that in mind, the “price” that the New York Times quoted at Beaumont is only half the total cost for the procedure.

We see a similar issue with the Wall Street Journal article examining ER procedure codes. In most of the data I’ve seen, a facility bill for the ER pairs with a professional (i.e. doctor) bill for that same encounter. That means the prices listed in the article undersell what the full price will actually be when those two bills are combined together.

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A Deep-dive Into Specialty Pharma

A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.

In both of these cases, the procedure prices listed are really just prices of variable, inconsistent, and incomplete components. Unless a payer can map those components together, the true, total price remains unclear.

Mapping components together is difficult enough on its own. Even if you can identify the components of a healthcare service and bring them together, it’s often not enough to come away with a concrete price. That’s because we frequently don’t know what is going to happen in the procedure ahead of time. Many procedures are dynamic, and the inputs are subject to provider discretion. For example, in a colonoscopy the provider may perform a diagnostic endoscopy, but they might also do a biopsy, remove a polyp, or do both of those things. Some providers perform colonoscopies with anesthesia, others do not. These variables have associated costs. Without knowing which service will happen, it is impossible to go into a procedure knowing what the final cost will be.

The less clarity we have on price, the less ability stakeholders have to make informed purchasing decisions based on value. The lack of visibility is pervasive through all parts of healthcare, as payers and providers lack consistent information on service definition and price. How can we have a functional healthcare market without good information on units or pricing? To solve this crucial issue, we need a better way to analyze and discuss “price” and “procedure(s).”

First, we need clinically consistent and comprehensive units. With that information, healthcare purchasers can better understand what they are buying. That means standardized definitions of specific clinical interventions. For example, we need a price and unit representation for “Colonoscopy with Biopsy” or “MRI of Lower Extremity with Contrast”. That representation should include all fees, from all relevant providers, and have each component delineated within the unit.

Second, we should use that information to give patients an accurate range of potential services and costs. It may not always be possible for providers to know exactly what will happen in a specific procedure. But, providing a range will allow patients to avoid the unexpected.

Third, we need to define those units and ranges using historical billing data. Payers and hospitals often do not know the billed inputs that are in a complete clinical service. A hospital often does not know the exact rates of the non-employed providers they work with. The only way to get an accurate understanding of price per unit is to have the recent claims history and map the related components together.

Last year’s price transparency laws were an important step for the industry, but there is still much work to do. The only way we can ensure a better functioning healthcare system is to create clear pricing. We need to base that pricing on consistently-defined and well-communicated healthcare service units.

Photo: AndreyPopov, Getty Images

David Gaines is the founder and CEO of Careignition, a startup that helps lower healthcare costs by leveraging artificial intelligence to make data meaningful and actionable.

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