The insanity of hospital pricing

The academics are wrong and the press is right: wildly varying healthcare billing is a very big deal

Last week’s release of the wildly varying prices that hospitals charge Medicare may no longer be news du jour, but it’s worth revisiting the topic, because it was and is an important story, it was an important step by the government, and it offers important follow-up opportunities for the media.

And there’s more to glean from the reaction to the release—some insight into the unfortunate way that some healthcare academics and experts, who consider themselves press critics, think. If something has already been reported somewhere, or is well known to a few elites, it’s not news, they argue, and not worthy of further coverage—even though zillions of people are still in the dark. They’re wrong, and a number of press outlets were right on the money to cover this.

Last Wednesday, The Centers for Medicare and Medicaid Services (CMS) took the bold step of releasing the prices that 3,300 hospitals charge for a variety of procedures. Guess what? The data show huge variations in prices from hospital to hospital—even in the same city. For example, at Las Colinas Medical Center, outside of Dallas, billed Medicare $160,832, for lower joint replacements, on average. On the same street, five miles away, Baylor Medical Center, in Irving, TX, billed an average fee of $42,632 for the same service. CMS also said sometimes hospitals charge 10 or 20 times more than what Medicare actually pays them.

It’s true, the health policy academy and some journalists have known for a long time that hospital prices vary a lot. They are quick to tell you that. In the lede for his piece on The Health Care Blog, David Dranov, a Distinguished Professor of Health Industry Management at Northwestern, opined:

The recent Medicare report on variation in hospital ‘prices’ is not exactly news. In fact, I wonder why anyone (including the NY Times and NPR) covered it let alone make it a lead story. This is not just a nonstory, it is an old nonstory.

He argues that prices without accompanying quality information can encourage patients to choose providers who skimp on quality. To pooh-pooh the CMS effort, he cites his own work—a 20-year-old paper that shows that the lack of quality information “can encourage a disastrous race to the bottom,” where hospitals deliberately “disinvest” in quality care to drive down their prices. He laments that the media pay little attention to report cards about hospital quality that are currently available.

Perhaps that’s for good reason. I personally learned, as a patient needing eye surgery last fall, that much of the “quality” data is not very useful. Furthermore, like most patients, I had little choice of facilities. If I wanted my eye surgeon to do the job, I had to go to the hospital where he had privileges.

Dranov faults the press for finding a new angle to an old story—the new angle being that the uninsured may have to pay the full charges that these hospitals charge, since they have no insurance company negotiating cheaper prices on their behalf.

Really? That’s hardly an insignificant issue, given that high deductibles and high coinsurance and copayments that come with the new crop of health coverage exposes them to high out-of-pocket costs, which will be even higher if they use some hospitals rather than others, a point some outlets did make.

Princeton health economist Uwe Reinhardt weighed in, too, in his New York Times Economix column. “Why was this news?” he asked. Reinhardt cited a 2004 piece by Lucette Lagnado of The Wall Street Journal, who reported on page 1 that hospital charges vary enormously. Reinhardt also cited his own work—a 2006 paper based on Lagnado’s data, in which he showed the chaos of hospital pricing.

Meanwhile Avery Comarow, the health-rankings editor for US News & Word Report, noted in a column: “

The data aren’t new, only updated. CMS had made the data available, if you hunted hard enough for it, for several years. I tracked it in my files.
But that’s just the point. Ordinary people haven’t hunted for it, and in fact didn’t even know it existed until news outlets like The Spokesman-Review in Spokane, WA, The Daily Show, and WPIX-TV in New York City told them.

The cluck-cluckers point out that patients don’t actually pay these wild charges. Nor do insurance companies that negotiate discounts that allow them to pay far less on their customers’ behalf. Comarow wrote: “Publishing the data won’t make those prices drop. Why would hospitals do that? Which means that the data won’t help consumers other than those who have to pay list price because they are uninsured and yet somehow can afford to shop around—and travel—so they can pay merely $50,000 or $100,000 out of pocket rather than double or triple that amount.”

The naysayers miss the point. The fact that the government stepped out of its cocoon and made the data public is a giant step in the move toward knowing what we pay for care and why. The problem is not that elites in the healthcare academy wrote about this a decade ago. The problem is the CMS data represents half a loaf.

Steve Brill got it about right. It’s true that most people know hospital care is costly, but as Brill demonstrated in his landmark “Bitter Pill” piece in Time earlier this year, most Americans don’t know why. Writing for Time’s blog, Swampland, last week, he suggested that the prices should be the starting point for reporters to ask their local hospitals to explain their pricing. Hard questions are in order.

Brill also zeroed in on another next step in the quest for healthcare transparency, a debate that could use more attention—the idea of making insurance companies disclose exactly what they pay hospitals and other providers for their services.

I would add a third step. Before patients really understand what they’re paying or companies have paid, they need uniform, standardized disclosures. The hodge-podge of Explanations of Benefits, or EOBs, we all receive do not help us understand pricing on the part of providers or insurance companies. There’s little clarity and no uniformity. Without that, comparisons are virtually impossible. Journalists could take a look at these EOBs and talk to all the people who scratch their heads at them, and maybe even crusade for clarity.

Meanwhile, bravo to the media outlets that covered the CMS story. Now they need to carry it further.

Follow @USProjectCJR for more posts from Trudy Lieberman and the rest of the United States Project team, including our work on healthcare issues and public health at The Second Opinion.

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: , , , ,