September 13, 2005
…Humpty Dumpty said, “It means just what I choose it to mean…”
Pricing in healthcare is a complete fabrication and became decoupled from true production cost decades ago. The consumer movement in healthcare holds out promise for more transparent pricing.
An August 18, 2005 press release from Aetna announced the following:
Aetna (NYSE:AET) today announced the first program of its kind to let consumers find out what they can expect to pay at the doctor's office before going in for a visit. This means that, for the first time, consumers can better gauge their out-of-pocket health care expenses by having online access to the actual discounted rates for up to 25 of the most common office-based services offered by their own primary care or specialist physician. The program will initially be piloted with information for approximately 600 distinct procedures provided by 5,000 individual physicians and physician groups in Cincinnati, Dayton and Springfield, OH, northern Kentucky and southeast Indiana.
Physician and physician practice manager response was predictable per the physician management company, Seawall Ventures' email, reporting responses to the announcement:
- From a group practice operations manager:
"Not only impacting the providers but the poor befuddled consumers who can add this “shop and compare” agony to cost comparisons for cell phone service, long distance calls, energy providers, and cable vs. dish. The impoverished will only look at cost and the well-off will have connections to identify the quality regardless of ratings. Those in the middle will have to sift through the mire in hopes of making an informed decision. And the result will depend on the economy."
"Plus, this underscores the continuing deteriorating practitioner situation. It is not enough to dictate payments through various means and organizations, but now to change assigned payments to a "list price" for patient negotiation."
- From a financial executive:
"How will office staffs respond to this unleashed challenge to multiple payment lists? There is no compensation for this new burden?"
" Managed care always promised that the payment was certain. Now, if we negotiate each CPT code, this is a frightful change"
Advocates of consumerism in healthcare were much more positive, of course:
"I applaud Aetna for taking a significant step toward transparency of health care pricing," said Regina Herzlinger, the Nancy R. McPherson Professor of Business Administration, Harvard Business School. "Consumers should know how much a service will cost them before they make the purchase, and health care should be no exception."
"The industry has long taken the position that health care pricing is proprietary, and therefore has not shared the true costs of medical services with consumers on a prospective basis--only after care is received," said Ray Herschman, National Consulting Practice Leader, Mercer Health and Benefits Consulting. "Employers and consumers will be very encouraged by Aetna 's pilot program; we believe this important milestone, on the road to a more transparent consumer-driven healthcare marketplace, will lead to more of this important information being shared with consumers."
Transparency of pricing in healthcare is essential to allow consumers to act like consumers and to choose care that they want for themselves.
The September 8, 2005 Cranky Consumer column in the Wall Street Journal, taking their cue from the Aetna announcement, reported on their experience in shopping for price of an MRI in the New York area. They called a cross section of providers seeking prices for a no-contrast MRI of the lumbar spine and for a mammogram. The range of prices for the MRI was $400-$1500 and for the mammogram the range was $50-$300.
They were readily able to get prices. But often there was significant disparity within the same organization over quoted pricing depending upon whether they talked to billing or to a clinical department.
Pricing in healthcare is little understood by most. For example, most people do not understand the role of government in setting prices. The US has price controls in healthcare set by the Medicare price list. Each fall providers wait anxiously to receive their new price list from Uncle Sugar.
The government also encourages the relentless rise in prices by restricting access to care and imposing regulatory burden. And the government for many years encouraged physicians to raise their prices every six months in order to get paid more by increasing their “charge profile” with Medicare under the reasonable and customary charge doctrine. This practice was discontinued a couple of decades ago but not before huge price inflation for services had occurred.
President Johnson signing Medicare into law.
Related to this latter practice, true production costs were decoupled from prices around forty years ago resulting in the complete fabrication of pricing that exists today. The role of government in both creating and sustaining this faux pricing is seldom discussed.
The only way consumers will be able to make intelligent choices is to understand what they need, understand what it costs, and understand what outcomes to expect--including quality. Providers can only survive in this environment if they understand their true production costs and, like everyone else in the world, seek to continuously improve productivity and innovation at the point of care delivery.
This is a step in the right direction and supports the Abramson Center for the Future of Health's principle of transparency. I never thought I would say anything good about Aetna, but give credit where credit is due.
