All-Payer Claims Databases And Price Transparency
Most observers agree that it is very, very difficult for patients to choose health services wisely based on prices, because prices in U.S. health care are generally not transparent. The primary reason for this is that it has been many decades since health providers have relied on patients to pay their bills directly.
Instead, their business models rely on submitting claims to health insurers. Of course, there are convenient clinics and a few doctors and ambulatory clinics which post prices up front. However, the patient who enters the hospital – where most health costs are incurred – enters a maze of opaque and incomprehensible prices.
Some people believe price transparency can be commanded by government: Enter the “all-payer claims database,” which an increasing number of states are embracing. Every payer in the state reports its claims to this government-run database and the government can then publicly disclose what actual health prices are.
The momentum for all-payer claims databases just hit a road-block at the U.S. Supreme Court, in the case Gobeille v. Liberty Mutual. This concerned a new Vermont law that compels payers to report their claims to the state’s all-payer claims database. The Supreme Court struck down the mandate, based on the doctrine of ERISA pre-emption. Whether that finding is right or not, I’ll leave to others to decide. This post challenges the very idea of all-payer claims databases.
The payer which did not want to report its claims to Vermont’s database was a large, self-insured employer, which provides health benefits regulated by a federal law (ERISA), not state law. As pretty much always happens, the Supreme Court knocked back state sovereignty in favor of federal power, agreeing with the payer that it did not have to obey the Vermont law.
I shop at different supermarkets for different items, based on both price and quality. It has never entered my head to demand the state department of consumer affairs complies some database of prices each store charges for a gallon of milk, a dozen oranges, or a half dozen pork sausages. Could you imagine what a meaningless jumble that would be?
For hospital beds, it is even worse. Hospitals themselves are sunk costs, and carry a lot of overhead. So, the charge for a hospital bed has to carry a lot of allocated costs, but will vary according to surges in demand. Imagine if an airline had to report the cost of an economy ticket from Oakland to Chicago to a government-run database for public reporting. The price changes within even one day! The same would be true of hotels. (The “rack rate” posted on the inside of the door has no connection to the actual prices.)
The solution to price transparency does not like in governments juggling an infinitely large database of payers’ claims. Rather, it lies in government requiring providers enter effective contracts with patients before recognizing patients’ debts as enforceable. I have called this the common law approach.
I think the data base is a better idea and is more transparent.
In your Common Law example there is no way to know if Patient A is receiving the same price as Patient B.
Although I do agree that medical costs should not be binding unless there is a meeting of the minds on price.
Erik, dont Ford SUV buyers have the same problem knowing whether they are paying more at Dealer A vs Dealer B?
John – No, because there are on-line services you can use to determine if you are getting the best price from all Dealers, not just Dealer A or B. I recently bought an SUV and did my homework before I went to a Dealer. I was able to compare hundreds of prices.
That is what the database will bring.
Okay: Can you tell us which government agency ran the database of car prices to which you refer?
Not sure what your point is John? The Article was pretty clear.
I am not talking about the article. I am talking about your experience with a price-comparison tool for car prices. It was a rhetorical question. I am pretty sure the resource you used was not run by a government agency (like in the article), but by private enterprise.
That is more common than we think in markets which we do not describe as broken. Sure, if I buy a hammer at the hardware store and my neighbor buys one at the same time, we’ll get the same price. However, what if you hire a carpenter. Are you sure you are paying the same as other clients?
John—even hospitals with great financial management can’t predict the costs of raising for an individual patient with a diagnosis of one out of a potential of 60,000.
Outpatient diagnostics can be priced. So can simple surgeries. But pricing a brain cancer case–not so easy.
Some other ideas:
1: Break out the composition of a bill and the price: 10% for capital (or 3%, if the building is old; 55% for labor costs, 20 % for legal and regulatory compliance, and so on…..THe average person looks at the total number without any ability to determine if the price is reasonable and not knowing how to compare prices among different providers. teaching hospitals will be higher than simple suburban hospitals, for example.
2. Also show the percentage of the price represented by cost-shifting from Medicare, Medicaid and Obamacare, as this can be substantial and not under the hospital’s control.
3. Premiums can be considered pre-payment for services, in which case the consumer has already done a comparative when selecting a health plan, with its accompanying defined network, supposedly selected with both quality and price in mind. there could also be post-service contracts where patients can borrow for the payment, and pay it back as one does a bank loan, which is more positive than carrying an unpayable debt.
4. Case pricing is promising, as the components are less important than the total experience. OB works like this in some hospitals. Common surgical procedures can be priced like this and a memo produced that says what that buys. These could be compared among providers.
5. Protocol-based pricing for a sequence of services is another method (Rigby Leighton) that smoothes the price for the patient/health plan, and allows an assured revenue for the provider obligated to care over time for a patient with chronic disease or a multi-part treatment plan.
4. We are in a transition period between several strategic choices:
Fee for Service vs capitation
Acute incidents of care vs chronic disease management over time
Pricing by individual providers vs pricing by a planned package of providers.
Pricing read and decided by patients vs pricing adjudicated and paid by health plans.
Block grants whereby individual prices are not used except as baselines and comparatives to oversight,funding agencies.
5. The patient’s role in this is valuable, as well. Do they plan for covering their known deductibles? Do they comply with all elements of their care? Do they demand services that doctors say are unnecessary? Are they ‘worried well’ who over-use such services as the ER?
In other words, this topic is bigger than a breadbox and not amenable to single method solutions.
Regards to all…
Wanda Jones
San Francisco
Thank you. I appreciate your expertise. However, I wonder if the patient/customer would really want a break out of capital cost versus labor versus whatever. How many would understand it? Even if they did, how would it help?
When we buy a car, there are capital costs, labor costs, costs of regulatory compliance. Do I care, as a customer? Not: What I care about is value for money.
Wanda, I might be a hopeless idealist on this issue, but is there any room to re-consider global budgeting for hospitals?
In that scenario it would not matter what the cost of a brain cancer patient was. That patient is just one of many thousands of patients that a large hospital will treat during a year.
Not unlike the accounting cost of a five alarm fire. If such a fire uses more engines and team members, so what? The engines and team members were on the payroll anyways and are paid from a global budget.
Your comments are always articulate, but they always assume (as do most Americans) that the only way to fund hospitals is through precisely calibrated user fees.
I have always wanted to break out of that paradigm. Unlike the pure single payer advocates, I do not contend that it would be easy to do so however.
I appreciate your question is for Wanda Jones. Nevertheless, it invites a further question: Who sets the global budget? Hospitals in Canada are usually funded by global budgets allocated by provincial governments. They have no incentive to keep operating rooms open, resulting in queues.
That is a very deft observation, John, thank you.
Never having lived in Canada or England, I perhaps give their hospital workers false credit for being generous souls. Instead they might really be sluggish union stiffs.
American hospitals almost never keep anyone waiting, but they extort a lot of money from public insurers, private insurers, and patients who grow weary of aggressive collections.
Is that worse than delays of service? Maybe not. Delays of service can kill, whereas bills and debts are less lethal.
My wives family is from Nova Scotia and Newfoundland.
Her aunt from Nova Scotia just received bariatric surgery as well as a knee replacement at no cost to her about three years ago.
It did take her about 6 months to begin the bariatric procedure (some of the wait time was due to counseling) and another year to move on to the knee but it was worth it in her case.
Er, no DIRECT cost to her.
I would like some sort of transparency as prices vary wildly. And while I generally agree that a government mandated “all payers claims database” could be meaningless, it could also be a starting point. And frankly short of a menu when you walk into ER I know of no other way.
For elective services this site is a very good start: https://healthcarebluebook.com/page_ConsumerFront.aspx
Plus I like the idea and name borrowed from Kelley Bluebook. And it has common sense advice. Eg. for a colonoscopy it suggests a “total fair price” of about $2,000 and then adds “Colonoscopy pricing frequently varies by over 300% in many locations. It is not uncommon to find colonoscopy pricing below $1,000 or above $3,000.” And therein is the problem. Why such a ridiculous swing? Again were, say MacDonald’s, to have such a wild variance, fully 1/3 would go out of business. But not hospitals. I’ve yet to see one close. To the contrary they are flourishing and expanding seemingly everywhere.
And as to Graham’s suggestion “it lies in government requiring providers enter effective contracts with patients before recognizing patients’ debts as enforceable”, I’ll be sure to schedule my emergency in advance. btw what “contract” do I have with any healthcare provider NOT insurance company? And do I need to sign one in every venue that I travel JIC? Preposterous.
Every transaction has an implied contract. Plus, not every medical intervention is an emergency.
You’re a smart guy John, but I simply don’t get get “every transaction has an implied contract”. That seems highly legalistic. So back to Mickey D’s. What contract do I have when I buy a Big Mac?
And yes not every medical intervention is an emergency. Still it is the emergency that racks up dollars. Not an elective when you are in control.
That it is made of beef and not rat. That it does not have bacteria. That it is cooked. Etc.
there is no price transparency in healthcare because there hasn’t been a free market in healthcare since FDR destroyed it on October 2, 1942!! The only semblance resides with those physicians who still provide fee for service care. These include dermatology, plastic surgery and concierge primary care. The rest of the doctors are under the burden of government-compelled price fixing. As Friedman said, prices perform three function in organizing economic activity:
1. They transmit information
2. They provide an incentive to adopt those methods of production that are the least costly and their values available resources for the most highly valued purposes
3. They determine who gets how much of the product – the distribution of income
In system where there is price fixing by the government, none of these three functions of pricing can be fulfilled. Tis, you end up with the dysfunction we have in medical pricing today. You want transparency? Bring back the free market. Until then, it is all smoke and mirrors like all progressive distortions of freedom.
Thank you for this comment. As I often write, it is not price transparency, but price formation that is important for efficient allocation of resources. The conditions mentioned by Prof. Friedman lead to efficient price formation.
#2 should be..2. They provide an incentive to adopt those methods of production that are the least costly and thereby use available resources for the most highly valued purposes
Until the free market is turned to its rightful victim owners, i.e. the patient, all attempts at price transparency are a Potemkin Village and are doomed to failure as they are not based on a free market in pricing…….this is the legacy of progressivism in America; making things look good/fair on the surface but ALWAYS falling to get to the root cause of the problem which is why all progressive legislation ultimately fails and causes the problems it was purported to alleviate….thank you for replying above…
sorry..2 error… should be Returned to it’s right victim owners…….not based on the free market FOR pricing……
I believe the error made over and over again in criticizing price transparency for medical services is that the complexities brought up continue to revolve around the idea that prices are tied to a particular diagnosis or procedure. For instance, it would be ludicrous to even attempt price transparency for a patient admitted with a diagnosis of pneumonia, or a patient requiring an appendectomy — there are just too many variables. The same could be said for someone bringing their car to a service garage with with a complaint that the car “rattles” and then demanding the garage tell them how much the repair is going to cost before the mechanic even pops the hood. Or try going to you grocery store and asking the manager how much a “week’s worth of groceries for my family” is going to cost.
What IS amenable to transparency, however, is the price of ACTUAL GOODS AND SERVICES provided by a hospital. For instance, it would be entirely feasible for a hospital to provide to a patient, before they are even admitted, what the daily price of a surgical bed would be FOR THE BED ONLY. The hospital could also provide a price per hour for time in a surgical suite — but just the price of the suite. If a patient needed antibiotic “X” for the length of their stay, pain medication “Y” as needed, and monitoring “Z”, the hospital could provide to the patient, up front, an average price per day for each of these. So if you needed to have your appendix removed, there is no good reason that, based on information the hospital already has, that they could not tell you, up front, “You hour in the operating room will cost “A”, your two days in a surgical bed will cost “B”, you will need two days of antibiotic “X” and this will cost “C”, for each day you request pain medication “Y” it will cost you “D”, and you will only need to be on a monitor for the first 12 hours after surgery and this will cost you half of “Z”. Add up these costs and you have the estimated cost of having your Appendix removed. Of course, if we find another problem, or you have an allergic reaction to one of your medications, it will cost more.”. To me, that sounds a lot like what I hear when I bring my car into the garage for a repair.
Obviously, the itemized list of charges would be longer than this, but each individual price could be quoted ahead of time just as it is above, and the total price derived from the sum of the individual prices. Moreover, the per-unit price of antibiotic “X”, pain medication “Y”, monitoring “Z”, etc. would be the same across many different procedures and diagnoses, since the same product or service would be used in different combinations for many different types of procedures or diagnoses.
The key is to stop trying to tie price/cost transparency to procedures or diagnoses — like what has been done with DRG and CPT codes. Rather, it makes more sense to tie prices to individual goods and services provided by hospitals and other medical providers. Just like your garage and grocery store do.
Thank you for this excellent comment. I think separating the “cognitive” piece of the treatment from the “commodity” piece is a good direction. However, I think a patient would be overwhelmed by an itemized list of such items. Better to just bundle up those items into one price, I suspect.
I think we’re mostly on the same page but I the analogy of demanding the price for repairing the “rattle” without knowing the cause is bit off. Sure there would be ambiguity in the cost of making the diagnosis, but once made pricing should be quite straight forward. Which I think is what you’re saying in the ensuing paragraphs.
Rather than the immense effort for each patient to price-shop each hospital service for each medical event, is it not much more efficient to have patients just choose insurance policies?
Policy No. 1 lets you go to any hospital, so the premium is higher.
Policy No. 2 only covers network hospitals, who have agreed to hold patient bills down.
Absolute emergencies would be paid according to the Medicare fee schedule.
Under Policy No. 2, out of network doctors cannot barge into the hospital and assess huge bills.
It is not so awful to have both Cadillac and Yugo health insurance.
The insurers and Medicare have been pricing services for years and have the database. Why should each patient try to do this on their own?
An attempt at Price Transparency is being made at DocCost.com where physicians list their actual cash prices for specific procedures, including all-inclusive, global pricing for surgeries. Once enough physicians list their self-pay fees, patients will be able to compare prices and the free market will have a chance to work. BTW, there is no cost to docs or patients for this resource.