Price Transparency: Even Hospitals are Starting to Figure It Out!

credit-card-2Like many, we’ve been frustrated at the lack of price transparency in U.S. health care, especially form hospitals. Good news: They are coming around!

The American Hospital Association (AHA) has published an informative white paper, clearly explaining the state of price transparency for both hospitals and health plans. It surveys what hospitals are doing to ensure patients better understand their expected out-of-pocket costs, what tools health plans are offering beneficiaries to estimate costs, and the legal and regulatory environment. The language used in the white paper is strikingly different from that which we are used to seeing from hospitals:

Price transparency also can lead to improved quality and efficiency as providers benchmark and improve their performance against peers and national averages. To realize these potential benefits, policymakers and the public increasingly are calling for greater access to information.

Oftentimes, consumers are not aware of the difference between “charges” and “price.” These terms do not have the same definition in the context of health care. Health care charges are based on hospital-established rate lists before the negotiation of any discounts. They include charges for all services, procedures, supplies and drugs that patients receive and are calculated based on a variety of factors, such as direct and indirect costs, regional competitive dynamics, mission and budgetary considerations. Hospital charges serve as a starting point for determining payment rates that are generally heavily discounted. On average, hospitals collect 31 cents for each dollar charged for inpatient and outpatient services.

The last factoid, which indicates how uncollectible accounts receivable are a growing challenge for hospitals, is the most important driver of price transparency. Obamacare’s toothless regulations are unlikely to have the same effect as strangled cashflows in changing hospitals’ behavior. It is far better to solve the problem through improving customer relations than having bill collectors hound recovering patients.

The AHA has posted a toolkit for its members, so that they can improve their price transparency. It’s a great step forward.


Comments (15)

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  1. Devon Herrick says:

    This is an important step, but only the first step. Whereas the AHA sees this as a policy issue that’s on the horizon. But most hospitals only see this as necessary to collect from patients. Hospitals do not necessarily see view transparency as a way to compete against other hospitals. Thus, hospitals’ response will be different than would be the case if they were competing.

    • James M. says:

      As a hospital employee, hospitals are competing on quality metrics. Having them compete on price would certainly make procedures more affordable, and would ensure each hospital is as competitive as possible against its rivals.

      Patient satisfaction and quality metrics would go hand in hand with prices.

  2. Frank says:

    Once there is enough outrage on why your hospital bills are so high there is sure to be price competition

  3. Barry Carol says:

    We won’t have true price transparency until both patients and referring doctors can see actual contract reimbursement rates hopefully accompanied by some useful outcomes based quality information. If such information were readily available to referring doctors in real time, they could more easily refer their patients to the most cost-effective high quality providers. To get to this point, regulators or legislators need to end the confidentiality agreements between insurers and providers that currently preclude the disclosure of contract reimbursement rates.

    For high cost academic medical centers, there is no reason why their medical education and research missions cannot be funded by separate taxpayer financed revenue streams plus, in the case of research, philanthropy. Most research is already funded mainly by NIH grants and philanthropy and Medicare pays academic medical centers for medical education though probably not enough to cover its full cost.

    I know that quality metrics are not easy to define with precision and are subject to considerable debate and controversy. Some procedures lend themselves better than others to such measurement. I would suggest, however, that if a hospital can’t clearly demonstrate in some meaningful way that its quality in a certain area is better than its peers, we should assume that it isn’t.

    For hospitals that have higher costs because they have better non-outcomes related amenities from private rooms to flat screen televisions, better food, valet parking, nice art collections and lobbies with waterfalls and piano players, patients that want and appreciate those amenities should be prepared to pay more out-of-pocket for them. I expect to pay a lot more per night at a Four Seasons hotel than at a Motel 6. The same logic should apply in pricing a stay at an amenities laden hospital vs. a less luxurious facility.

    • John R. Graham says:

      Some hospitals are more luxurious than hotels. However, I would not be too quick to conclude that a luxurious hospital is skimping on quality.

      Quality is hard for a patient to judge. So investing in peripherals is a good surrogate signal.

      • Barry Carol says:

        I disagree, John. I think there are lots of comparatively routine procedures that virtually any and all hospitals will do very well. One example: colonoscopies. Quality is tough to measure but probably encompasses four things – process, outcomes, patient safety, and patient satisfaction. The amenity laden hospitals will probably score higher on patient satisfaction but that doesn’t mean that insurers should pay more for their patients to go there if the expensive hospital is no better on the other three factors. Just because they built a Taj Mahal doesn’t mean their care is better than their competitors.

        One thing that always bugs me about our healthcare payment system is that it is oriented toward reimbursing providers, especially hospitals, for their costs plus a profit margin. Medicare started out with a cost plus payment approach. The very term, “reimbursement” suggests covering costs plus a profit vs. the term, “payment” which suggests an exchange of money for VALUE delivered to the patient.

        • John R. Graham says:

          Thank you. I didn’t state that insurers should pay more. And I agree about the cost-plus pricing, especially for non-profit hospitals. That is why we like reference pricing for some hospital procedures.

  4. Buddy says:

    I say prices should be transparent enough that when you walk into a hospital, the prices are displayed above the check-in table like a menu at the deli.

    “Yeah I’ll have one appendectomy for here please.”

    “That will be $10,000, well be right out to get you.”

    • Devon Herrick says:

      Make sure you order inside the hospital rather than at the takeout window. When I was in Spain a few years ago I made the mistake of ordering a sandwich at the window of a sidewalk cafe’. When I sat down to eat it the lady yelled out the take out window “TAKE OUT ONLY — NO EAT HERE!!!” Little did I know the tables inside (and outside) were only for people who ordered off a more expensive sit-down menu. I’m glad I hadn’t ordered an appendectomy!

  5. Matthew says:

    I can’t think at the moment of another market that allows its prices to be so opaque. Having available, transparent prices will improve quality and patient care.

  6. Bob Hertz says:

    I am all in favor of transparency, but I think it is most applicable for ambulatory procedures like MRI’s, which may take place in a hospital but perhaps can be done in a free standing facility.

    I could be wrong on this, but my impression is that these days the majority of overnight hospital admissions are for serious operations and of course for dire emergencies.

    The accounting cost of any such admission has to be at least $10,000 when all the overhead is figured in. The number of Americans who still have a high-high deductible policy and can realistically write a check for $10,000 must be a very small percentage of the population.

    So I am not sure that hospital transparency will ever mean that much. I have said elsewhere on this blog that much of what hospitals do is a public utility and could be funded by taxes. If a fire department depended on user fees like hospitals, and firemen had to collect on bills in order to get paid, we would have the same
    billing mess in fire safety that we have in medicine today. Instead, we have a little bit of socialism in fire safety, and it has not corrupted us at all.

    • Barry Carol says:


      I’m pretty sure that most operations that require an inpatient stay are scheduled in advance. These include hip and knee replacements, much heart related surgery, organ transplants, and numerous other procedures. Maternity patients go to the hospital their doctor practices at unless they are out of the area or otherwise can’t get there in time.

      The surgical procedures lend themselves to bundled pricing and can vary enormously in price among hospitals even in the same city. Price transparency can help enormously especially for referring doctors with value based contracts that reward them for sending patients to the most cost-effective high quality providers.

      For those inpatient admissions that come through the ER where a lot of diagnostic testing might be needed to determine what the patient’s issues are, such care could be priced on a per diem basis until a definitive diagnosis is determined. For example, regardless of how much care a patient needs, the per diem rate might be $2,000 per day for a standard room up to maybe $10,000 per day for an ICU bed. Drug costs would be billed separately but all lab tests, imaging and physician consults would be included in the per diem rate while the hospital would pay non-employee physicians and any other outside contractors out of its per diem payment.

      • John R. Graham says:

        Thank you. We have some posts on this blog about hospitals mischievously “ghost-scheduling” (my term) procedures by not actually scheduling them in the ordinary way, but sending patients through the ER so that they can be admitted through the ER, which often results in higher charges.

    • John R. Graham says:

      Thank you. A $10,000 deductible is hard for many. I think that is what a lot of this customer service is meant to do: Figure out a payment plan, and related issues.

      With respect to socializing the hospital like the fire or police department, those services are socialized at the local level. There is no federal department of fire-fighting or local policing. (Actually, I recall reading that when they set up the FBI, many were uncomfortable about whether it was constitutional.

      If we had ERs “socalized” with charitable and municipal funds, I expect we’d have a very much leaner hospital environment than we do.