Medical care pricing a tangled web

21.06.2008 22:00 Health - Source: JS Online

What’s the cost of surgery for a spinal fusion of the lower back in southeastern Wisconsin?

It can range from $25,000 to more than $50,000.

The price depends on the hospital and the doctors. And that’s just for patients covered by one insurer — Anthem Blue Cross and Blue Shield. It would differ for other health insurers.

The wide disparity in prices explains why businesses and consumers contend that more information on what hospitals and doctors charge is needed to lower costs and make the health care system work better.

“Everybody says, let’s get the information out there,” said Paul Keckley, executive director of the Deloitte Center for Health Solutions.

Yet the effort to provide consumers with meaningful information on prices is proving to be a lot slower and more complicated than expected.

Some progress has been made, but it’s incremental.

Humana discloses the estimated cost of common procedures and tests for members in one of its health plans. Anthem Blue Cross will begin doing the same next month. And late last month, 17 health insurance companies in Wisconsin pledged to provide consumers with estimates of their potential out-of-pocket costs.

But the information from Humana and Anthem Blue Cross is available only to people in their health plans. And the pledge by health insurers didn’t include disclosing the total price or how it compares to prices charged by other hospitals and doctors. That information, which varies based on the contracts that health plans negotiate with hospitals and doctors, will remain confidential.

“It’s critical for us to move forward if we are ever going to get control of the cost of health care,” said Pat Whitmore, vice president of human resources for Hufcor Inc., which employs about 500 people in Janesville.

Whitmore and a plan administrator did a study a few years ago that found the cost of a colonoscopy ranged from $1,500 to $5,000 in southeastern and south-central Wisconsin.

“It was a huge differential,” she said.

Acting on information

Proponents see several benefits to greater price disclosure. They contend that better information on what doctors and hospitals charge could lower costs by making it more difficult for health care providers to charge different prices to different customers. It also could attract more business to hospitals and doctors that provide quality care at a lower price.

In addition, it could prod health systems to stop providing some services and instead focus on what they do best. That could help reduce the estimated 35% of health care spending considered waste, according to the Congressional Budget Office.

Health care economists say that making the health system more efficient is essential to halting the rise in the number of people without insurance and to expanding coverage to the long-term uninsured.

But those changes require more than just providing businesses and consumers with more information. Employers and consumers would need to act on that information, said John Toussaint, the chief executive officer of the ThedaCare Center for Health Care Value. And that would require health plans and employers to steer patients toward the most efficient hospitals and doctors.

Without this, the market won’t work, Toussaint said.

This is the idea behind what’s known as value-based plan design. These plans contain incentives to encourage patients to get care from the hospitals or doctors with the best quality at the lowest price.

“That’s where we need to go,” said Toussaint, who recently stepped down as chief executive officer of ThedaCare in Appleton.

Determining which doctors and hospitals are the most efficient isn’t easily done.

“It’s not an overnight innovation,” said Keckley of the Deloitte Center.

A hospital or doctor may charge higher prices but provide more efficient care. That may be because they order fewer tests or do fewer procedures, or their patients may recover more quickly or have fewer complications.

What matters is the total cost of an “episode” of care. That’s how Humana and Anthem Blue Cross disclose prices.

But health insurers have software that can determine what services are needed for, say, an arthroscopy of a knee. The average consumer, on the other hand, would have a hard time knowing what doctors, tests and such were required even if prices were available.

“As much as we’d like this to be more straightforward, it isn’t,” said Cheryl DeMars, chief executive of the Alliance, an employer cooperative in Madison.

Appropriate care

Determining whether care is appropriate is an even bigger challenge. The cost of back surgery, after all, doesn’t matter if the surgery isn’t needed.

“It’s going to be complicated,” said Jerry Frye, president of the Benefit Services Group, a benefit consultant and insurance broker in Pewaukee. “But it’s absolutely essential.”

To add to the complication, hospitals’ costs can vary for reasons that have nothing to do with how efficiently they provide care.

Some provide essential community services, such as trauma or burn centers that lose money or barely break even. Others provide more care to people in state health programs. Those programs don’t pay hospitals enough to cover the full cost of providing the care. Hospitals make up the shortfalls by charging commercial health plans more for their services.

“You would never go about setting up a system like this because, from a business aspect, it makes no sense,” said Coreen Dicus-Johnson, a senior vice president who oversees contracting with health plans for Wheaton Franciscan Healthcare.

Some states, like New Hampshire and Oregon, are requiring hospitals to disclose the mean price, including physician fees, billed to commercial health plans for common procedures. The belief is that even imperfect information is better than no information, particularly with calls for people to be better consumers of health care.

The ideal would be for hospitals and doctors to charge different health plans the same price for the same services and for those prices to be public, said Richard Abelson, executive director of District Council 48 of the American Federation of State, County and Municipal Employees. That would let people compare the prices of different hospitals, surgery centers, doctors and others health care providers.

But that could be a long time in coming.

“With all the compounding factors,” Abelson said, “I don’t see how that is going to be possible.”

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