For example, the chart below represents the actual average charges calculated over a year's worth of data for an in-patient procedure for a hip or knee replacement:
For the same procedure at five different hospitals, the average charges range from a low of $42,572.62 at Hospital 3 to a high of $60,730.04 at Hospital 4. The difference between the high and low is $18,157.42, with a five-hospital average of $49,830.56. Given the price information above, a patient could reasonably conclude that the most expensive place to undergo the procedure is Hospital 4 and the least expensive is Hospital 3. That is not necessarily true.
The industry's transparency efforts are clouded by the contractual relationships between healthcare insurance companies (payers) and healthcare providers (physicians, surgical centers, and hospitals). The contracts define payments from the payers and patients to the providers; however, the contracts are neither easy to understand nor publicly accessible.
For the same procedure at five different hospitals, the average charges range from a low of $42,572.62 at Hospital 3 to a high of $60,730.04 at Hospital 4. The difference between the high and low is $18,157.42, with a five-hospital average of $49,830.56. Given the price information above, a patient could reasonably conclude that the most expensive place to undergo the procedure is Hospital 4 and the least expensive is Hospital 3. That is not necessarily true.
The industry's transparency efforts are clouded by the contractual relationships between healthcare insurance companies (payers) and healthcare providers (physicians, surgical centers, and hospitals). The contracts define payments from the payers and patients to the providers; however, the contracts are neither easy to understand nor publicly accessible.
Healthcare providers and insurance companies craft complicated agreements that define the reimbursement (contract allowable) on a procedure-by-procedure basis. These agreements calculate the reimbursement thresholds using variables such as case rates, per diems, and percentage of charges, just to name a few.
- Case rates, or "flat rates," are fixed amounts at which a procedure is reimbursed, regardless of the provider's general charges or the length of the stay in the hospital.
- Per diems are fixed amounts per day at which a procedure is reimbursed, regardless of the provider's general charges, but total reimbursement varies based on how long the patient is in the hospital.
- Percentage of charges, exactly as it sounds, is a negotiated percentage of the patient's total charges—consisting of room types, length of stay, medicines, implants, etc.
Referencing the average joint-replacement charge information from before, the lowest charge was from Hospital 3, and the highest charge was from Hospital 4. Below is an example of five different insurance situations that illustrate the impact on a patient's specific out-of-pocket responsibility.
In the first four cases where the patient has the exact same deductible, co-pay, co-insurance, and out-of-pocket maximum, notice the difference in the patient's out-of-pocket liability due to any of the hospitals. The difference is primarily attributed to the contractual relationship between the hospitals and the health insurance companies. The other contribution was the difference in charges. This example illustrates the impact of the contract on the patient's out-of-pocket liability.
Now, let's examine the question "Do charges matter?" Recall that Hospital 3 had the lowest average charge for the procedure, while Hospital 4 had the highest. In comparing insurance plans between both hospitals, the patient's out-of-pocket liability was the same in three out of the five scenarios. Only two of the five were affected by the difference in charges.
Therefore, a patient with Insurance 2 would pay $1,725 at either hospital. By looking only at charges, the patient could erroneously conclude that an $18,157.42 difference in charges would translate into a difference in his or her out-of-pocket liability. For a patient with Insurance 4, the $18,157.42 difference in charges only translates into a disproportionate $545 difference in out-of-pocket liability.
Patients clearly need better and more meaningful information that is relevant to their specific insurance policies, healthcare providers, and medical conditions. Patients want someone to explain their out-of-pocket responsibility. At the same time, healthcare providers need the tools to provide that information. These tools are now available in the form of sophisticated software packages that help them understand the complexities of contracts, the specifics of benefits, and patients' out-of-pocket responsibilities. But simply prescribing publication of basic charges as the cure for the issue of price transparency is at best naïve and possibly even borders on malpractice.
For more information on the issue of price transparency in healthcare, go to www.fhscorp.net.
FHS Corp is a national company focused on providing innovative financial healthcare systems. The company was founded three years ago by a group of professionals who saw a need for sophisticated and accurate tools to address the shifting burden of healthcare costs.
