Harold Melvin would lament his morning paper yet again. On Monday, the President signed an executive order calling for hospitals to disclose the prices of procedures. The premise is simple: share upfront prices of procedures so that patients are empowered to make decisions about the cost of their care. They will develop an appreciation for the level of investment in their health made when procedures are performed and perhaps choose more efficient providers or to defer unnecessary care. One clear result is that we’ll all see soon enough how these prices are always going up!
FRG believes that transparency is a hallmark of coordinated care. FRG provides data distribution services for health plans that write risk contracts with primary care providers to coordinate care and earn incentives for managing utilization and the total cost of care. Disclosure of prices has always been a key component of this information exchange.
The hospital chargemaster, as anyone who has worked in healthcare finance knows, is the result of highly detailed cost-accounting and analysis. There are plenty of expensive drugs and imaging tools, but in the hospital setting, applied variable overhead and fixed costs spread across units transacted are often the bulk of realized costs. Otherwise, nobody would pay $77 for a box of gauze pads or $27 for a swab of alcohol like Reader’s Digest found. Of course, anyone can get these items cheaper at the drug store, but if you buy movie candy or ballpark popcorn you know that sometimes having the experience means you pay more for trivial items.
The Price of Care
A hospital setting brings tremendous resources necessary for acute care management together to handle any number of the conditions that might present, and the cost of making the specialists, their teams and their equipment available is part of every item billed. These environments are highly regulated and provide a foundation for training the next generation of healers. All of these aspects of the hospital experience add to the cost of what to the casual observer might find to be trivial items.
Convenience may not be the right word to justify premium prices for trivial items in the healthcare setting, but it sure is difficult to remember and perhaps a bit tacky to stash a pocket full of tongue depressors in your sweatshirt as you’re admitted to the hypothetical Gilded Ambassador Community Surgical Center. On the other hand, you’ll take an extra $20 if you know you’ll need it at the ticket counter.
While it might be just a first step on an Appalachian trek, this maneuver may raise our level of awareness that our marketplace dynamic of encouraging hospitals to compete for business on experience ultimately raises the total cost of care. Somebody is paying for that marble foyer.
However, we’ll have to wait and see. According to Carolyn Kaster of the Associated Press, “The executive order on drug price transparency that President Trump signed Monday doesn’t spell out specific actions; rather, it directs the Department of Health and Human Services to develop a policy and then undertake a lengthy rule-making process.”
Benefits of Price Transparency
FRG believes transparency of cost aligns plans and providers to effectively manage the cost of care for a population. Health plans and risk-bearing provider organizations have had knowledge about the most cost-effective and best outcome referral options in their markets for years. Efficient providers have guided patients to appropriate network providers based on their care needs regardless of how recently they were renovated or which celebrity stars in the commercial. Providing patients with the same information will help to inform prudent healthcare consumption choices and strengthen the patient-provider relationship.
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