Arnold Ahlert / August 26, 2019

Distorting the Doctor-Patient Relationship

Imagine knowing how much a medical procedure cost before undergoing it…

Imagine an American going to the supermarket to buy a loaf of bread and, when discovering that it has no price marked on it, inquiring how much it cost — only to be asked a question in return: What type of food insurance do you have? Most people would consider such a scenario bizarre. Unfortunately, if one changes “loaf of bread” to “knee operation,” the rest of the story becomes quite familiar.

Why familiar? Because the same Americans who would be infuriated by such a scenario at the supermarket have long grown accustomed — or is that resigned — to the idea that price transparency for healthcare services is as elusive as the White Rabbit in Alice in Wonderland. This is no accident. Contrary to food pricing, there are a host of middlemen between the consumer and the provider whose own interests depend on obscuring those prices. Self-remunerating interests that often inflate the cost of healthcare. And because true transparency is anathema to those interests, the Trump administration’s effort to provide it is meeting stiff resistance.

In 2018, the administration released a rule requiring hospitals to post their “chargemaster” rates, or list the prices for their services online. For those unfamiliar with medical lingo, a chargemaster is “a list of all the billable services and items to a patient or a patient’s health insurance provider,” explains columnist Jacqueline LaPointe. “The chargemaster captures the costs of each procedure, service, supply, prescription drug, and diagnostic test provided at the hospital, as well as any fees associated with services, such as equipment fees and room charges.”

All of those charges require billing codes, and the costs they generate are the result of negotiations between hospitals and insurance providers. Right now both entities consider those negations to be proprietary and confidential — meaning the cost of something depends on the secret deal one’s particular insurance provider has made with the hospital.

The Trump administration wants to change that equation as well. If a new proposal is finalized, that secrecy would be eliminated and hospitals would be required to disclose those negotiated rates.

The reaction? Hospitals are insisting “the burden is excessive and will undermine the ability of insurers to secure discounts for their customers,” writes American Enterprise Institute fellow James C. Capretta. “Lawsuits aimed at blocking the rule might be coming soon.”

The players themselves? The American Hospital Association (AHA), the Federation of American Hospitals (FAH), America’s Essential Hospitals, the Association of American Medical Colleges, and the Children’s Hospital Association issued a joint statement asserting that the proposed rule “is a misguided attempt to improve price transparency for patients because it fails to give them the information they need. Disclosing the negotiated rate between insurers and hospitals will not help patients make decisions about their care. Instead, this disclosure could harm patients by reducing patient access to care. This is the wrong approach to price transparency, and the administration should reverse course on this provision.”

The Federal Trade Commission’s Office of Policy Planning agrees. “Too much transparency can harm competition in any industry, including health care,” its “experts” insist.

This is ostensibly due to the fact that healthcare providers compete to be on an insurance company’s list of providers, and when those networks are selective, providers offer lower prices to be included on the list. “But when providers know who the other bidders are and what they have bid in the past, they may bid less aggressively, leading to higher overall prices,” the OPP adds.

That’s only half the gamesmanship. As Capretta explains in a separate column, hospital billing codes are hardly layman-friendly, “because the terminology used is not intended for a lay audience.” He further explains that while current regulations require hospitals to provide the prices of component parts of their charges, they are not required to post “all in prices” for procedures that involve several components, such as “fees for the surgery, the anesthesia, the operating room, the lab tests, imaging services, and follow-up care” — all of which “involve multiple billing codes.”

Perhaps the first salient question might be: Why does the relationship between the provider and the middleman consume virtually the entire discussion about effective healthcare, while the actual consumer seemingly remains an afterthought? Moreover — and more important — why should prices for the exact same services vary, sometimes substantially, for that same consumer?

If insurance is a necessary evil, it can only be because the amount of money necessary to maintain a viable system of healthcare providers exceeds the ability of consumers to pay for maintaining it as a whole. Does it?

The question brings to mind the spiraling costs of college. Since colleges know the taxpayer is the ultimate underwriter of all student-loan defaults, they can — and have — raised the costs of tuition with impunity, because there is no incentive for them to do otherwise. That’s bad enough, but at least the student themselves, strapped by loans that are seriously affecting their lives, are concerned. By contrast, many healthcare consumers who complain about the cost of insurance have little to no concern regarding the actual price of healthcare, especially if they have a low-deductible policy.

Thus, unlike the direct consumer-provider relationship of buying food, most people are forced to cope with current provider-middleman-consumer dynamic — and politicians in both parties have become equally accustomed to addressing the first two components of that dynamic, while healthcare costs for the actual consumer continue to skyrocket.

In other words, the moneyed interests talk, and the American public walks — or limps, or hobbles to the best of their coping abilities.

Capretta provides some viable solutions, such as the government requiring hospitals to provide all-in rates, and requiring insurers to provide reference-based insurance payments that would standardize reimbursement rates to various providers, incentivizing patients to choose lower-cost providers, especially if they could pocket the difference between the standardized rate and the actual price. He also notes that there are “small pockets” in the country (such as Amish and Mennonite communities) where the actual consumer-provider relationship exists, and cash payments for services are made directly to hospitals by these religious groups, who don’t buy insurance.

Yet one is left to wonder why this direct consumer-provider relationship is the exception, not the rule. Certainly there are some costs that are beyond the consumer’s ability to pay, such as long-term care for debilitating diseases like cancer, but if there’s a role for both government and insurance providers, it would seem logical to work downwards, from the catastrophic to the ordinary, rather than lumping everything together — and negotiating rates in secret.

Unfortunately, the term “vested interests” didn’t arise out of thin air. Public comments on the administration’s latest proposal are due by Sept. 27, and the AHA has alluded to the possibility it will litigate, insisting the rule “misses the mark, exceeds the administration’s legal authority and should be abandoned.”

Nonsense. Genuine price transparency — and the elimination of discounts for the same services — are critical first steps in rebuilding a consumer-provider relationship that has been distorted for far too long. Some call it patient-centered healthcare.

Common sense is more like it.

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