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Charge data apparently ineffective as an aid in comparison shopping

BEFORE CONSUMERS can make knowledgeable healthcare buying decisions, they need transparent comparative data on cost and quality. Meaningful quality data is difficult to identify and measure, but charge information is becoming more readily available in most states.
Florida was one of the first states to publish their chargemasters for all CPT-coded services at all hospitals and ambulatory facilities throughout the state. This information has been publically available for the past five years on the Web. To make a discriminating buying decision for healthcare services, transparent charge data is necessary; but is it sufficient to change behavior?

How hospitals manage their chargemaster for standard charges defies common business logic or the laws of supply and demand. It has evolved from a fee-for-service tradition and incrementally increased over the years, but it has little to do with the cost of providing services or what is ultimately accepted as full payment.

Facility charges do not appear to be responsive to what others charge or the laws of supply and demand. Maybe they are set unreasonably high as an “opening bid” because the real number is what is negotiated with each insurance carrier. Unfortunately, private pay patients are left to their own wits and negotiating ability as to how to manage these high charges.

Exploring facility charge data for Florida revealed several surprising findings. For some ambulatory surgical procedures, there is a 30-fold variance from the least expensive facility charge to most expensive.

In facility accounting, there are three key numbers – cost to provide the service, facility charge for the service, and the contractual reimbursement, or what is actually paid. The Florida data represents what is charged, not what is paid. It is risk-adjusted to account for those facilities that have sicker patients. For an individual paying privately, such as from a health savings account, they would be expected to pay the charged amount unless they can privately negotiate a lower price, something that the Office of the Inspector General might consider discriminatory and fraudulent.

To study the effect of transparency, let’s look at data for umbilical hernia repairs (CPT 49585) and inguinal hernia repairs (CPT 49505). These procedures are fairly standardized in scope and complexity, especially when restricted to just ambulatory same-day adult-only cases. Umbilical hernias are usually easier and faster by about 30 percent. These are procedures that I do in my Medicare-approved office-based surgical facility under local anesthesia with sedation. Uncomplicated umbilical hernias take about 30 minutes to perform and inguinal hernias about 45 minutes.

In Washington state, Medicare pays the facility the same for both procedures, about $840 per case with some geographic variation. Commercial carriers pay as much as four times that amount. It is challenging but possible to make a profit at these levels by holding down costs. Throughout the country, these repairs are customarily done in freestanding ambulatory surgical facilities or hospital day surgery facilities that have a higher cost structure. The chart on this page illustrates the Florida charge experience.

 

This data is for all adult patients undergoing an outpatient procedure in Florida going home the same day, which eliminates complex cases. This data includes laparoscopic repairs in addition to open repairs, which require some additional expenses for equipment and general anesthesia.

The same data was previously acquired for 2004 and compared to 2006. There has been no significant change. Each facility has maintained their same charges or raised rates, and the number of cases done at each facility is also consistent. Publishing this data for the past five years was not sufficient to induce each facility to adjust their chargemaster based on the competition or to attract individuals who might choose lower-priced facilities. So even though the charge data is transparent, it has had no effect on provider or patient behavior.

The spread of charges is not easily explained. This is an example of a simple standardized procedure with a 30-fold variance in charges within the same or nearby markets. This data must not be sufficient in the public eye to encourage change.

At least for hernia repairs in Florida, posting facility charges did not significantly influence where people go for surgery. There are several possible explanations that need to be better understood before we can introduce competition into the buying decisions for such services:

  • This data may not be publicized widely enough to encourage most people to reference it before choosing a facility.
  • For some well-to-do people and those without any money at all, expense is not a consideration.
  • For those on Medicare, Part A charges are covered and balanced billing is forbidden.
  • If the patient is relying on their third-party insurance partner to cover the facility expenses with a discounted contract, then they do not care how much it will cost. Most people are insulated from costs concerns and make our buying decisions independently of cost when someone else is paying.
  • Most people choose or are referred to a specific surgeon who then makes the venue recommendation of where the procedure will take place, potentially at a facility where they may have an ownership interest. (This would more likely be to an ASC with lower costs than a hospital.)
  • Ambulatory facilities have lower costs and charge less than half as much as hospitals.
  • Charge data is less relevant than the privately negotiated contractual reimbursement rate with each carrier. Only selfpaying patients are at risk for the full charge.

The lesson appears clear. Simply posting charge data is not sufficient to change behavior.

James G. Mhyre, MD FACS, operates a practice specializing in general surgery in Kirkland, Wash.