In 2019, President Donald Trump issued an executive order on healthcare pricing transparency, with the goal of empowering patients to be able to "shop around" to compare pricing for similar services at different hospitals. But using data gathered by the Crowe Revenue Cycle Analytics software, a Crowe report entitled "Transparent Doesn't Equal Rational: Problems With Transparency Order" found that pricing disparities may be complicating the picture.
Crowe, a public accounting, consulting and technology firm, analyzed its national hospital database for individual pricing levels of 100 common outpatient procedures priced at more than $500 in gross charges, the list price that hospitals post in their systems. It also reviewed the average allowable revenue -- the amount paid out of pocket after insurance by the patients -- for each outpatient procedure studied.
WHAT'S THE IMPACT
Overall, the national disparity between gross charges for each procedure was significant, at an average of 297% difference between the lowest and highest gross charge for each individual procedure. The national disparity in allowable revenue (expected payment) was also notable at 236%.
For example, the report examined the specific bill code for a high-severity, potentially life-threatening emergency room visit. For the highest (top 5%) of hospitals, the average gross charge was $3,499. For the lowest, the average gross charge was $692, representing a 406% difference. This differential also holds true for the allowable amounts, in which the highest hospitals expected to collect $736, with the lowest at $192.
Pricing disparity also occurred on a local basis. The report reviewed a standard MRI procedure in a metropolitan area of more than 3 million people. There was a 115% difference between the highest hospitals' gross average charge ($4,548) and the lowest hospitals' charge ($2,115). There was also a 126% differential between the highest hospitals' allowable amount ($1,390) and the lowest hospitals' allowable amount ($615). This means two patients could undergo the same MRI procedure in the same area, with one paying $1,390 and the other paying $615.
In the future, patients may be able to actively shop for and select a medical service, such as an MRI, based on a healthcare price transparency tool, per the executive order. But according to Brian Sanderson, managing principal of healthcare services at Crowe, selecting a hospital only based on price does not account for many other factors that a patient might consider, such as the brand value of the hospital, consumer ratings, quality of care, convenience and accessibility, customer experience, and -- perhaps most importantly -- urgency.
"Consumers want to understand the confusing disparity among prices for similar services," said Sanderson. "An increase in transparency will allow consumers to apply normative, rational purchasing criteria when making nonurgent choices on where to get care. Hospitals that can clearly state the total price to be paid for a procedure before those services are delivered -- and then charge only that price once they are delivered -- will give patients the basic tools they need to make well-informed decisions."
THE LARGER TREND
The Trump administration's price transparency rule is meant to empower consumers by letting them know up front what they'll be expected to pay for medical services. Consumers are often stuck with bills that leave them raising their eyebrows and scratching their heads, and the Centers for Medicare and Medicaid Services hopes the rule requiring hospitals to disclose their negotiated prices with consumers will prevent that from happening.
Another price transparency rule has gotten push-back from providers. It requires hospital to post their negotiated prices with insurers.
Many aren't convinced that the rule will have its intended effect. The American Hospital Association and others have challenged the rule in court, and experts are saying it misses the mark despite its good intentions.
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