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Pricing Transparency — Not for Consumers

At the beginning of 2019, new regulations went into effect requiring all hospitals to disclose their Medicare fee schedules and average cost of certain treatments. Originally marketed as a win for pricing transparency advocates, many critics and industry professionals have voiced their concerns that, although a step in the right direction, the results of this policy leaves much to be desired.

In short, hospitals are now required to publish two datasets on their websites. The first it the hospital’s fee schedule — commonly called the chargemaster — which contains the amount paid for any given procedure. The second is the average total cost of treatment — organized into “diagnosis related groups”, or DRGs — which contains the median total cost of procedures, facilities, medications, and equipment used to treat certain conditions (typically split by risk or complexity). Hospitals are required to publish these files specifically for Medicare patients.

I took a look at the data published by several hospitals here in Boston (along with another from out-of-state), and I wanted to share my thoughts.

The hospitals and their data:

  • Brigham and Women’s Hospital — Boston, MA (Partners Healthcare) data

  • Massachusetts General Hospital — Boston, MA (Partners Healthcare) data

  • Beth Israel Deaconess Medical Center — Boston, MA data

  • Tufts Medical Center — Boston, MA data

  • Boston Medical Center — Boston, MA data

  • Jack Hughston Memorial Hospital — Phenix City, AL data

Not for Consumers

At its core, the most recent pricing transparency initiatives wasn’t built with consumers in mind. Nearly all the information that can be gleaned from the published data requires some background with medical coding and billing to decipher. The data, as it currently sits, utilizes abbreviations, code sets, and medical terminology that the average consumer will not be able to take advantage of.

Additionally, most hospitals comply with the pricing transparency guidelines by uploading a spreadsheet or CSV file with no interactivity or context available to curious consumers. If a consumer is looking for answers directly from the provider’s website, they will have to be motivated to do much more research than consumers in other industries.

One could argue that the intent of publishing this data was not to benefit consumers directly, but rather to allow third parties to transform that data into something useful for consumers. Unfortunately, the published data lacks enough detail to be useful even in the hands of the most experienced industry experts.

Chargemasters are Incomplete

Chargemasters for Beth Israel Deaconess, Jack Hughston Memorial, and Mass General (left to right)

For starters, the chargemaster format is not standardized. While most provider tie charges to individual procedures (called a “fee-for-service” contract), the published chargemasters typically do not distinctly identify those procedures by CPT code, revenue code, or equivalent. This makes comparing prices at the procedure level nigh impossible.

Even though many of these line-items have decipherable descriptions, which a motivated patient or third-party could tie back to a CPT code, this still fails to address nuances which commonly affect costs — procedure modifiers, location, unit type (per day, per number of images, etc.), and other important cost factors. This skews prices and leaves the reported price questionable at best.

Finally, the chargemasters — as they are currently published — do not reflect the costs that most patients will experience. The current chargemasters only include Medicare contracted rates, whereas most patients will experience contracted rates negotiated by their health insurance or employer. While there is sure to be a correlation between Medicare costs and commercial insurance contracts, this will virtually never represent the costs to the consumer on a per-procedure basis.

DRG Costs Don’t Apply to Most Patients

Median Total Cost (in thousands) for Revision of Knee or Hip Replacement (Without Complications or Comorbidity)

Median total cost of DRGs, on the other hand, are much more standardized in their representation. CMS laid out specific guidelines for which DRGs needed to be included, and how to calculate the total costs. As a result, it is easier to compare DRG costs than chargemaster prices across hospitals. Unfortunately, the data still fails to serve consumers in a meaningful manner.

For starters, the total cost to Medicare for any DRG is hardly representative of the contracted rates for insured patients, and even less so for patients’ total out-of-pocket costs. While two hospitals may have drastically different prices for the same condition or treatment, the end result to the patient will largely depend on whether the hospital is in network, how their policy covers their treatment, and whether or not they meet their deductible along the way.

In the data I looked at, some hospitals cost more than twice their competitors in the same city for the same DRGs. As seen in the chart above, a joint replacement revision at Brigham and Women’s hospital costs more than twice that of Beth Israel Deaconess, despite both hospitals being located in Boston. However, most patients in the area wouldn’t feel the difference in their wallets, as they would reach their out-of-pocket maximum and insurance would cover the rest.

DRG Costs Lack Important Context

The DRG cost data also excludes meaningful context consumers will need — specifically, risk and quality.

Most of the DRGs are broken into three risk categories— no major complication or comorbidity, complication or comorbidity, major complication or comorbidity. While this is useful as an aggregator, it does little for consumers with any specific comorbidity. While one hospital may appear to be the more cost effective option, a patient with a major complication or comorbidity may want to seek a provider that has more experience with their specific needs.

Aside from costs and risk factors, there is no quality data that can be easily mapped to these costs. Although one provider may appear twice as expensive as an alternative, they may very well be worth the difference — however, without stratifying the costs by major risk factors, and reporting meaningful quality measures alongside those costs, all patients will see are two large numbers with no explanation as to the difference.

Hospitals are Stepping Up

Despite the many shortcomings of the new pricing transparency laws, this may be the push the industry needed to spark the conversation and drive changes. Forcing hospitals to confront their own pricing complexity and creating a buzz around transparency brings a much-needed focus to the space.

Currently, providers bear the brunt of new transparency efforts, taking on additional costs to maintain the chargemaster and DRG data on their websites (in addition to the typical reporting CMS requires). As hospitals feel pressure from patients to disclose prices prior to care, many have taken steps above and beyond to ensure patients can stay informed.

Most of the hospitals I looked at were quick to point out the shortcomings of using the chargemaster, and provided alternative routes to receive more accurate pricing information. If the chargemaster was skipped altogether, and the new pricing transparency laws required these alternative measures instead, consumers would have access to a much more meaningful cost-comparison experience across the industry.

Granted, Massachusetts hospitals have a bit of a head-start (MA has been enacting state-level pricing transparency initiatives for years), but even unprompted by regulations, hospitals such as Jack Hughston Memorial have committed to improving the patient experience when seeking answers on cost.

With new reimbursement strategies and payment innovations evolving every day, it is more important than ever that patients understand what they will be responsible for and what impact their healthcare decisions will have on their financial well-being. As demand for meaningful, clear cost information grows, I hope that hospitals continue to answer the call. It may not be perfect, but the new pricing transparency laws are definitely a step in the right direction.