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As part of our mission to help you save money by beating back your health-care costs, we’re starting a series of posts giving practical consumer advice.

These posts are based on things we’ve learned in our reporting. As always, our posts should in no way be construed as offering medical advice. We are strictly about pricing. Our mission is to bring transparency to the health-care marketplace by talking about pricing. Your decisions about treatment, providers and anything else belong strictly to you.

We’re starting with this list of topics (full list is here).  Send us your suggestions: info [at] clearhealthcosts [dot] com.

 

Part 1: Ask the price in advance
Part 2: Even in an emergency, ask the price
Part 3: Do you really want to make medical decisions based solely on price?
Part 4: Aren’t medical prices regulated?
Part 5: Consumer-driven health care

 

Part 1: Ask the price in advance

Many people are hugely surprised to know that health-care prices can vary dramatically, by as much as a factor of 10 or more. Just look at our pricing lists, gathered by telephone, for a sample.

If you’re insured, sometimes it’s not an issue, if you know that you’re visiting an in-network provider. But sometimes even an in-network procedure can have a co-pay: for example, this year my insurance plan started charging a co-pay of 15 percent of any lab test deemed to be not routine. They didn’t explain what’s routine and what’s not, which makes an already-confusing process even more confusing.

If you’re visiting an out-of-network provider, or if you’re uninsured or on a high-deductible plan, asking the price in advance becomes much more important.

Most providers have several different charges for one procedure or item. There’s the sticker price that’s listed officially – sort of like the manufacturer’s suggested retail price – which is typically the highest price. It’s also the one that is most often on the bill. And it’s the one that is often charged to people without insurance. That price is seldom paid in full.

Then there’s the reimbursement price negotiated by the insurance companies. Each company has a separate rate, negotiated with the provider on the basis of how many customers (oops, patients) the insurer brings, how many customers (oops, patients) the provider has, where the provider is, and so on. A bigger insurance company can negotiate lower reimbursement rates; a bigger group of doctors can push for higher rates than a solo practitioner, by pointing to market forces. So the insurance companies’ rate of reimbursement may be 80 percent of the billed price, or 60 percent, or 40 percent. It’s rarely 100 percent. In fact, in a recent lab test bill in my household, the billed rate for a test was $401, but the insurance company wanted to reimburse at $24.80. I got the negotiated rate, though I hadn’t met my deductible. I paid, and it was applied to my deductible.

Many providers also have a cash or self-pay rate; if you ask before having a procedure or a visit what it will cost, you will often get a rate that’s lower than the sticker price, and lower perhaps even than the insurance company’s negotiated rate.

If you don’t ask in advance, you may well be charged the sticker price.

The procedure also has a Medicare price, which is the rate the government pays for care for people 65 and over, which is typically a fraction of the sticker price. Lower still, typically, is the Medicaid rate, paid by the joint federal-state program for the poor.

While you might not feel comfortable in asking this question, it can be surprisingly revealing. It’s also revealing if your provider is unable to tell you how much something will cost.

Many of the providers we called in compiling these lists also said they have a rate for hardship cases, for the uninsured or unemployed. “We’re not heartless,” one said. Quite often the hardship rate was half the self-pay rate, or closer to the Medicare or Medicaid rate. Others said “we negotiate that” or “we require proof of hardship.”

Always ask first.

 

Part 2: Even in an emergency, ask the price

If you’re in a medical emergency situation, it’s hard to have the presence of mind to ask the price in advance, but we suggest that you try anyhow.

If it’s a discretionary procedure, maybe it’s not so hard: what does a colonoscopy cost? What does an MRI cost? But an emergency is more complicated — and yet you should still ask. How much should anesthesia for surgery cost? There could be a lot of answers.

A friend who had an emergency appendectomy not long ago at a hospital that participates in her plan, with a surgeon who participates in her plan, was surprised after the fact to receive a bill from an anesthesiologist who did not participate in her plan. She was billed the sticker price, and not the negotiated or network rate.

The bill was for several thousand dollars, while a participating anesthesiologist would have had a modest co-pay.

I’ve heard several stories about nonparticipating anesthesiologists, and had one such experience myself in the past. I’ve trained myself to ask as often as possible, but it’s not clear to me that I would have had the presence of mind if I was unconscious or in need of emergency treatment.

Legislative and regulatory efforts by states to address these anomalies are not unheard-of, but the problem persists.

My friend addressed the hospital about this issue, and they told her to talk to the anesthesiologist in question.

The anesthesiologist insisted on getting paid the full price. The insurance company was unsympathetic.

Eventually, after the bill was submitted several times to the insurance company, the company paid.

The rights and responsibilities of the provider, the customer (oops, patient) and the establishment  where the event took place are murky and often decided on a case-by-case basis. Regulations vary by state.

The practice by hospitals and other establishments of using nonparticipating anesthesiologists, radiologists and other pathologists is growing, and it is not always easy to find out who’s participating and who isn’t. It lends to the feeling of mystery in the system. Your part is to keep asking.

If you don’t or can’t ask before, and find yourself billed for a hefty sum after, it’s time to negotiate over your medical bills.

Some people think you shouldn’t ask the price in advance.

My friend S., who has spent a great deal of time in the health-care industry, says she’s cautious about the idea that people should ask in advance.

The price the provider quotes is a sticker price, she says, and it may have no relation to what the payment is.

For example, for a procedure priced at $100, Insurance Company A may pay $50 to Provider X. By the logic of the industry, if you are insured by Company A, even if you haven’t met your deductible, the price to you is $50.

S. thinks that if people ask the price and are quoted $100, they may not choose to have the procedure – because they don’t know the price to them is $50.

I see her point, but I still think you should ask.

Part 3: Do you really want to make medical decisions based solely on price?

If you’re buying a tomato or a car, your purchasing decisions are based not just on price but also on quality. Rolls Royce or Honda? Bentley or Kia? The same is presumably true with medical treatment.

Obviously, it’s complicated, though, by the fact that you might not be feeling well when you make a decision about medical treatment. You might well be anxious. You might well feel that asking the price of something changes the way your provider views you, and not for the better. You’re hoping for the best outcome, the most reliable test, the least pain and so on.

We don’t want to make suggestions about your medical decisions. That’s for you alone.

We personally do not think medical decisions should be based solely on price. But we do think that the current system – when the customer has no idea of what a service or a procedure or an item will cost – should be more transparent.

There’s also the counterintuitive notion that price itself has power, espoused by, among others, Dan Ariely, the writer of  ”Predictably Irrational: The Hidden Forces That Shape Our Decisions.” His idea is that when people pay more for something they think it’s better, explaining why a 50-cent aspirin works better    

than a 1-cent aspirin. He writes: “The Bayer aspirin and the Rolex watch seem valuable because of how much they cost, not because they’re better in practical terms than a generic aspirin or a Timex.” It’s not clear whether a $50,000 aspirin would work better, but he argues that price works in complicated ways on our decision-making processes.

That aside, it seems clear that the system we have now doesn’t encourage savings or thoughtfulness. From a patient’s perspective, you are essentially obliged to go seek treatment with little knowledge of costs (or charges, or prices). When you have received whatever care you’ve received, you pay (if you’re uninsured or on a high-deductible plan) or you leave and six months later receive an explanation of benefits that explains exactly nothing.

Our service here consists of finding and revealing as much pricing information as possible, so you can factor price in to your decision-making should you see fit.

 

Part 4: Aren’t medical prices regulated?

Hospital rates and other medical costs are regulated by the government, aren’t they? So there’s not really a great deal of variance.

Not true.

The rates vary wildly: Here’s an explanation of hospital pricing showing striking variations in prices from insurer to insurer for various procedures: a coronary bypass at one New Jersey hospital costs $26,000, and at another it’s $46,000.  An appendectomy at the first one costs $2,700, and at the second it’s $4,300.

The rates hospitals charge are based on lots of things: their estimate of their costs, their status (teaching hospital, for-profit), geography (Iowa is cheaper than New York).

For further suggestions of the variance, check out our PriceMap, based on Medicare payment data. It’s an interactive tool: plug in a procedure and a place, and see how prices vary.

Rates vary wildly. And reimbursement rates vary wildly too: While Medicare and Medicaid rates are indeed government-issue, private rates are quite different.

“Private insurers pay hospitals predominantly on the basis of per-diems or fee-for-service schedules,” the Princeton economist Uwe Reinhardt writes. “On average these payments exceed the hospital’s cost of providing the underlying services. The profits built into these payments cover the losses hospitals book on serving Medicare and Medicaid patients, who are billed high prices but often do not pay their bills in full. Private insurers also feed the net profits that most for-profit and not-for-profit hospitals book.

“The per-diems or myriad fees that private insurers pay hospitals are negotiated annually between each hospital and each insurance carrier. A given hospital may thus negotiate one by one with several dozen or even several hundred insurers.”

In fact, we’ve written before about how the lack of regulation in the marketplace has led to some wild price swings, notably in a New Jersey casein which Aetna is suing several doctors for wildly overcharging–”including $56,980 for a bedside consultation and $59,490 for an ultrasound that typically costs $74,” according to a Bloomberg news article about the case.

Many economists think that one of the problems with our health-care system is that people who are insured don’t know what things cost, and are insulated from the costs, so they don’t work to press prices down.

Other economists will point out that hospitals, doctors, pharmaceutical manufacturers and so on don’t have any incentive to reduce the prices they charge if the amount of money they receive for a procedure, drug or suchlike depends on what the insurance company says it should receive, rather than what it costs — and that in an opaque marketplace, the consumer (patient) has no way of knowing what tthat procedure or drug might actually cost, because the information is hidden.

In any case, as a patient (consumer) you should know: there’s a great deal of variance in prices, even block to block. Pay attention to the charges.

The new movement toward “consumer-driven health care” will change the entire equation, and bring consumers to the fore, thus reducing costs.

Consumer-driven health care is a fairly new phrase, dating to the late 1990′s or so, and describing generally high-deductible insurance plans often coupled with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). The high-deductible plans usually carry lower premiums, but can mean that the insured person is responsible for the first $5,000, $10,000 or whatever sum of money described as the deductible.

Those pre-funded spending accounts are the chief difference from the now-common PPO plan, in which the patient-consumer using an in-network provider pays a fixed co-pay — say $20 — and the remainder of the cost is covered by the insurer.

It’s the fastest-growing part of the insurance marketplace: More than 10 million people are enrolled in high-deductible plans with health savings accounts this year, as compared to 6.1 million in 2008, according to a recent survey by America’s Health Insurance Plans, an industry trade group.

The idea of such plans is to make the patient-consumer more responsible for health costs. This, supporters say, will drive down premiums and eliminate unneeded care, making people directly responsible for, and

Part 5: Consumer-driven health care

Consumer-driven health care is a fairly new phrase, dating to the late 1990′s or so, and describing generally high-deductible insurance plans often coupled with a Health Savings Account (HSA) or a Health Reimbursement Arrangement (HRA). The high-deductible plans usually carry lower premiums, but can mean that the insured person is responsible for the first $5,000, $10,000 or whatever sum of money described as the deductible.

Those pre-funded spending accounts are the chief difference from the now-common PPO plan, in which the patient-consumer using an in-network provider pays a fixed co-pay — say $20 — and the remainder of the cost is covered by the insurer.

It’s the fastest-growing part of the insurance marketplace: More than 10 million people are enrolled in high-deductible  plans with health savings accounts this year, as compared to 6.1 million in 2008, according to a recent survey by America’s Health Insurance Plans, an industry trade group.

The idea of such plans is to make the patient-consumer more responsible for health costs. This, supporters say, will drive down premiums and eliminate unneeded care, making people directly responsible for, and aware of, their health-care spending. But critics say that people on such plans will avoid necessary care, and that because health-care prices are hard to find, the consumer won’t have  the tools to make good decisions. They also point out that people tend not to reject doctors’ recommendations, so if doctors recommend something then patients are likely to say yes, whether it’s actually needed or not.

In many cases, the annual outlay will be less under such a plan: the way to calculate it is to add up the lower premium and your annual expenses from a preceding year, guess what you think the next year’s expenses will be, analyze what the plan covers, who’s in the network, hypothesize about the unexpected, then hold your hands over a pile of papers and guess. Here’s a New York Times piece by the terrific Walecia Konrad about such plans.

The Princeton economist Uwe Reinhardt has done some excellent work on hospital pricing, and on consumer-driven care.

“Until now, the U.S. health care ‘market’ has been analogous to an imaginary world in which, say, employers offered to reimburse their employees 80 percent of the ‘reasonable cost’ of all attire deemed ‘necessary’ and ‘appropriate’ on the job but, under the contracts negotiated with department stores by the fiscal intermediaries administering this ‘Clothes Benefit Program,’ employees had to enter department stores blindfolded,” Mr. Reinhardt writes in “The Pricing Of U.S. Hospital Services: Chaos Behind A Veil Of Secrecy,” Health Affairs, 25, no.1 (2006):57-69.

“Only months after a shopping trip would the employee receive from the fiscal intermediary a so-called Explanation of Benefits (EOB) statement, explaining how much the employee had to pay for whatever he or she had stuffed, blindfolded, into the shopping cart on that shopping trip. Framed in bright red on that EOB would be the statement: ‘Pay X amount.’ X would represent 20 percent of what the intermediary would have judged, ex post, to be ‘reasonable prices’ for those garments in the shopping cart deemed by that intermediary, ex post, to have been ‘appropriate’ attire for the particular employee’s circumstances. It also would include 100 percent of the prices charged by the stores for items in the cart that were deemed by the intermediary, ex post, as ‘not necessary’ or ‘inappropriate’ and that were therefore not covered by the Clothes Benefit Program.”

He goes on to say that the foregoing passage describes the current payment system for health care, and adds that the movement for consumer-directed health care is gaining steam, with employers, insurers and policymakers seeking to force patients to act responsibly.

The reaction to this idea from Paul Krugman in The New York Times was harsh:

“How did it become normal, or for that matter even acceptable, to refer to medical patients as ‘consumers’? The relationship between patient and doctor used to be considered something special, almost sacred. Now politicians and supposed reformers talk about the act of receiving care as if it were no different from a commercial transaction, like buying a car — and their only complaint is that it isn’t commercial enough.”

I disagree with Krugman. Patients are consumers, and they sometimes need to act that way. I have heard enough stories about doctors and patients failing to communicate well over costs, that it seems obvious to me that some acknowledgement of the fact that money changes hands as some give care and some receive it is mandatory.

But the consumer-driven health care movement has me reaching for my wallet.

When I wind up in a high-deductible plan, which is a centerpiece of CDHC, will I be charged the sticker price for a procedure, or the “negotiated rate”? In other words, If my lab test bill was $393 and the “negotiated rate” that the insurance company pays the lab is $39.25, do I pay $393 or $39.25?

If I am charged $1,419 for a drug that a hospital could buy for $2.49, which price do I pay under “consumer-driven health care”? (Here’s my blog post about that.)

Will my premiums go down as a result of my choice for a high-deductible plan? Austin Frakt, who blogs over at The Incidental Economist, sayshigh-deductible premiums will actually rise faster than other premiums.

Beyond that, with consumer-driven health care, there must be transparency on price and performance, or consumers won’t be able to make choices based on clear, public data.

Here’s Reinhardt again:

“This ‘consumer empowerment,’ as it is sometimes called, can only occur, however, if prospective patients actually have easy access to user-friendly, reliable information on at least three dimensions of their care: the prices charged by competing providers of health care; the costliness of practice styles adopted by these various providers—that is, the prices times the quantities of services and supplies they package into the treatments they render; and the quality of these providers’ services. If such a transparent information infrastructure now exists anywhere in the United States, it would be the rare exception.”

He concludes: “forcing sick and anxious people to shop around blindfolded for cost- effective care mocks the very idea of consumer-directed care.”