Top secret no longer: What insurers pay, and what it means for you

Filed Under: Costs, Health plans, Patients

One of the biggest secrets in health care is the rates that insurance companies pay providers. One insurer might pay one provider $2,400 for an MRI and a different provider $400 — in the same locale and for the same MRI. But we rarely see documentation of that, because the rates are kept secret.

So we were surprised when a New Orleans area provider, in response to our query for price lists, gave us a list that included the pay rates from three insurers, as well as their cash rate. This is part of our “Cracking the Code” partnership with investigative reporter and anchor Lee Zurik at WVUE FOX 8 Live and  Jed Lipinski and Manuel Torres at NOLA.com I The Times-Picayune,  and their teams. (Read about the partnership here.)

These insurance rates — called contracted rates, negotiated rates, allowable rates, discount rates or something similar — are typically kept secret by gag clauses in the contracts providers sign with insurers.

We think the provider probably is violating contract language, so we chose to write about them without naming them. (We did let them know about this coverage in advance, and they said essentially “O.K.”)  The story told by the numbers is pretty revealing.

Huge disparities in pay rates

For an MRI of the cervical spine both with and without contrast or dye, Blue Cross pays $464.64, while Humana pays $988.39 and UnitedHealthcare pays $1,005.52. Medicare pays $633 in New Orleans; the cash price for this provider is $675.

For a simpler MRI of the cervical spine, this one without contrast or dye, Blue Cross and Blue Shield pays $273.66, while Humana pays $466.94 and UnitedHealthcare pays $473.11. Medicare pays $425 in New Orleans. The cash price for this provider is $500.

What this means for you: if you’re insured by Blue Cross, you’ll pay much less for that MRI. Why? Because that negotiated rate may well also apply to your out-of-pocket if you haven’t met your deductible. If you’re insured by Humana or UnitedHealthCare, you’ll pay their negotiated rate, which is much more. And if you choose to pay cash, for the more expensive one, it will be cheaper than using your insurance if you’re insured by Humana or UnitedHealthcare.

“I think most people will be amazed at that difference in price,” said Robert Field, an expert on health care pricing and a professor of health policy and management at Drexel University in Philadelphia. “What it says is that this is clearly not a procedure that costs $1,000 to provide. The seller can still make money charging $450 or $500 for it.”

 

 

Even more interesting: As we have pointed out before, often a cash price is lower than an insured price. That’s right: the provider and the payer have agreed to a higher price — which they will then keep secret from the patient — while the provider will accept a lower cash price.

Why does this happen?

Why the disparity? There are a number of reasons.

If a provider has a lot of market power,  for example by being prestigious or having a number of locations, it can demand higher payments from an insurer. If an insurer has a lot of market power, for example by having a lot of customers, it can impose lower payments.

Blue Cross and Blue Shield of Louisiana has 70 percent of the local private market, the Louisiana insurance commissioner’s office told our partner WVUE. Humana has 14 percent, while UnitedHealthcare has 9 percent.

Also, insurers essentially consent to pay more to hospitals than to self-standing radiology centers. David Hochheiser, a senior vice president for provider networks and healthcare value at Blue Cross and Blue Shield Louisiana, pointed to his company’s market power as a reason. He also  said in an interview that a payment to a hospital is typically higher than to a non-hospital provider, because the insurer is paying also for a package of other services that may not be included in the MRI price — for example, the presence of a trauma center or an emergency room, which the self-standing radiology center does not have. (To see the reporting from Jed Lipinski at NOLA.com I The Times-Picayune, click here. To see reporting from Lee Zurik at WVUE FOX 8 Live, click here.)

The Medicare price, of course, is the closest thing to a fixed or benchmark price in the marketplace; it’s fixed by government regulation in a formula that takes into account geographic location and other factors.

We often hear providers and others saying the Medicare rates are really low, but here Medicare is significantly higher than Blue Cross. And for the simple MRI’s, Medicare is a bit lower than some of the big insurers, a bit higher, or very close. (Wonk alert: In truth, there is not just one Medicare rate. We figure the Medicare rate on the “facility” charges, meaning those are hospital rates. It is very often true that the nonfacility Medicare rate — for a self-standing radiology center, for example — is significantly lower. We calculate the “facility rate” — the one for hospitals — as the default in our software, to make sure 1) not to confuse the issue by asking people to determine the difference immediately, and 2) to deliver the higher of the two rates in every case, rather than the lower. We had long discussions about this, believe me, and we think we made the right choice.)

The government, then, essentially does what Hochheiser describes by paying hospitals more via the “facility rate” as opposed to the “nonfacility rate.” Our calculations via the  search tool on our site are governed by the “facility rate” formula on the Physician Fee Finder page at the Center for Medicare and Medicaid Services (CMS) website.

Why would a provider accept a cash price lower than the insured price? We hear that providers often encounter delays and challenges from insurers, resulting in slow payments. We also hear that they’re having a hard time collecting co-pays and co-insurance and deductible payments from patients — meaning that, in general, providers are much more enthusiastic about cash payments than they used to be. We have written about that a lot, for example here.

Other comparative price lists

We’ve seen some comparative rates before, for example in this blog post about a woman who works in a billing office. She told us that their lower-back MRI, without contrast, has a  sticker price of $1,500 at her clinic (Current Procedural Terminology or CPT code 72148). Medicaid (the joint federal-state plan for low-income and disabled people) pays  $542.

Medicare pays $497. Empire Blue Cross pays $400. But some insurance plans do pay the full amount, or close to it — the Empire Government plan, for example, pays “up to $1,200”  for that procedure, she told us.

Patients who have chronic illnesses are also good sources of pricing information. One person from our New Orleans community who came  to us recently told us of pricing for ultrasounds. She has polycystic ovary disease, so she has ultrasounds annually to check her status.

In 2015, she had a transvaginal ultrasound that cost $108.14 In May 2016, she had one that cost $110.64. This year,  the same procedure was prescribed and it cost $769.50.

Further complicating her picture: in the  last two years the insurance company allowed only the transvaginal ultrasound; the provider had requested a second ultrasound, a pelvic one (not transvaginal) but it was not authorized and therefore not paid. This year, two were performed, each at $384.75. She was responsible for both, paying not only the higher rate but also paying for two.

Hence, from $108.14 to $769.50.

Wouldn’t it be great to see prices in advance?

When we see how our third-party payer system obscures actual prices, we always point out that most people would prefer to see the prices in advance. And in fact, the cash prices that we collect tend not to move around a lot from year to year — they can stay relatively flat, or even go down. Here’s a blog post  about that.

Insurers, of course, say that if they reveal these prices, then that would damage their business model. Insurers also say that providers don’t want these prices revealed — but we are hearing more and more from providers who are eager to make prices public. They do tend to be the providers on the low end, though, who are clearly competing on price in this era of rising deductibles, co-insurance, co-pays and out-of-network spending. Here’s a blog post about that.

The woman with PCOS who is paying an extra $650 for a routine procedure would probably have made a different choice if she’d been presented with price information in advance.


To read more coverage from our New Orleans partners, and to read about the partnership, click here.