Sloppy Checks

Dirty dollar bills

Pricing transparency is imperative to accommodate consumer-driven healthcare. Though industry foundations make transparency challenging, progress is happening.

Most excitingly to me and why I’m writing about this topic now is how our start-up, Navigation Health, is soon planning to address these issues head on. Through our technology, we are hoping to empower patients to understand and evaluate their healthcare options especially when proposed treatment costs become too expensive. More on NH later.

Now let’s talk about healthcare pricing in general —

It’s not uncommon to go to 3 different hospitals in the same city and see the price of a procedure vary by +/-2-300%1. Just imagine going to a movie theater down the street with tickets triple the price of another just a couple blocks the other direction. No difference in digital vs projector, leather vs hard seats, cupholders vs no cupholders – just a difference in the price.

Doubt you would consider for a second to pay triple.

For illustrative purposes, let’s just say you didn’t know about the cheaper theater so you go to the expensive one. As you’re leaving after the movie finishes, you get stopped by a worker at the theater. He tells you you need to pay a $20 “sitting fee” and a $10 “popcorn bag recycling fee” before you go…

This is pretty illustrative of the state of affairs when it comes to healthcare pricing: often irrational and laden with “up-charging.”

A woefully under-regulated issue, hospitals for a long time have had the ability to charge uninsured and underinsured* patients pretty much anything they’ve wanted to – or more colloquially, they’ve been charging them willy-nilly.

Hospitals have been able to do this because:

-Patients lack access to information that would enable them to challenge price rationality and/or price compare

-This kind of pricing variation applies to such a relatively small percent of patients (uninsured) that there hasn’t been much regulation to address it

-Law requires doctors must do what is medically necessary to save a patient’s life in an emergency regardless of a his or her paying capacity (i.e., I’ll charge you $50,000 to save your life

-Because they could/can

Often times, uninsured patients have the option of negotiating a discount with the hospital or undertaking a payment plan. However, it’s not uncommon for these patients to declare personal bankruptcy because even these “negotiated” bills can be double their annual income, for example.

Furthermore, though Obamacare is insuring more people than ever (i.e., reducing the number of uninsured) which should theoretically reduce the number of these kinds of exorbitant hospital bills, healthcare is becoming more consumer-driven making consumer-facing pricing in healthcare (i.e., if you’re paying for something out-of-pocket) more relevant than ever.

The share of high-deductible health plans (HDHP), health insurance coverage where you have to pay a large share of your medical expenses out of pocket, has been growing steadily over time. The percentage of covered workers enrolled in a plan with an annual deductible2 greater than $1,000 has grown from 18% in 2008 to 34% in 20133. In other words, people are becoming / having to become more sensitive to the price of their medical expenses (even if their employer is providing it to them).

The good news is things are changing. Primarily, two things are happening:

-Hospitals and clinics in the forefront, recognizing patients are becoming more sensitive to price, are updating their “out-of-pocket” prices fashion and are voluntarily publishing their rates online for patients to view and compare

-Innovative services are emerging that deliver price transparency information to patients (perhaps the most well-known one is Castlight Health)

There’s much more to talk about when it comes to healthcare pricing and consumer-driven healthcare – considerations of quality, ethics of patient control in the decision making process – all interesting debates to have.

All of that and particularly how it relates to NH to come soon in future posts.

-rev

P.S. If you haven’t already, read Steven Brill’s article, “Bitter Pill: Why Medical Bills Are Killing Us” originally published in Time. It is a phenomenal article about the irregularities of pricing in healthcare.

*Keep in mind insurers have independent arrangements with hospitals as to what they pay them for certain services. Since insurers cover a lot of individuals, they have a lot more bargaining power than a single individual – i.e., they can have much much better rates (pay a lot less to a hospital) than an individual with no insurance.

1 Out-of-pocket price (i.e., price you would pay if you were uninsured); price variance is highest in this instance

2 Amount you have to pay in addition to your premium before your insurance company will start paying

3 Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2006-2012