A well-functioning marketplace needs clear information about purchased items and their price. However, our healthcare system rarely provides such information. This deficit led to economic chaos, with ever-increasing and poorly controlled costs throughout the industry.
Many have recognized this shortcoming and worked to make the healthcare system more transparent. These efforts include new price transparency laws which entered into force in 2021. Yet there are problems with the implementation, communication and public understanding of this initiative. These problems reflect the problematic nature of health data—and they also show the work needed to create an efficient and fair market.
Since the introduction of these price transparency laws, more people are discussing the issue, with some of the biggest names in journalism covering the topic. The Wall Street Journal examined data from hospitals in Boston and found a significant price difference between “emergency evaluation and management (e&m)” procedures. The New York Times went a step further. They found many examples of similar price variations with and without insurance.
The broader discussion around cost in health care represents an important advance. Yet we are only scratching the surface of the problem. For all their good investigative work, these articles (unintentionally) misrepresent healthcare pricing. This accidental misrepresentation reflects the frustrating opacity ingrained in the industry—the price data used in the example articles represents part of the full picture. Price transparency shows the prices for procedure codes, but “procedure code” does not mean the same thing everywhere or at every time. What is included in what we consider a complete “procedure” or “service” varies. Full “services” often come with a host of other billable items.
For example, on New York Times the article states that “
We see a similar problem with Wall Street Journal article looking at emergency procedure codes. In most of the data I’ve seen, the ER bill is combined with the professional (ie, doctor) bill for the same appointment. This means that the prices listed in the article understate what will actually be the full price when these two accounts are combined together.
In both cases, the listed procedure prices are actually only variable, inconsistent, and incomplete component prices. Unless the payer can match these components together, the true total cost remains unclear.
Mapping components together is hard enough on its own. Even if you can identify the components of a healthcare service and bring them together, it is often not enough to come up with a specific price. This is because we often do not know what will happen in the procedure ahead of time. Many procedures are dynamic and inputs are subject to provider discretion. For example, with a colonoscopy, the provider may perform a diagnostic endoscopy, but may also perform a biopsy, remove a polyp, or do both. Some providers perform colonoscopies with anesthesia, others do not. These variables have associated costs. Without knowing which service will occur, it is not possible to go into a procedure knowing what the final cost will be.
The less clarity we have about price, the less ability stakeholders have to make informed purchasing decisions based on value. Lack of visibility is widespread in all parts of healthcare, as payers and providers lack consistent information about service definition and cost. How can we have a functioning healthcare market without good unit or pricing information? To solve this key problem, we need a better way to analyze and discuss “cost” and “procedure(s)”.
First, we need clinically consistent and comprehensive units. With this information, healthcare purchasers can better understand what they are buying. This means standardized definitions of specific clinical interventions. For example, we need a price and presentation of a unit for “Colonoscopy with biopsy” or “MRI of the lower extremity with contrast”. This presentation should include all charges from all relevant vendors and each component outlined within the unit.
Second, we need to use this information to give patients an accurate range of potential services and costs. It is not always possible for providers to know exactly what will happen in a particular procedure. But providing a range will allow patients to avoid the unexpected.
Third, we need to define these units and ranges using historical billing data. Payers and hospitals are often unaware of the billable inputs that are in a full clinical service. A hospital often does not know the exact rates of the non-tenured providers it works with. The only way to get an accurate understanding of unit cost is to have the recent claim history and map the related components together.
Last year’s price transparency laws were an important step for the industry, but there is more work to be done. The only way to ensure a better functioning healthcare system is to create clear pricing. We must base this pricing on consistently defined and well-communicated health service units.
Photo: Andrey Popov, Getty Images