Can We Tame the Wild West of Health Care Pricing?

Health care pricing is like the Wild West and it is only a matter of time before it catches up with us. In July, the Centers for Medicare & Medicaid Services (CMS) confirmed what many consumers, employers and health plans already knew: there is no cost and quality standard in the American health care system.

Improving our system starts with driving payers and consumers to high value providers. But first, we must know who is charging what. Price transparency tools offer that important information, enabling people to actually comparison shop for their health care services.

In early July, CMS released a proposed rule aiming to address price variation by starting with joint replacements. According to CMS, there were more than 400,000 Medicare inpatient joint procedures, resulting in more than $7 billion in hospitalization costs in 2013. The average Medicare expenditure for surgery, hospitalization and recovery ranged from $16,500-$33,000 depending on geography, with widely varying rates of infection and implant failure post-surgery.

To address this variation, CMS outlined a new payment model that would make some hospitals accountable for the costs and quality of care from the time of surgery through 90 days after. Based on their performance on cost and quality metrics, participating hospitals would either earn a reward or be required to repay some of the Medicare costs.

This is a step in the right direction, but policies that target only one program, like Medicare, ignore trouble spots in other areas, including the employer and commercial markets.

CMS’ proposed rule on joint replacements, for example, does not address broader issues with price variation that impact our system as a whole. As indicated below in Figure 1, HealthSparq’s data shows that hip replacements are more costly in the commercial market than in Medicare, with costs ranging from $26,000 – $49,000 in 2013. California, Texas and parts of the Northeast are at the upper end of the cost spectrum, while parts of the Midwest and Mountain region are at the lower end.

Figure 1. Cost Variation for Hip Replacements in Commercial Market

In addition to higher overall costs in the commercial market, data shows that hip and knee replacements are increasing exponentially among patients 45 to 64 years old, many of whom receive health insurance coverage from their employer or a commercial plan. When combined with higher costs, the increased service volume among this population suggests that the total costs associated with joint replacements in the commercial market may exceed costs in the Medicare market.Given the challenges we’ve discussed, consumers are using price transparency data in the commercial market to fend for themselves. Working with over 70 health plans and reaching a total of 72 million beneficiaries, HealthSparq has unique insight into consumer shopping behaviors and the types of information consumers are using for health care decision-making.Our data on joint replacements shows:

  • Consumers want to know how much their joint replacements will cost. Viewing of cost estimates related to hip/knee replacements are in the top five of more than a thousand different searches viewed by consumers on our cost estimator over the last year.
  • Consumers know that prices may vary across facilities. Approximately 54 percent of the hip/knee replacement cost estimates requested by consumers also included a request for facility-specific information.
  • Consumers are using price data to compare prices at different facilities.Approximately 38 percent of patients requesting a facility-specific estimate did so for more than one facility. This is evidence of shopping behavior.

To tame the Wild West and improve the health care system, payers and consumers must use all of the tools at their disposal, including health care shopping tools. Transparency helps consumers better navigate health care, while allowing plans, providers, and employers to identify and steer patients toward opportunities for savings when medically appropriate. It also helps consumers understand quality, timeline and more.

Let’s use health care shopping tools to put the days of pricing duels and shootouts behind us. Consumers deserve a better health care system.