Health care prices
Encyclopedia
Unlike most markets for consumer services in the United States
, the health care market generally lacks transparent market-based pricing. Patients are typically not able to comparison shop for medical services based on price, as medical service providers do not typically disclose prices prior to service. Government mandated critical care and government insurance programs like Medicare also impact market pricing of US health care.
found that only 25% of visitors asking for pricing information were able to obtain it in a single visit to a hospital.
Since the majority (85%) of Americans have health insurance, they do not directly pay for medical services. Insurance companies, as payors, negotiate health care pricing with providers on behalf of the insured. Hospitals, doctors, and other medical providers have traditionally disclosed their fee schedules only to insurance companies and other institutional payors, and not to individual patients. Uninsured individuals are expected to pay directly for services, but since they lack access to pricing information, price-based competition may be reduced. The introduction of high-deductible insurance has increased demand for pricing information among consumers.
Organizations such as the American Medical Association
(AMA) and AARP
support a "fair and accurate valuation for all physician services". The AMA sponsors the Specialty Society Relative Value Scale Update Committee
, a private group of physicians which largely determine how to value physician labor in Medicare prices. Among politicians, former House Speaker Newt Gingrich
has called for transparency in the prices of medical devices, noting it is one of the few aspects or U.S. health care where consumers and federal health officials are "barred from comparing the quality, medical outcomes or price".
Recently, some insurance companies have announced their intention to begin disclosing provider pricing as a way to encourage cost reduction. Other services exist to assist physicians and their patients, such as Accuro Healthcare Solutions
, with its CarePricer software. and Zepherella with its No-Surprise Healthcare Pricing. Consumer websites such as Wisconsin’s PricePoint have also emerged which provide benchmark prices for medical procedures and services, often on a narrow and geographically limited basis. A Denver-based company, Financial Healthcare Systems (FHS), has created a Web-based software program called ACE Logicus that allows providers to integrate data with insurance companies, thus presenting patients with real-time estimates of out-of-pocket liabilities prior to procedures. FHS’s software relies upon data from actual contracts between the insurance companies and providers.
For consumers seeking price information before treatment, the Healthcare Blue Book
offers a free website that allows users to search for fair prices on thousands of inpatient, outpatient, surgical, diagnostic, laboratory, cosmetic surgery and dentistry procedures and services. The company’s fair price is the cash price that should be paid for a service or product at the time of treatment. It is the payment amount that many providers accept from insurance companies as payment in full. The fair price is calculated from billing and medical payment data. This amount is typically lower than a provider’s “list price”. Specific prices are available by US zip codes.
This government mandated care places a cost burden on medical providers, as critically ill patients lacking financial resources must be treated. Medical providers compensate for this cost by passing costs on to other parts of the medical system, through increased prices for other patients and through collection of government subsidies.
was established in 1965 under President Lyndon Johnson as a form of medical insurance for the elderly (age 65 and above) and the disabled. Medicaid
was established at the same time to provide medical insurance primarily to children, pregnant women, and certain other medically needy groups.
Medicare and Medicaid are managed at the Federal level by the Centers for Medicare and Medicaid Services
(CMS). CMS sets fee schedules for medical services through Prospective Payment Systems (PPS) for inpatient care, outpatient care, and other services. As the largest single purchaser of medical services in the US, Medicare's fixed pricing schedules have a significant impact on the market. These prices are set based on CMS' analysis of labor and resource input costs for different medical services.
As part of Medicare's pricing system, relative value units
(RVUs) are assigned to every medical procedure. One RVU translates into a dollar value that varies by region and by year; in 2005 the base (not location adjusted) RVU equaled roughly $37.90. Major insurers use Medicare's RVU calculations when negotiating payment schedules with providers, and many insurers simply adopt Medicare's payment schedule.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, the health care market generally lacks transparent market-based pricing. Patients are typically not able to comparison shop for medical services based on price, as medical service providers do not typically disclose prices prior to service. Government mandated critical care and government insurance programs like Medicare also impact market pricing of US health care.
Price transparency issues
In a market with transparent pricing, the price of a particular service is openly advertised. For example, companies that provide automotive oil changes often advertise their prices, and consumers have access to these prices when choosing a service provider. In contrast, in the US medical industry, patients generally do not have access to pricing information until after medical services have been rendered. A study conducted by the California Healthcare FoundationCalifornia HealthCare Foundation
Based in Oakland, California, the California HealthCare Foundation is a philanthropy that works “as a catalyst to fulfill the promise of better health care for all Californians” by supporting “ideas and innovations that improve quality, increase efficiency, and lower the costs of care.”The...
found that only 25% of visitors asking for pricing information were able to obtain it in a single visit to a hospital.
Since the majority (85%) of Americans have health insurance, they do not directly pay for medical services. Insurance companies, as payors, negotiate health care pricing with providers on behalf of the insured. Hospitals, doctors, and other medical providers have traditionally disclosed their fee schedules only to insurance companies and other institutional payors, and not to individual patients. Uninsured individuals are expected to pay directly for services, but since they lack access to pricing information, price-based competition may be reduced. The introduction of high-deductible insurance has increased demand for pricing information among consumers.
Organizations such as the American Medical Association
American Medical Association
The American Medical Association , founded in 1847 and incorporated in 1897, is the largest association of medical doctors and medical students in the United States.-Scope and operations:...
(AMA) and AARP
AARP
AARP, formerly the American Association of Retired Persons, is the United States-based non-governmental organization and interest group, founded in 1958 by Ethel Percy Andrus, PhD, a retired educator from California, and based in Washington, D.C. According to its mission statement, it is "a...
support a "fair and accurate valuation for all physician services". The AMA sponsors the Specialty Society Relative Value Scale Update Committee
Specialty Society Relative Value Scale Update Committee
The Specialty Society Relative Value Scale Update Committee or Relative Value Update Committee, is a private group of 29 mostly specialist physicians who have made highly influential recommendations on how to value a physician's work when computing health care prices in the United States' public...
, a private group of physicians which largely determine how to value physician labor in Medicare prices. Among politicians, former House Speaker Newt Gingrich
Newt Gingrich
Newton Leroy "Newt" Gingrich is a U.S. Republican Party politician who served as the House Minority Whip from 1989 to 1995 and as the 58th Speaker of the U.S. House of Representatives from 1995 to 1999....
has called for transparency in the prices of medical devices, noting it is one of the few aspects or U.S. health care where consumers and federal health officials are "barred from comparing the quality, medical outcomes or price".
Recently, some insurance companies have announced their intention to begin disclosing provider pricing as a way to encourage cost reduction. Other services exist to assist physicians and their patients, such as Accuro Healthcare Solutions
Accuro Healthcare Solutions
Accuro Healthcare Solutions, Inc. is an American company that provides business intelligence and revenue management software to healthcare practices and systems. One of its major clients is Tenet Healthcare...
, with its CarePricer software. and Zepherella with its No-Surprise Healthcare Pricing. Consumer websites such as Wisconsin’s PricePoint have also emerged which provide benchmark prices for medical procedures and services, often on a narrow and geographically limited basis. A Denver-based company, Financial Healthcare Systems (FHS), has created a Web-based software program called ACE Logicus that allows providers to integrate data with insurance companies, thus presenting patients with real-time estimates of out-of-pocket liabilities prior to procedures. FHS’s software relies upon data from actual contracts between the insurance companies and providers.
For consumers seeking price information before treatment, the Healthcare Blue Book
Healthcare Blue Book
The Healthcare Blue Book, owned by privately held CareOperative LLC, provides free online tools designed to enable consumers to understand how much they should pay for healthcare services....
offers a free website that allows users to search for fair prices on thousands of inpatient, outpatient, surgical, diagnostic, laboratory, cosmetic surgery and dentistry procedures and services. The company’s fair price is the cash price that should be paid for a service or product at the time of treatment. It is the payment amount that many providers accept from insurance companies as payment in full. The fair price is calculated from billing and medical payment data. This amount is typically lower than a provider’s “list price”. Specific prices are available by US zip codes.
Government Mandated Critical Care
In the United States and most industrialized nations, emergency medical providers are required to treat any patient that has a life-threatening condition, irrespective of the patient's financial resources. In the US, the Emergency Medical Treatment and Labor Act (EMTALA) requires that hospitals treat all patients in need of emergency medical care without considering patients' ability to pay for service.This government mandated care places a cost burden on medical providers, as critically ill patients lacking financial resources must be treated. Medical providers compensate for this cost by passing costs on to other parts of the medical system, through increased prices for other patients and through collection of government subsidies.
Medicare and Medicaid
MedicareMedicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
was established in 1965 under President Lyndon Johnson as a form of medical insurance for the elderly (age 65 and above) and the disabled. Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...
was established at the same time to provide medical insurance primarily to children, pregnant women, and certain other medically needy groups.
Medicare and Medicaid are managed at the Federal level by the Centers for Medicare and Medicaid Services
Centers for Medicare and Medicaid Services
The Centers for Medicare & Medicaid Services , previously known as the Health Care Financing Administration , is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer...
(CMS). CMS sets fee schedules for medical services through Prospective Payment Systems (PPS) for inpatient care, outpatient care, and other services. As the largest single purchaser of medical services in the US, Medicare's fixed pricing schedules have a significant impact on the market. These prices are set based on CMS' analysis of labor and resource input costs for different medical services.
As part of Medicare's pricing system, relative value units
Relative Value Units
Relative value units are a measure of value used in the Medicare reimbursement formula for physician services. RVUs are a part of the resource-based relative value scale .-Background:...
(RVUs) are assigned to every medical procedure. One RVU translates into a dollar value that varies by region and by year; in 2005 the base (not location adjusted) RVU equaled roughly $37.90. Major insurers use Medicare's RVU calculations when negotiating payment schedules with providers, and many insurers simply adopt Medicare's payment schedule.
External links
- US Census Statistics on Uninsured
- Dept. of HHS Report on Govt. Payments for Indigent Care
- Centers for Medicare and Medicaid Services
- AMA Description of RBRVS
- Price Check: The Mystery of Hospital Pricing (California HealthCare Foundation study, December 2005)