The American Health Care Market Just Became Less Opaque

May 8th, 2013 | By | Category: Featured Articles, Lead Article, Medicine

How much a plate of spaghetti is going to cost you isn’t usually a mystery. Sure, the price can vary quite a bit–from a few cents if you’re making the plate yourself from groceries, to dozens of dollars at a fancy restaurant. You shouldn’t be too surprised by the bill at the end; the price is right there on the menu, or on the box–same for you as anyone else.

The American healthcare system remains remarkably opaque–particularly if you are among the uninsured. The cost of a hospitalization for a heart attack varies tremendously depending upon the hospital giving the treatment. And, unlike a restaurant, hospitals generally refuse to state the price up front.

To reduce healthcare costs, the plan for the past few decades has been to pass on costs to the consumer. The idea here is to use the market (in the Adam Smith sense of the word) to force down prices–expecting patients to find the most efficient, cheapest, hospital for a given problem. (Spoiler: It hasn’t worked.)

But, how can you decide which hospital is most efficient, if you have no idea what they’re charging? The net result is most Americans understand that getting sick–thanks to a lack of insurance, or tremendous copayments–is a good way to end up bankrupt, without any real sense of how to pick a more efficient provider.

Something exciting has happened this week, possibly changing this dynamic: The Center for Medicare Services, for the first time, has published the list prices charged by hospitals around the country (to Medicare) for the top one hundred reasons patients end up in the hospital.

Let’s look at what hospitals are charging, and receiving, in the Seattle area. In each of these charts, the blue bars is the bill charged to Medicare by the hospital, the red the payment the hospital actually received from Medicare as well as all copayments or deductibles paid by the patient. You’ll note, like almost all insurers in the US, Medicare pays a significant discount from the billed cost. A patient without insurance can expect the full, undiscounted rate.

First up, the charge for a pneumonia admission:

For a COPD (rotten lungs, usually after a lifetime of smoking) flare:

Coronary artery disease, requiring a stent (either a heart attack or a heart-attack-to-be):

The overbilling is (in part) a negotiation tactic between the hospitals and the insurers–a way of amplifying the percentage discount to a prospective insurer while maintaining revenues. The side effect is to leave the uninsured or underinsured as road-kill–charged two or three times the total bill payed from an insured person.

If nothing else, the Affordable Care Act (i.g. Obamacare) will make this better by shifting a majority of people from the uninsured into the insured group–paying the discounted rate, with insurance picking up most of the total tab.