One of the more recent requirements of the Affordable Care Act (ACA) is the release of charge data from Centers for Medicare and Medicaid Services (CMS). This data differs by organization. Each sets its own “charges,” which are used to bill CMS. There is much gamesmanship that goes into setting charges and very little is related to the actual cost of supplies and services. During each negotiation with an insurance company, a provider organization will often increase charges prior to negotiations in order to claim that costs have increased. Hence, reimbursement should increase. This kind of gamesmanship is part of what drives up the cost of health care, but that is not the main point, or benefit, of releasing the charge data.

Benefits of Pricing Data Transparency

The benefits of releasing provider charge data are multiple and include at least the following:

• Increased awareness of pricing for consumers
• Enables consumers to compare and ‘shop’ for care based on charge data
• Forces a provider response to charge data in some way that is compelling to consumers
• May help decrease charges if the higher charges can’t be justified through value and outcomes

Awareness

One of the main benefits is having a much better understanding of the cost of healthcare. This kind of transparency will likely cause healthcare providers to tell us how the charges do not reflect costs. In my review of comments made by Marianne Udow-Phillips quoted in an AnnArbor.Com article, ”U-M Health System has some of the highest charges in the state, but patients rarely face them,” I must disagree with her statements about charges not mattering. Udow-Phillips states, “if you have health insurance, you’re not going to face charges or even the total payment.”  This is an unfortunate response if this is reflective at all of what healthcare leaders believe is happening, which highlights the disconnect that the pricing transparency initiative will help to correct.

Most People Expeirenced Provider Charges in 2012

Most people DO feel these charges in one way or another – including those with insurance. Charges matter for anyone that has to satisfy a deductible as part of their health care insurance. Increasingly, health insurance plans include a deductible as part of the plan, and those deductibles are increasing. Plans with deductibles bill patients for charges. When a patient has incurred enough charges to exceed their deductible, their insurance coverage kicks in for that year.

The average deductible in the private insurance market in 2011 was $3,962, according to a recent Commonwealth Fund report, “State Trends in Premiums and Deductibles,2003–2011: Eroding Protection and Rising Costs Underscore Need for Action.” In the same report, it is noted that deductible rates are increasing quickly, more than 20-percent from 2010 to 2011 in 12 states. We may have to wait a bit for 2012 data, but it is anticipated that deductibles will continue to increase across the board. Deductibles increased over 100-percent in all scenarios from 2003 to 2011. The scenarios were based on the size of employers and their health plan deductibles for single-person and family plans. Small firms had the highest increases, with an average deductible in 2011 of $3,324. This is important since small employers, firms with less than 50 employees make up the majority of employers in the U.S.

Another group that has to pay provider charges is the underinsured and uninsured. In 2012, nearly half of U.S. adults were either uninsured or underinsured at some point during the year or 84,000,000 adults, according to “Insuring the Future: Current Trends in Health Coverage and the Effects of Implementing the Affordable Care Act,” a Commonwealth Fund report released in April 2013. In addition to those that are uninsured or underinsured, another 13,500,000 adults had high deductible health plans (HDHPs), according to an America’s Health Insurance Plans (AHIP) insurance census report using released in May 2012.

The total population that experiences hospital charges at some point comprises almost 51-percent of adults, or almost 100,000,000 adults - and growing.

Comparing Prices

Consumers, which increasingly are patients themselves, will be able to compare provider charges across provider organizations. The charge database allows for direct-to-consumer marketing in that those with lower prices may be able to gain more market share, to the extent that consumers can choose where they seek care, based on what they can afford – at least until they exceed their deductible. In the case of UMHS referenced earlier, they charge 51-percent more than the next highest priced provider for ventilator-assisted care for 96 hours in the state. While ventilator-assisted care will exceed almost everyone’s deductible, the higher charges are likely to be a trend across other services that may be in the deductible-sensitive range. Providers may want to consider new pricing strategies for services that are in the $6,000 or less range – below most deductibles.

Provider Response

Providers that are at the relatively higher end of charges will have to explain why. The explanation will increasingly need to be done in a manner that is clear and obvious to the average person, who will increasingly be the consumer.  I expect that many providers will be compelled to suggest that they are taking care of more complicated, sicker patients, which may be true for academic medical centers like UMHS. Academic medicine has not done a great job expressing the value of the academic mission. It is one of the biggest opportunities that academic centers have in the next few years.

Frances Collins, Director of the National Institute of Health, went to great lengths to estimate the value of federally funded research in terms of its economic contribution and other measures. The NIH now tracks its impact across several different categories: Our Health, Our Economy, Our Communities and Our Knowledge.

Similarly, successful providers will make a compelling case for their charges based on value. The academics that do the best job of this will have a competitive advantage – not only among their peers, but also in their local and regional markets. This is an important piece of the puzzle to put in place, especially for academic providers that have relatively higher charges, which we can expect will be increasingly scrutinized by the increasing number of consumers subject to these charges.

Decreasing Costs

Personally, I think the impact of releasing charge data to the public will ignite a demand for value – from the patients footing the bill in addition to the traditional sources (employers, payors). This is a critical data component that will help patients and families make better decisions. As ACA is implemented, people will increasingly be placed in the role of consumer. Their options will include private insurance through their employer, through a health exchange, or foregoing coverage for a known cost to them personally. All of these ‘markets’ will make provider charges meaningful for the consumer. Prices ultimately will need to decrease to be more in line with a value equation that makes sense to the average consumer.

Let’s hope the response from most organizations moves in a direction that both decreases costs AND provides a very clear outcomes-based value proposition.