J. Tod Fetherling

CEO / Data Geek

Healthcare pricing transparency: It's complicated.

If you want to buy a car, you just walk up to the car, and there's a sticker in the window showing you the options available and the total price. There is still some haggling to be done, but CarMax and Carvana are working to eliminate this part of the process.

Compare the car buying process with the search for pricing in the medical industry, and you'll see that the price of healthcare is hidden in a fog of complexity.

It's complicated.

Here's how it goes for the typical patient:

  1. You get sick.
  2. You go to the emergency room.
  3. You get admitted as an inpatient and treated.
  4. You get discharged.
  5. Weeks or months later, you receive a series of bills showing you owe a bunch of money.

As patients, we should have the right to know how much this procedure is going to cost me before we arrive.

One problem in healthcare is that we have an intermediary: the Insurance Company. It is not a transaction between the hospital and me. In healthcare, the provider charges an amount, and the insurance company negotiates to pay their share. Then you have your share to pay.

What many people don’t understand are all of the contractual adjustments which are negotiated by the Insurance Company and the Provider Organizations. That's because they're hidden from consumers. This benefits the insurance company, but not necessarily the patient who is taking on more risks and a greater share of the payment every day.

According to the Centers for Medicare & Medicaid Services (CMS), “National Health Expenditures grew 5.3% to $3.0 trillion in 2014, or $9,523 per person, and accounted for 17.5% of Gross Domestic Product (GDP).”

The consumer’s “Consumer out of pocket spending grew 1.3% to $329.8 billion in 2014, or 11 percent of total expenditures”. The report goes on to note “the largest shares of total health spending were sponsored by households (28 percent) and the federal government (28 percent). The private business share of health spending accounted for 20 percent of total health care spending, state and local governments accounted for 17 percent, and other private revenues accounted for 7 percent.”

With increasing demand on the consumer to pay more, we are likely to get more involved in pricing discussions with providers.

Today, many young technology companies are trying to bring price transparency to the health industry. There are applications like Healthcare Blue Book where the consumer can receive a fair price option. The industry is hampered by data delays (in our price example below, we had to cobble together 2014 and 2013 data to do the analysis). This makes the concept of real-time pricing nearly impossible.

The role of medical coding simplified.

Depending on your medical situation, the healthcare industry’s pricing begins with a diagnosis or procedure to be performed.

An example of a frequent diagnosis is knee pain. A common procedure in the US is a Total Knee Joint Replacement, which is largely a surgical episode. In the course of treatment, medications will also be used to treat swelling and rehabilitation, and physical therapy will follow the procedure.

There are multiple Diagnostic Related Groupings (DRGs) to describe joint replacement. The DRGs are determined by the combination of ICD10 CM and ICD10 PCS codes. For Knee Replacement, code 470 will is used. If a complication was is present, then a 469 would be used to describe the overall care episode for a hospitalization.

DRGs are important because the facility will charge the patient based on the DRG. The Insurance company has a set price that it will pay the hospital for treating a patient with the DRG in question. The DRG combines all services from the hospital into a payment that covers bed rate, surgery, radiology, rehabilitation, and physical therapy. The patient will receive a separate bill from the attending physician and the surgeon. All of this will ultimately determine the price of not living with knee pain.

Definition of diagnosis and procedure.

Medical Diagnosis is based on the International Classification of Diseases (Clinical Modification V10) managed by the World Health Organization. There are 91,737 diagnosis descriptions.

Medical Procedures are defined by Procedure Coding System (PCS). There are 72,822 medical procedures, which can be performed and coded.

Sample Price Table

Sources