This article appears in the March 2014 issue of HealthLeaders magazine.
Many hospital and health system CEOs are embracing the triple aim of improving the patient experience, improving the health of populations, and reducing the per capita cost of healthcare, an objective popularized by the Institute for Health Improvement.
Of the three legs of that stool, the one on reducing cost is problematic because one person's (or organization's) cost is another's profit. A major obstacle in reducing the cost of care lurks in price opacity for healthcare services, and some say that rapid consolidation in the industry is not only not helping reduce the cost of care, it's actually doing the opposite.
The reasons for such a lack of transparency are inherent in a payment system that is unlike other industries, which generally have just two parties—a buyer and seller—involved in any transaction. In healthcare, a third party is almost always involved, and despite attempts by the government to make transparent the prices it pays for a variety of healthcare services and products, commercial payers and their partners are still very reluctant to reveal what they pay organizations for their services. In fact, such disclosures are contractually prohibited in most cases—not that most hospitals and health systems have historically minded.
But with pressure for transparency mounting and with higher variance in reimbursements, some hospital executives (mainly those who think they would do well in a price and quality comparison with their competitors) are pushing for greater transparency. Many of these are organizations that have historically been squeezed by commercial plans for reimbursement concessions because they lack market leverage. Their leaders feel that if prices become more transparent, they would compare favorably in a cost contest with their bigger and more market-dominant peers. But are they on a quixotic quest?
Getting at the true cost of healthcare and rooting out the waste that resides there is critical to changing healthcare's unsustainable cost trajectory. What hospitals pay—and charge—for medical devices is part of this calculus as well, and those contracts have similar prohibitions on hospital disclosure. One of the chief reasons for the secrecy is that it offers a competitive advantage for insurers and device makers to obscure what they pay or charge any healthcare provider because profit and loss of both the healthcare organization and, of course, the payer, can be affected by negotiations when contracts are up.