Why Is Healthcare Price Transparency So Hard?

Philip Betbeze, March 14, 2014

Few are making much progress, but a small number of hospital and health system leaders are doing their best to change price opacity.

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.

Jane Keller
Jane Keller

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?

The paradox

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.

Related: 5 Obstacles to Hospital Price Transparency

If a hospital knows what another one is getting, the hospital can leverage that information when its negotiations come due. Many organizations have a general idea of how well they do on commercial reimbursement related to their peers, and the ones that are doing much better than their competitors—for whatever reason—would seem less willing to share that information even if they could.

But small organizations often say that their size, not their cost profile, is what prevents them from getting their due in negotiations with commercial insurers—despite their lower costs and, in some cases, higher quality. Through transparency of prices, they could better make that case.

One who resents this paradox is Steven Sonenreich, president and CEO of Mount Sinai Medical Center in Miami Beach, Fla., and not just because his revenues and margin are at stake through reimbursement that he says is on the low side versus his competitors because of their greater market power. He's also concerned in his role as a large employer in a state where large employers, who can sometimes serve as a lid on premium increases, are scarce.

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.


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