Picking at the healthcare Gordian knot

It's no secret that there's a grotesque hierarchy in U.S. healthcare pricing. Medicaid pays the lowest prices, followed by Medicare, then by private insurers.. and then, at the bottom of the totem pole, by uninsured individuals, who, as Steven Brill documented in grotesque detail, may pay three or ten or fifteen times what Medicare pays for a given procedure.

This system is not only grossly unfair, it's the chief reason Americans pay more than twice the OECD average per capita for healthcare than people in other developed countries. Notwithstanding a wide variety of payment systems, countries with universal health insurance -- that is, every other wealthy country in the world -- almost universally empower government to impose uniform pricing. In Japan, for example, where most people get health insurance through private, nonprofit plans provided by their employers (generally with a 30% patient co-pay), the government publishes a uniform price schedule. T.R. Reid, in The Healing of America, describes it:

[the medical price schedule is] published in a thick book--about the size of the Tokyo telephone directory--that anybody can buy. This hefty volume, the Shinryo Tensu Hyakumihyo ("Quick Reference Guide to Medical Treatment Points"), sets forth exactly what a doctor, therapist or hospital will be paid for any treatment or medication. There are tens of thousands of different treatments in the book: "throat swab,", "application of plaster cast, ankle," "sutures, outer arm," "X-ray, simple, neck region, rear," etc., etc. For almost all of these, the price is extremely low...(p. 91).

Today, HHS Secretary Kathleen is taking a small step in this direction. HHS will publish a file that shows the 2011 list prices at all hospitals in the U.S. for the 100 most common inpatient treatment services -- set against the prices Medicare paid each hospital for those procedures.  That will highlight gross disparities and gross overcharging.  Steven Brill, who takes credit for help spurring this move with his massive recent documentation of healthcare pricing grotesqueries, maps out how the current opaque and fragmented payment system costs us all, insured or not:

Here’s why it matters so much. Suppose you have a knee replaced at Hospital X. Aetna’s discount there might mean it pays $11,000, while United Healthcare’s discount might mean it pays $22,000. Or the prices could be reversed. No patient has any way of knowing. But if you’re on the hook for 20% co-insurance for each policy, then you’ll pay $2,200 with an Aetna policy or $4,400 with a United policy. It looks like you have the same insurance — a 20% co-pay — but you don’t. Similarly, the same insurer might have dramatically different discounts for hospitals that are both listed in the insurance company’s network, meaning you’ll think your coverage should be the same. Suppose, for example, the knee surgery at Hospital X is $11,000 for an Aetna patient, but at Hospital Y it’s $22,000 for an Aetna patient.

The bills on the inflated end of this spectrum (and the whole spectrum is inflated) cost us on three fronts. Millions of individuals co-pay at inflated prices -- increasing numbers of us, as employers move toward "consumer-driven" health plans while too rarely providing information enabling plan members to make informed choices. Employers also take the hit -- and their rising healthcare costs crimp wages.  Those rising costs in turn increase federal tax expenditures, thanks to the employer healthcare tax deduction (the average covered employee's healthcare benefit costs the Treasury about $5k).

Brill suggests next steps which, while sensible given the system we have, highlight what an absurd Gordian knot we're struggling to pick at:

So, what should Sebelius and her team do next?

The feds need to publish chargemaster and Medicare pricing for the most frequent outpatient procedures and diagnostic tests at clinics — two huge profit venues in the medical world. This will be harder — the government doesn’t collect that data as comprehensively — but those outpatient centers and clinics provide a huge portion of American medical care.

But an even bigger step in transparency would be collecting data that Medicare doesn’t have: exactly what insurance companies pay to the various hospitals, testing clinics and other providers for various treatments and services. After all, as the hospitals themselves concede in downplaying their chargemasters, these insurance prices are the ones that affect most patients. But it’s also where there is close to zero transparency [snip]...

Perhaps states could use the money Sebelius is offering for those new pricing centers [an $87 million grant for “health-care-data-pricing centers"] to collect this data from insurance companies, which are regulated by the states. Insurers and hospitals would vehemently resist, claiming the deals they negotiate are proprietary trade secrets. (They also fear they’ll be embarrassed by all the disparities that show them negotiating bad deals compared with their competitors.)

Failing that, there is another solution: these state pricing centers could gather the information from patients who volunteer, in exchange for a promise that their names won’t be used, to submit their Explanations of Benefits. After all, a hospital or insurance company can’t claim a patient can be prohibited from talking about or making public his or her own bill.

The state pricing centers could then do what CMS just did with hospital billings to Medicare: average all the results for what each insurance company pays to each hospital or clinic for various services. That’s the next frontier in billing transparency.

Thousands of insurers negotiating individual price deals with thousands of providers; 50 states regulating those insurers...from a slight historical distance, our current healthcare system will look as absurd as Ancien Regime tax collection or Dickensian workhouses.  And yet, the ACA and HHS are picking at dozens of threads in that Gordian knot. Evidence is beginning to suggest that these efforts are having some inhibiting effects on the healthcare gravy train. Perhaps Atul Gawande's vision of a thousand healthcare reform seeds yielding a few giant sequoias of savings will come to pass.