Cost Disparities Spell Trouble for Healthcare Price Transparency

The national disparity between gross charges for hospital procedures is substantial, at an average of 297 percent difference between the lowest and highest gross charge for each individual procedure, which could create issues with healthcare price transparency, according to a recent Crowe report.

The report titled “Transparent Doesn’t Equal Rational: Problems with Transparency Order” from public accounting, consulting, and technology firm Crowe looked into the June 2019 executive order on healthcare price transparency which directed HHS to require hospitals and insurers to reveal their healthcare service prices.

Patients face serious challenges in shopping for the best and most affordable care, but the executive order intended to “fundamentally change the healthcare marketplace” by being more transparent with prices. Since the executive order, CMS has expanded its healthcare price transparency requirements by mandating hospitals to publish online payer-specific rates in addition to their chargemasters.

Hospital and payer advocates staunchly oppose the new requirement, with the American Hospital Association (AHA), Federation of American Hospitals (FAH), and other hospital stakeholders suing HHS over claims the requirement will harm competition.

However, the healthcare price transparency executive order could be facing another issue: cost disparities among hospitals.

Crowe had access to patient financial transactions in more than 1,200 hospitals nationwide. For this report, they looked into its national hospital database to gather price levels of 100 common outpatient procedures at more than $500 in gross charges. 

The data revealed a significant disparity not only among gross charges for each produced, but also allowable revenue. Crow reported that the national disparity in allowable revenue was 236 percent. 

However, the difference was more significant for certain common procedures. For example, the highest emergency room visit, which accounted for the top five percent of hospitals, had an average gross charge of $3,499, while the lowest average gross charge was $692, a 406 percent difference.

Cost disparities were also observable on a local basis, Crowe reported. 

The report also looked into a typical MRI procedure in an urban area with more than 2 million people. There was a 115 percent difference between the highest hospitals’ gross average charge and the lowest hospitals’ charge, at $4,548 and $2,115 respectively. Additionally, the highest hospitals allowable amount was $1,390 and the lowest was $615, a 126 percent difference. 

This meant that two patients could undergo the same MRI procedure in the same area and pay completely different prices, Crowe stressed.

In the near future, patients may be able to shop around for specific medical services based on a healthcare price transparency tool, per the executive order. But choosing a hospital based solely on price may not be the right choice, as there are many other deciding factors such as the brand value of the hospital, consumer ratings, quality of care, convenience and accessibility, customer experience, and urgency, Brian Sanderson, managing principal of healthcare services at Crowe, stated in a press release.

"Consumers want to understand the confusing disparity among prices for similar services," he said. "An increase in transparency will allow consumers to apply normative, rational purchasing criteria when making nonurgent choices on where to get care. Hospitals that can clearly state the total price to be paid for a procedure before those services are delivered – and then charge only that price once they are delivered – will give patients the basic tools they need to make well-informed decisions."

A major concern with the price transparency rule is that patients with insurance don’t end up paying the full amount that hospitals charge because insurance covers a portion of the cost. So, price transparency requirements as they stand now are unlikely to help patients get more value for their money, critics of the executive order argue.

Because patients covered by insurance rarely pay hospitals’ published list prices, list price data is usually irrelevant to patients, according to an article from The Commonwealth Fund. And patients themselves don’t purchase individual services from hospitals.

But healthcare price transparency tools can be effective by providing accurate and real-time estimates for healthcare services. In December 2019, a study done by researchers from Sutter Health and the Stanford Center for Biomedical Innovation found that a new health price transparency tool showed an 83.9 percent accuracy rate among patients.  

Out of 4,610 estimates from patients aged 18 years and older, less than ten percent of individuals voiced their concerns about the difference between the estimates from the tool and the actual billing statement. While 79.2 percent of participants found the tool easy to use, 87.2 percent would use it again, and 80 percent would recommend it to others. 

Furthermore, nearly two thirds of survey respondents noted the benefit of the estimator tool for fiscal planning.