Bill on Pricing Transparency Moves to Senate Health Committee

The California Senate Health Committee this week will peer into the murky waters of health care pricing.

The committee is scheduled to review a bill by Sen. Ellen Corbett (D-San Leandro), who wants to prohibit nondisclosure clauses in health care contracts that prevent pricing arrangements from being made public. These “gag” clauses play a significant part in the transparency of health care pricing, according to Corbett, who introduced SB 1300 in February.

“A recent Harris Poll found that consumers can guess the price of a new Honda Accord within $300,” Corbett argues in a fact sheet for her bill. “But when asked to estimate the cost of a four-day hospital stay, they were off by $8,100, proving consumers do not have the tools to be savvy shoppers when it comes to their health care services. A consumer does not buy a car without comparing not only cost, but quality and reputation of the company and the car.”

It’s not just individual consumers who can’t figure out how much health care costs. Employers and employer groups that buy the coverage also have a hard time.

“Cost and quality information should be fully disclosed to purchasers of health care,” said Tom Moore Jr., senior policy and program consultant at the California Health Care Coalition.

“We see no purpose for secrecy that prevents consumers from making a basic analysis. In order for purchasers to make decisions in the marketplace, we must be able to get accurate cost information. Without that, we’re simply shoveling money at the industry,” Moore said.

The California Health Care Coalition is a two-year-old organization representing three million Californians through 42 private and public sector employers, unions and trust funds.

Gag clauses are fairly common in health care contracts, according to industry sources, but pricing data is often obtainable by using standardized or anonymous reporting techniques that allow prices to be divulged but not associated with a particular provider.

“You need to be able to measure using real numbers,” said Peter Lee, director of national health policy for Pacific Business Group on Health, which represents some of California’s largest purchasers of health care. “From a consumer perspective, to achieve better quality and higher value care, you have to have good measurement tools, and that means real numbers.

“You don’t necessarily have to share those numbers with the public,” Lee said, “but you have to have them to make an informed decision. To prohibit the pooling of data is bad policy and doesn’t help cost containment or quality assurance.”

Lee, former CEO at PBGH, helped put together many of the organization’s respected cost analysis studies for large clients, including CalPERS.

Despite efforts for true transparency, hospitals and health care systems manage to keep some proprietary and competitive data from going public.

“Throughout the industry, health plans and providers have jointly negotiated clauses in their contracts that allow them to keep secrets about their pricing and their quality of care,” Moore said. ” That’s been going on for a while with medical groups and health plans and hospitals.”

The issue came to a head in 2006 when CalPERS, Pacific Business Group on Health and others were thwarted in efforts to compile a cost analysis of hospitals in California. Sutter Health, which operates 26 hospitals in Northern California, had reportedly included a clause in contracts with health plans forbidding the release of pricing information without Sutter’s approval.

“What Sutter did was go beyond that to say that the information couldn’t even be used in standardized ways,” Moore said. “Sutter set out to exercise a complete shutdown of information.”

Confidentiality as Standard Practice

Sutter defends the use of confidentiality clauses.

“It has been industry standard for years for health plan contracts to include confidentiality provisions, which restrict both parties from disclosing to third parties confidential information such as patient specific information, rates and other information considered to be ‘competitively sensitive,'” said Bill Gleeson, vice president of communications for Sutter Health.

“We honor these contractual restrictions. Contractual confidentiality provisions are a standard practice not just in health care but in most industries and business relationships,” Gleeson said.

Gleeson said confidentiality provisions “are actually procompetitive. In fact, the FTC has told states that forcing companies to disclose this type of information hampers the competitive process,” Gleeson said.

Gleeson said Sutter offers much information for public consumption.

“I believe it’s important to note that the Sutter Health network is committed to being a transparent health care organization and that commitment is demonstrated by the online publication of our clinical quality metrics, our annual audited financial statements and IRS documents,” Gleeson said.

“We’ve been posting these materials on our own Web site for years, and we were among the first providers in California to commit to posting our patient satisfaction and quality results in state-sponsored sites,” Gleeson added.

For and Against

So far, lining up in favor of SB 1300 is Health Access, a consumer advocacy group.

Leading the opposition is the California Hospital Association.

“Like pretty much everybody in health care, we’re opposed to this bill,” said Dietmar Grellmann, senior vice president of CHA.

“We support the concept of transparency,” Grellmann said. “As an association we’re working toward making pricing and the whole process easier to use and easier to understand. The problem is, when you have bills like this promoted under the guise of transparency, they can actually hurt consumers in the end.”

“This kind of legislation would destroy competition,” Grellmann said. “Putting contracts out there for everybody to see will ultimately be bad for consumers.”

CHA officials expect other statewide groups to formally oppose the bill.

Corbett, a staunch defender of consumer rights, explains the reasoning behind SB 1300:

“The health care ‘system’ is a disconnected collection of large and small medical businesses, health care professionals, treatment centers, clinics, hospitals and the various levels of health care providers,” Corbett’s fact sheet reads.

“Though health care is regulated in all these areas by the different departments of state and national governments, consumers do not have the tools themselves to make informed decisions based on cost and quality of care. In fact, not only do patients not know the cost of medical services they receive, providers often make price and quality information almost impossible to attain.”

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