Think Tank

Should Hospital Charges Be More Transparent?

Consumers are getting new tools for comparison shopping in some areas of health care, but not all.

Part of the Affordable Care Act calls for side-by-side comparisons of health insurance policies. New features on allow consumers to compare insurance costs, services and other policy details online.

Several websites offer information, grading and comparisons of physicians.

Consumers have online tools to compare hospital quality, patient satisfaction and safety, but not to compare hospital prices.

The cost of a hospital stay for privately insured patients in California has risen by an average of 8.5% a year over the past five years, according to state records. The cost of outpatient visits has gone up by 9.6% a year.

Nationally, over the past decade, hospital prices have risen by an average of 4.9% a year for individuals with private insurance, according to data from the federal Bureau of Labor Statistics.

A couple of recent efforts to increase pricing transparency in California hospitals have been thwarted.

Some hospital charges for specific services must be revealed under state law, but the law does not require hospitals to divulge negotiated prices, which can be substantially different than reported prices. A bill, AB 2389 by Assembly member Ted Gaines (R-Roseville), to ban hospitals from including “gag clauses” in their contracts that forbid insurers from revealing differences in costs and quality among hospitals in their network passed both houses but was sent to the Assembly’s inactive file on the last day of the session, effectively shelving the issue.

For four years, two large, influential purchasers of health care — CalPERS and the Pacific Business Group on Health — have waged a campaign to get California hospitals to participate in the creation of a statewide data system to compare both hospital quality and prices. California hospitals argued that public airing of prices would be anticompetitive.

The CalPERS/PBGH effort appears to have stalled.

We asked stakeholders: Where should California go from here? Should California hospital financial information be more transparent? If so, how should data be collected and displayed?

We got responses from:

Data Should Be Made Public by Public Agency

Health consumers have little information about the cost and quality of their care. Health Access strongly supports better tools for comparison of health care cost and quality — and that includes tools that compare hospital cost, price and quality.

In health care, price and quality are not necessarily positively correlated: sometimes high-priced care does not result in good outcomes for patients. Hospitals that extract higher prices may have worse outcomes in terms of hospital-acquired infections, avoidable readmissions and adverse events.

While no consumer should be expected to comparison shop on an ambulance gurney, there are times when consumers would appreciate tools that compare hospital prices and quality. Consumers, even those who are insured, face higher and higher cost sharing in the form of deductibles, copayments and coinsurance: they should know they are getting value for their dollar. More importantly, large purchasers of coverage — employers, union trusts and others — have the bargaining clout and analytical sophistication to review this data on behalf of consumers, as part of their negotiations with insurers and providers.

Doctors, hospitals and other providers have resisted public information on quality and prices. Health Access, joined by other consumer groups and purchasers from both employer and labor organizations, spent several years pushing for better data on cost and quality, including AB 2967 by Assembly member Sally Lieber in 2008 — only to see the measure stymied by opposition from health care providers.

Lots of other industries make prices public: grocery stores list prices on every product for sale, so do retailers. Computers, tires, hotels, airfare, the list goes on and on. Yet in health care, somehow it is “anti-competitive” to post prices. Is this because doctors and hospitals intend to engage in what is politely called “price signaling”? Is it because they fear that public disclosure will drive down prices?

Some projects and proposals rely on insurers to post cost and quality information. While that may be a step forward, our strong preference is that price and quality information be made public by a public agency or at least independent institutions, like the respected Consumers Union, the not-for-profit publisher of Consumer Reports.

We also support large health coverage purchasers having this information in order to do more cost-effective negotiating and purchasing. We want doctors and hospitals to focus on providing good care at a reasonable price — and that such information can be an important tool for self-improvement, a means to pay attention to both cost and quality, not just the price they can extract from the insurer.

Hospital Cost Data Essential for Purchasers, Consumers

With the passage of health care reform, we now have a roadmap to expand coverage. But the challenging tasks of real health care reform — improving quality and reducing costs — remain to be accomplished. To realize these goals, consumers and purchasers need data about the quality and cost of plans, providers and hospitals so they can comparison shop and structure their benefits accordingly.

Hospital costs continue to rise, while quality continues to vary. The cost of a hospital stay for privately insured patients in California has risen by an average of 8.5% a year over the past five years, according to state records. Further, there is no guarantee that a high-cost hospital offers higher quality.

To date, a few brave purchasers, including CalPERS, have successfully used hospital price data to reduce their health coverage costs. By removing some of the most expensive hospitals from its networks, CalPERS was able to reduce premiums.

For the past four years, CalPERS and the Pacific Business Group on Health have worked to secure cost data, calling on California hospitals to participate in a statewide data system. The process has been slow; many hospital systems have resisted participating. Others have charged that revealing prices could encourage some hospitals to actually raise their prices to meet those of competitors.

Despite these challenges, it is essential that we continue these efforts. PBGH is redoubling its efforts to get purchasers to collect and use hospital price data. Under our Right Price Hospital Care Initiative, we plan to work in select regions to help a specific group of employers create “tiered networks” of hospitals, based on value. These tiers would encourage consumers to seek their care at those hospitals that offer quality services at the best prices. Tiers would be created based on hospital cost and quality data, including data gathered by the California Hospital Assessment and Reporting Task Force.

We are also working with private health plans to make pricing transparent to their members. Insured individuals are increasingly finding that they have to bear a greater share of the cost of their health care. In this context, they need to know what it will cost them to receive care at the various hospitals that are available to them. Employers owe it to their employees to give them real choices and ensure that they have the information they need.

Value of Hospital Care Hard To Assess, Compare

California’s community hospitals believe that patients deserve meaningful information about the value of their hospital care. Patients deserve to have accurate and reliable information about both the cost and quality of hospital care in order for them to make informed decisions. A key requirement, however, is that the information be based on a valid and transparent methodology that includes both cost and quality data and is supported by all stakeholders.

Unfortunately, many of the “transparency” efforts to date have been so inadequate that, at best, they provide irrelevant information, and at worst, are designed to simply enable health plans to obtain an unfair business advantage.

The value of hospital care is difficult to assess. Hospital care is comprised of a set of complex services and products that are uniquely configured for each patient and do not lend themselves to simplistic analysis. Hospital prices vary based on a patient’s needs and the services they utilize. Prices also vary hospital by hospital based on the intensity of services offered to the community. A hospital that operates a trauma center or burn unit is inherently going to have a higher cost structure than a hospital that does not offer this vital life-saving care.

To date, many transparency efforts by health plans and purchasers have utilized secret methodologies designed to support their suspect conclusions. These methodologies have not been scientifically and independently validated, nor have hospitals been given an opportunity to review the data and correct any errors. Patients and hospitals should not be placed in the position of having to blindly trust a possibly biased entity that its “black box” conclusions are accurate — otherwise the opportunity for mischief would be great.

A significant problem with current transparency efforts is that little attention is paid to the complexity or quality of hospital care. Simplistic categories hurriedly posted to a website often do not compare like procedures between hospitals and do not account for the severity and complexity in treating patients. Data must be normalized to provide for “apples to apples” comparisons that also include quality outcomes. It would do great harm to misrepresent that a hospital is “high cost” simply because that hospital treats the sickest and neediest patients.

Previous legislative attempts to mandate transparency have failed, in part, because the health plan industry could not agree on how to address many of these issues. There are differing viewpoints on allowing a transparent methodology, risk adjustment, data validation, establishing an error correction process and how to disclose proprietary information.

Comparing the cost and quality of hospital information is an exceedingly complex task if it is to be done credibly. We must do this right.