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June 7th, 2012
Categories: Health News

Case Study Shows Huge Price Variance on Medical Procedure

Huge variances in hospital charges for the same procedures is a shocking problem in the US Healthcare Industry. US Healthcare law prohibits tax-exempt hospitals from charging uninsured patients more than the rates paid by health insurance companies.  However, there are still price differences are by type of facility, type of payer, geographical location, and general discretion of the billing coder.  Researchers report that about two thirds of price disparities are due to patient level and hospital factors, leaving one-third unaccounted for.

Well insured patients are protected from charges, while underinsured patients get bills that take advantage of their ignorance of what the charges mean and what is acceptable for the service they received.  Cost shifting is another factor that occurs in the price differences for the same services, as well as the practice of defensive medicine. Take a look at the infographic below illustrating this case study of price variance.

According to a Thomson Reuters white paper on Price Transparency, hospitals typically charge their maximum price for cash-paying customers and small insurance companies, while they charge their minimum for large insurers and the government.  An MRI at one hospital can range from $905 to $1,106, while the cost at another hospital owned by the same affiliation in the same state  can be $1,509 to $1,710. The service location can also affect the price of medical services drastically. Services rendered in hospitals are typically far more costly than services at a physician's office, ambulatory care facility or urgent care center.

Thomson Reuters - Feb 2012 White Paper

How Price Transparency can Help

Price Transparency is the availability to consumers of precise total costs for specific services provided by healthcare service providers.  Understanding the price variation and factoring this into a consumer's decision making process of where to go for services is important.  A consumer in a high-deductible plan who hasn't met their deductible needs to know where they can save money by going to a provider who offers the service they need, at or below median price.  Consumer's are not able to make that decision on how to spend their healthcare dollars without price transparency.  Several states are working on setting legislation to require reporting of hospital charges and reimbursement rates.  Currently, 34 states do require this reporting.  Price Transparency will also reveal evidence to back up studies that show there is no correlation between the price paid to providers and the quality of service. Its hard to believe that the "you get what you pay for" mindset does not apply in healthcare.  Consumer Cost Sharing will also become an increased interest since consumers are responsible for a greater share of their healthcare costs.

Thomson Reuters suggests these best practices to ensure healthcare information is as useful as possible to the patient and will trigger the long-term lowering of healthcare costs:

  1. Drive demand for involvement - Consumers need strong economic incentives to select affordable care options.
  2. Provide information on price and quality variation by provider - Consumer trust is low, so providing balanced information to make decisions is key.
  3. Calculate out-of-pocket costs and show how benefits apply - Consumers care about their out-of-pocket costs but are often confused about  what their benefits cover.
  4. Show total costs and components - Total costs associated with a particular service or treatment, and how they vary based on where a provider practices, need to be clearly illustrated.
  5. Highlight ways to save money - The pros and cons of various care settings, treatments and provider choices are the factors consumers need to understand how they impact costs.
  6. Educate by providing deep, embedded health content to raise consumer awareness - Consumers armed with the right information, demand high-quality services from their providers, choose treatment options wisely, and become active participants in their own healthcare.
  7. Engage consumers to help them manage conditions - Patients need to be aware of care guidelines for any chronic disease or condition and what may happen if they do not follow the appropriate guidelines.
  8. Promote - To get savings from price transparency, awareness needs to be raised  about the value of using the tools available.

Price Transparency will encourage more informed, financially intelligent healthcare decisions, and has the potential to save $36 billion dollars from annual healthcare expenditures.  PayerFusion's Cost Plus Methodology provides true cost containment for payers by basing our medical claims pricing on the actual cost of appropriate care, not a percentage reduction off of an inflated retail price. We compare the government reported price for services, by type of facility, facility location, size of facility and by actual share of unfunded or underfunded care that requires them to cost shift. By leveraging real cost and quality data in combination with our own unique algorithm, we achieve superior claims pricing for our clients while fairly reimbursing providers for services rendered.

To learn more about how PayerFusion is contributing to reducing healthcare expenditures through our cost containment services, please read our services.  For the complete White Paper by Thomson Reuters on Price Transparency and to download the pdf, click here.


Price Variance Case Study Infographic

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