Twelve years after the beginning of a process referred to as “healthcare reform,” few patients today feel empowered to shop for their own healthcare as if they were purchasing any other service. While the Affordable Care Act has increased healthcare access for many, almost no one would describe today’s healthcare as “affordable.”
While our nation waits to see what changes a new occupant in the White House may bring to the healthcare scene, most Americans would agree that now is always the right time for us to begin looking out for ourselves. In my internet travels, I may just have discovered a new website that seeks to provide patients with the clarity and education that they need to protect themselves from some of the more abusive elements of our Society. Are you tired of healthcare costs making you sick? Then study the information below…
-The Sick Economist
A Glimpse into the World of Healthcare Pricing
On a cold day in October, my daughter woke up with a 102 degree fever. Worried that she might have the flu, I rushed her to the urgent care clinic. Thankfully, she didn’t have the flu. I thought the visit might be at most $100 or $200 dollars out-of-pocket, but with my high deductible health plan it turned out to be $1,200. The flu test alone was $800. If I had gone to a drugstore, it would have only cost $60. But the real kicker is that in comparison to what Medicare patients pay – $16 – for a flu test, the only prices related to costs in the system, I paid 50x’s more. And this is not uncommon, consumers lose $108 billion dollars in savings every year because of high hospital markups. Why? It’s due to the pervasive lack of transparency in healthcare, the inability to compare price between providers, and the fact that patients pay vastly different amounts for the same service.
My background is as a health technology data scientist and my mission is to help every consumer pay the Medicare reimbursement rate or as close to the Medicare reimbursement rate as possible. I built Clinic Price Check and the auxiliary suite of tools (financial assistance, cash-pay, emergency pricing, hospital quality) to help consumers find the lowest costs for health services. I rely on data from the recent Centers for Medicare and Medicaid Services (CMS) transparency price changes to help consumer’s find affordable health providers.
To understand what’s happening with healthcare pricing, we need to understand how it works. Healthcare providers have ‘sticker prices’ for each itemized health service offered by the provider on an internal Chargemaster or pricing list. This is similar to the ‘sticker prices’ on cars at dealerships. Usually, no one pays the sticker price for a health service and often there are large markups baked-in. The sticker prices are completely unrelated to the cost of providing the service and are intentionally very high to allow for greater leverage in negotiations with insurers. The lowest hospital mark-ups are in Maryland where the state government sets hospital prices and caps hospital spending. The highest markups are in the most populous states such as California, New York, Florida and Texas.
Different payor groups can pay vastly different amounts. A payor could be an insurance company, a governmental agency, yourself, or some combination of these groups. In economics, this wide disparity between what different organizations pay is called facto price discrimination (or “cost-shifting” in the healthcare academic literature).
When hospital costs are highly marked-up similar to car buying, the question is not what is the price for the service, but how good of a discount can you get?
Generally, insurer and hospital negotiations start at a discount of about 30% off these Chargemaster prices. This is rarely a good discount, especially in more populous states where Chargemaster prices are often 3-10 times the rate at which Medicare reimburses providers for this same service. In California, the average markup is about 4.5 times the Medicare reimbursement rate.
If you want to get a sense of a good discount rate at a health provider, compare your insurer discount to your health provider’s amounts generally billed (AGB). The AGB is the average reimbursement rate for all services from all payers, including large government payors. For instance, suppose a hospital’s AGB is 47% (a 53% discount on average to all payers), the cash discount (or self-pay when you opt-out of insurance) is 60% and your insurer negotiated discount is 30%. This would mean that the cash discount is greater than what the average payor would get (but still could be higher than the Medicare reimbursement rate) and your insurer negotiated discount is higher than the AGB, meaning other payors are paying substantially less.
Cash-pay rates at hospitals vary widely. About 10-20% of U.S. hospital’s offer excellent cash-pay rates close to, if not equivalent to the Medicare rate. Check out cash-pay discounts near you here. Coastal states and large cities are more likely to have hospitals that offer cash-pay rates at or near the Medicare Reimbursement rates. States like New Jersey and Illinois also cap uninsured patient costs to 1.15-1.35 times the Medicare Reimbursement rate up to 500% and 600% of the Federal Poverty Line respectively.
Hospitals also offer financial assistance, which is generally the best discount. The income cutoff for financial assistance for many hospitals is at 400% of the Federal Poverty Line, which is $105,000 for a family of four. Many financial assistance policies also cover the insured. About 35% of hospital financial assistance policies have no asset requirement, meaning that they will only look at your income when making this determination. Financial assistance is capped for all providers at the AGB, meaning if you qualify for financial assistance, you’ll never pay more than the AGB and often you’ll pay substantially less. Check out financial assistance income qualification near you here.
To recap, when comparing health providers, it’s good to have one baseline in mind, the Medicare reimbursement rate for the service. Essentially, how close you are to the Medicare reimbursement rate, determines how good a deal you got. Medicare reimbursement rates can be found on Clinic Price Check and they can also be found on the CMS website here.
We’re about to get even more transparent hospital pricing. As of January 1st, 2021, the latest price transparency rule requires provider’s make public the insurers negotiate prices for their top 300 ‘shoppable’ services. A core problem will be compliance with this new rule as many providers may just choose to pay the minimal fine and not post prices. We will launch a new web and mobile tool which will allow you to compare your insurer negotiated discount with cash-pay discount and Medicare rate discount at all health providers who comply with this new transparency mandate.