“I Felt Like A Hostage”: Towards A Solution for Medical Price Transparency

I recently wrote an article critical of a business groups’ approach to improving transparency of prices for medical and hospital procedures. However, we do have a serious problem when it comes to figuring out how much we owe for treatment.

Magnifier over FiguresIn Saturday’s New York Times, the estimable Elisabeth Rosenthal has another excellent report (gated, for subscribers only) about a failure in American health care: Even insured patients cannot get prices from their healthcare providers.

Rosenthal writes about a woman who went to a dermatologist’s office, where a physician’s assistant cautioned her that a white spot might be cancerous. A biopsy confirmed it. Rosenthal then unfolds a “daylong medical odyssey several weeks later, through different private offices on the manicured campus at the Baptist Health Medical Center that involved a dermatologist, an anesthesiologist and an ophthalmologist who practices plastic surgery. It generated bills of more than $25,000.”

The patient’s share was $4,590, which she whittled down to $3,000 after much effort. A highly educated patient, at no point was she told how much her bills would be, nor given an adequate response to her requests for simpler and less expensive treatment. “I felt like a hostage”, she laments.

The system is so screwed up, most patients don’t bother asking. According to a recent report published by the Altarum Institute, less than one third of patients asked about the price of a treatment before receiving it, and few believe that they can “shop around” different providers.

Many solutions to this problem have been tried, but none have worked. I recently wrote about Rosenthal’s previous report of sky-high hospital prices in San Francisco, noting that California has required hospitals to publish their charges on a state government website for years. Other states have similar laws.

Some believe that compulsory adoption of information technology will solve the problem. For example, a bill introduced in the Kansas legislature would require health plans to use electronic Explanation of Benefits (EOB) when a physician submits a pre-determination request. The bill demands a “real-time response to a real-time request”.

I cannot imagine what a regulator or court would define as “real-time”, but even if it was instantaneous, the response would be meaningless. The bill requires the plan to “provide to the patient and the physician information on the amounts of expected benefits coverage…that is accurate at the time of the health plan’s response” (emphasis mine). If the procedure is scheduled for two weeks later, the health plan can easily say the “expected” coverage has changed.

It is hard to think of a regulatory solution to this challenge. I tentatively propose a different approach, rooted in the law of contract, which would change the incentives of both insurers and providers.

Suppose you went to a car dealer and a salesman showed you a car you liked. You decided to buy it and asked how much it cost. The salesmen said, “I don’t know. Just drive it away, and we will send a claim to State Farm and in a few weeks you will get an EOB from them and a bill from us that tells you how much you owe.” Suppose you offered to pay $30,000 on the spot and the salesman said, “I can’t do that. We have to do it the way I just described.” You receive the EOB and a bill a few weeks later and it claimed you owed $100,000. You refuse to pay, or (more likely) reiterate your offer to pay $30,000.

I used the metaphor of a car dealer, because I’m pretty sure that if that dispute went to a judge and jury, they would find in favor of the buyer, and award the dealer $30,000 ― not $100,000 ― for the car.

Perhaps a solution in the healthcare arena would be to institute binding arbitration in cases where providers refuse to agree on prices before providing service. And perhaps the binding arbitration could be based on the fee the patient offered to pay upfront, but declined by the provider in favor of bureaucratic claims processing. For example, if a patient had offered (in good faith) to pay $5,000 for the surgery; but the EOB and claim came in at $50,000, the arbitrator would award one or the other. Common sense tells us that the arbitrator will almost always award the patient’s upfront offer.

This might cause enough pain for providers that they change their behavior. However, I am not a lawyer and have probably not identified unintended consequences. I welcome any feedback improving the proposal. The regulatory approach has not worked, and patients are at the end of their tethers.

Comments (27)

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  1. Bob Hertz says:

    Great post!

    In my writing I have proposed a systematic solution that is not far distant from binding arbitration.

    My solution would be Health Claims Courts.

    We already have Drug courts, Customs Courts, etc.

    These would be funded by the federal government.

    Whether they had a single judge, or a panel made of up judges and doctors, needs to be worked out.

    An aggrieved patient would not need a lawyer. The court would have final authority to reduce unconscionable bills.

    And we could add another level of legal protection for patients:

    If you ask the cost of a procedure, and the provider does not tell you, then you do not have to pay your share of the bill.


    Bob Hertz, The Health Care Crusade

    • Trent says:

      That could prove to be quite an effective system Bob. Innovation is key to progress, and this seems very advanced

    • Bill B. says:

      “If you ask the cost of a procedure, and the provider does not tell you, then you do not have to pay your share of the bill.”

      This I can get behind.

    • Luke P. says:

      It is a great idea to have an arbitrator to decide on the differences among patients and healthcare providers.

      The problem is that most cases would go through arbitration and that would make the system slow and tedious to handle. If it is not a prompt decision both healthcare providers and patients could be worse off.

  2. Barry Carol says:

    For cases where the provider refuses to provide a price in advance and for care that must be delivered under emergency conditions, I think the maximum patient liability should be limited to 115% of the Medicare rate in that county. If the care is provided at an academic medical center or a teaching hospital, IME and DSH payments don’t count. Only the basic DRG or RBRVS rate should count for this purpose.

    I’m also interested if anyone has any insight into which constituencies are most aggressively opposing the disclosure of actual provider contract reimbursement rates. Is it hospitals, doctors, insurers, politicians, regulators or some combination of all of those?

    Separately, with regard to your car purchase transaction example, manufacturers’ suggested retail price (MSRP) stickers did not come on the scene until the late 1950’s when Congress mandated them. Before that, the car dealer at all the information about the vehicle’s cost and the prospective buyer had none. Actual prices paid for the identical car varied widely among car buyers. We need to eliminate price opacity in healthcare as well.

    • John R. Graham says:

      I appreciate the thoughtful feedback. One reason I cannot quite buy into it is that I do not think that there should be a Medicare price!

      Even though we do have Medicare prices, your policy might incentivize the RUC to increase the Medicare fee schedule to increase the fees from uninsured patients.

      However, in favor of your proposal, I note that there is no law forcing hospitals to accept Medicare, so the government could impose this as a cost of participating in Medicare (like EMTALA for ER treatment).

  3. Walter Q. says:

    The reason that patients do not ask about prices or “shop around” is because the lack of transparency. No one know how much a particular procedure will cost, so there is no knowledge or negotiating power provided for patients.

    • Charles M. says:

      Not only lack of transparency, as the example noted, those who require a medical treatment want one as fast as possible (before the sickness worsens. If someone requires urgent treatment, I think that their priority would be to receive treatment. At least that would be my priority.

      • Bill B. says:

        Exactly. Few people who need immediate care do not stop and think about whether they are getting an affordable price.

  4. Thomas says:

    “Even insured patients cannot get prices from their healthcare providers.”

    This is where many medical facilities have the advantage because their patients receiving care have no idea the cost, so they can charge as they see fit.

    • Matthew says:

      Not to mention charges for medications during a hospital stay. The amount that hospitals can make on charging for readily available medications like ibuprofen or Pepcid can be obscene.

  5. Bob Hertz says:

    Note to Luke P.

    Thanks for your comment. I LIKE the idea that the process would be tedious.
    Then the greediest providers will have cash flow problems, and maybe they will change their ways so as to avoid arbitration.

    It is an old truism on Wall Street that the world runs on greed and fear.
    An arbitration system installs a little fear in providers, which is a good thing.

    By the way:

    I wonder if the insurance company really did pay $25,000 for one day’s worth of tests. Sometimes companies pay less than that to the provider, but still hit the patient for coinsurance based on the higher amount that they were billed.

    • Luke P. says:

      A tedious process might create fear on the providers and make them change their ways, I agree. But what concerns me is that they delay treatment until a price agreement is made… There is always a loophole…

  6. Paul G. says:

    As car dealers have the MSRP, healthcare should have a PEG (Price Established by Government) for most treatments. For example a set price for x-rays, for colonoscopies, mammograms, blood test, and many others that are simple procedures that doesn’t vary much with patients.

    And for big procedures, such as a transplant, involve an arbitrator to establish a fait price.

  7. Jimbino says:

    On behalf of two friends, I twice refused to pay ER bills absent billing by CPT code, which docs and hospitals regularly provide to get paid by Medicare, Medicaid and insurers. They refused, I refused to pay, and they wrote of the charges, about $1000 each.

    There is a doctrine of quantum meruit in our law, which means that absent a contract you need not pay more than the service is worth. Arguably, the service is worth what the provide has paid Medicaid or Medicare for the same service. That’s what I’d argue to the jury, in any case. Don’t forget, that contracts entered into under force, fraud or duress can be held invalid. Pain and injury are clearly duress.

  8. Bob Hertz says:

    Jimbino, I am delighted by your post.

    You and I sometimes square off because I assert that most Americans lack your skill or shall I say “chutzpah” in bargaining.

    Here we are close. I propose health courts and the enforcement of liability laws for force and fraud. We need laws to protect those persons who would never have your assertiveness.

    Many Americans would be terrified that even if a provider wrote off the charges, the months that elapsed before they wrote off the charges could sabotage their credit rating and hurt them in many other ways.

    Therefore, as part of my writing, I demand that medical debts be kept off all credit reports until they are ‘affirmed’ and either paid or not paid.

    Bob Hertz

  9. Jon Steele says:

    It’s easy to find out what Medicare pays providers if you know how and where to look on Medicare’s website (Paul G’s PEG!). It’s also easy to find out what hospitals charge and what their costs are with an upgrade subscription to ahd.com. Most comments to these great blog posts seem to be from people who are not actually in the healthcare business hence the theoretical observations on transparency, prices/costs etc. The managed care contract between the network provider and the insurance company governs all aspects of that relationship including reimbursement, so both providers and payors want to keep that proprietary information to themselves for competitive reasons.

  10. Devon Herrick says:

    John, You’ve indicated in the past that hospital bad debt was probably necessary condition to get hospitals to be more transparent in their pricing.

    As you and I both know, mandating that hospitals and doctors disclose price will not accomplish anything. There’s not one price; there are hundreds of prices depending on who your insurers is, which employer group you’re in, which hospital you visit.

    Even though I’m not fond of transparency mandates, I wonder if there isn’t a way to incentivize hospitals to disclose prices to patients who are receiving care. For example, the hospitals sues Bill Smith for non-payment. Bill Smith says, “the hospital wouldn’t tell me what it was going to cost.” The hospital then produces a consent form signed by Bill Smith that explains the MRI would cost $2000. It’s pretty clear Bill Smith knew what he was getting.

    I also wonder what it will take to get insurers to assist enrollees to seek care at a lower cost facilities. That may require employers demanding their TPAs disclose prices to enrollees upon request.

    With respect to hospitals, HealthMarkets used to have a system to advise enrollees which hospitals were more expensive than others. It was sort of like restaurant guides where “$” are used to explain the pricing structure. $ means less than $10; $$$$ means more than $50. If enrollees could at least get a symbol to direct them to lower cost facilities, they would at least have an idea where to seek care that wouldn’t cost an arm and a leg.

    • John R. Graham says:

      I think we are on very similar pages. In my proposal, it is the patient who generates the form evincing that he has offered to pay a price. In yours, the provider produces that form.

      The principle is the same: No liability is incurred by the patient unless a dollar price is put forward before service is delivered.

  11. Bob Hertz says:

    Devon, we aren’t at the bottom of this thing yet.

    When my wife had one of our children, she was asked to sign a blank consent form upon admittance that promised she would pay whatever the hospital charged.

    I protested, and for my trouble she was treated shabbily by every nurse she encountered.

    And I got a large bill anyways.

    Seems to me that we need to establish a clear protocol for hospital visits and charges.

    If the visit is for an emergency, the hospital would have to charge no more than 150% of Medicare, as Barry Carol as proposed.

    (This would be a big deal for some hospitals, and expect a lot of resistance.)

    If the visit is non-emergency, then a price quote would have to be provided in writing at least a week before the care.\

    A patient who was watching their pocketbook could take the quote and check out other options.

    No quote, no collections.

    Again, this would be a big deal because some hospitals would virtually go out of business without supplementary federal aid– kind of like farmers being sustained by the government when the prices they command do not cover their costs.

    • Barry Carol says:

      Bob –

      That’s a very distressing story about your wife being treated shabbily by the nurses because you wouldn’t sign the form agreeing to pay all charges no matter how much they turned out to be. I always wondered if disputes over hospital charges, especially for care that had to be delivered under emergency conditions that went to court, would be ruled unenforceable because the payment agreement was signed under what the legal profession calls “duress or undue influence” as opposed to free will.

      For the record, I would limit such charges to 115%-125% of Medicare, not 150%. In NJ a few years back, as I’ve mentioned before, the legislature passed a law limiting hospital charges for the uninsured with income below 500% of the FPL to 115% of Medicare. The original proposal was 100% of Medicare but hospitals claimed that Medicare only reimbursed them for 91% of their costs. So, 115% of Medicare was enough to produce a 4.7% profit margin on average (0.91 x 1.15) at least in NJ.

      Regarding rationing if it comes to that, my preference would be for it to be largely age based. I would be much more understanding about offering a high cost full cost press for a premature baby, a child with cancer or a young mother in her 30’s or 40’s with advanced breast cancer who would like a bit more time with her kids even if it’s comparatively low quality life. I would expect, however, that doctors would be honest about both the prognosis and the medical treatment options along with the quality of life implications of each so an informed choice could be made.

      The number you cited about how much Medicare spending would drop if we eliminated treatment for advanced cancer and stopped paying for organ transplants and artificial hearts sounds way too high to me. There are about 17,000 kidney transplants done in the U.S. each year at a cost of $300K each at most and probably less. That’s less than $6 billion. In the Philadelphia region, there are about 100 artificial heart operations per year. Even at $1 million each, that’s $100 million. Extrapolating that to the whole country implies a total cost of $10-$15 billion at most. Stents, bypass surgeries, pacemakers and the like are a different matter and cancer treatment is expensive too but I don’t know what the cancer treatment breakdown is between advanced cancer and early stage treatable cancer. I would like to see much wider use of living wills and advance directives though especially for the elderly.

  12. Bob Hertz says:

    Barry, I will send you my data on large medical claims. Criticism will be welcome.

    John G, your statement on no liability if no charges are presented might be the most radical proposal I have read on this blog over the last 5 years. Of course I totally concur.

    My writing tries to set up a court system that will enforce this limited liability.

  13. Brooks White says:

    No arbitration, too much complexity already. I have found doctors don’t know what they can charge, they need to contact the insurer (the insured can’t do this directly). Patients have no real leverage. About to have procedure that is part of essential benefits. Doctor wants a consultation (office visit fee within my high deductible) to explain a procedure I have had before and which info could be explain in a simple document downloadable. Insurer does not believe consultation is part of essential benefits to which it relates. Doctor won’t due this common procedure without the consultation. HSA is fine for deduction, but otherwise it does not move the medical economics needle. Better to have posted by zip codes the medium and mean costs in the area (even better if it could be grouped by common procedures). Insureds and doctors would then have a benchmark. Might reveal oligopolistic pricing, or encourage competition. Arbitration adds another excessive cost.

    • John R. Graham says:

      I have not communicated (what I believe is) the dynamic effect of the proposal: There would actually be very little arbitration.

      This new equilibrium would be achieved very quickly as providers experienced the dead-weight cost of binding arbitration. They would quote prices beforehand to avoid this. And they would figure out a way to get insurers onside.

      BTW, I suppose the economics of your specific case are that the physician does not think the insurer pays him enough for the procedure, so he adds a consultation to up the fee for the service.

      We will see a lot more of this under Obamacare.