Giving Price Information to Consumers can be confusing

A few days ago, USA Today ran a headline article "Shopping For Health Care Pricing Can Be Pretty Confusing".  If you haven't heard, a movement to put pricing information in the hands of the consumer so that they can make the right choices has been gaining steam for the last several years.  Some pundits even call it the "cure" for health care (no pun intended).

In general, the article highlights some very good points regarding the significant differences that insurers pay for various procedures.  Some insurers, are even publishing in certain markets the costs of various inpatient and outpatient procedures.  You can easily see the huge discrepancy between the cost of a total knee procedure ($16,900 to $34,000 depending on the hospital).  Unfortunately, USA Today does not present the provider side of this equation and that is where the article falls short and perhaps a little misleading.

It is hard to argue against the notion of putting more power and choices into the hands of patients in the decision making process with regards to prices (a little like trying to argue against clean air).  However, the fact of the matter is that regulations and essentially price caps by CMS make it almost impossible to provide this information in a way that patients would find helpful. 

Some things to consider:

-medicare sets our fee schedule establshing a quasi socialized system and price caps.  Through CMS' bizarre set of ridiculously restricting guidelines, a work component of modality/procedures is established for us (which by the way essentially puts the maximum value of a therapist around $60,000 per year-if anybody wants to see the math, let me know.  Imagine if they did this to plumbers).  So, we can provide the CMS fee schedule list to patients as the "prices of physical therapy procedures" but it would be meaningless for non-medicare patients.

-in outpatient PT, we get roughly 50-55% of what we bill BUT that percentage is determined by each payor separately.  Again, we can provide the gross fee schedule but it is more confusing then instructive.  We are in a business where nobody pays full retail.

-you can't get creative when it comes to pricing like you can in most consumer oriented businesses.  Easy example.  Let's suppose that in order to increase business during the down hours of 1-3 on Tuesday's and Thursdays, you advertise that you will waive copays.  Unwittingly, you have just committed 2 crimes-advertising fees and waiving of copays (I know that there are a lot of unscrupulous providers out there that routinely waive copays but that is a different story).

How would one begin to answer the question "what does physical therapy cost?".  Here are some approaches:

-The list approach.  A full fee schedule is provided.  It would raise more questions and cause more confusion than not having a list to provide. This was demonstrated in our state (KY) several years ago when all providers were forced to provide such a list of their top 20 procedures in the waiting room (they even regulated the exact height that the list had to be).  It was thankfully abandoned within a year due to causing more problems than alleviating (unintended consequences of misguided directives).

-The retail approach.  Before you can do modality/procedure, you tell he patient the exact cost of the procedure and then let them decide whether they want it or not (again, you would have to know their insurance, the amount of expected reimbursement by the payor per their contract, and the amount that the patient is responsible).  This would make health care great fun!  Don't laugh, it wouldn't surprise me if this is thrust upon us and don't forget another piece of paper that each patient will sign attesting that we went thru this drill with them (think HIPAA addendum).

-the estimate approach.  Borrowed from the auto industry and one that will most likely be perfected by plastic surgeons some day, you will provide the patient an estimate of the charges based on their diagnoses, acuity, and other clinical issues but then you will have to take into account their insurance companies coverage (and your contract), copays, etc. etc. which will make this whole thing an 30 minute exercise that will probably scare needy patients into going to a personal trainer.

See what a straightforward issue that price transparency is in health care?  Thoughts?

Larry

Comments

[Selena Horner]

That article doesn't paint a very good picture of providers. Alluding that cost is a "secret" steams me.

The cost to each individual patient is always difficult to figure out. The third party payers make it difficult. Deductibles are straight forward to figure, but as a provider I'm not going to start collecting the deductible up front because there is no guarantee that the information provided to me say with BCBSM on their internet based web-denis deal is perfectly accurate. That system is time dependent on when claims come to BCBSM and I have no idea how web-denis interfaces with their system that receives claims. (And when I have questioned that, I receive an "I don't know.")

And then, when it comes to copays, that is sometimes a joke. For example BCBSM has all sorts of riders that I can click on and read, but I never have a perfect understanding of which rider supercedes another rider when it comes to copays. Am I a panel provider or not with some PPO policies? I mean there is no provider panel or any way to get in-network for our profession. I have seen those little data sheets that the subscriber can have when say choosing a BCBSM policy. There is a separate heading for PT... it is dummy proof. Ah, but when it comes to providing access to providers, the third party payers make things like 3 times more complicated than they really are!

The best way that I handle questions regarding cost is by responding that the cost of physical therapy will depend on the type of insurance contract that the patient has combined with the type of contract that I have with that company. I ask them what insurance they have. I suggest that they contact their insurance company to ask questions on their responsibility. I also ask for information from them so that I can do the same thing, but then provide them an estimated dollar amount.

And... I never, ever give some estimate of the total cost for the process. That estimate is dependent on too many factors that I wouldn't even know where to begin! I tend to leave it really simple and estimate the cost per visit.

If I could get out of all third party payer contracts and just collect out of pocket and let patients submit their own claims for reimbursement, I would in a heartbeat. Timing... my area finds value in their insurance cards and providers billing. One day though... one day I'm going to ditch all those contracts and have patients pay by the visit. The cost of submitting claims and contacting insurance companies when there are errors and resubmitting because ICD-9 are tied to CPT codes is just ridiculous. All the patient wants it to get better and all we want to do is get them there as quickly as possible and the biggest hassles in the whole process is the required documentation and the submission of claims - both driven by the third party payers.

[Britt Smith]

Larry, Oh, so true. Owning a private practice can have some interesting issues...particularly private paying clients who want 'the best' at the least cost (I think this is called value in the consumer world). I have been through this pricing dialogue on many an occasion.
At the other end of the issue, when we opened our clinic in Grand Junction 11 yrs ago, the local HMO denied us provider access...as did United Health Care. I was the only OCS in the Western Slope region and manual therapy specialist. We fought and argued with the HMO. Whe the the HMO relinquished and granted us the privelege to serve their customers, they reimburst at $45 a visit. A year and a half later I found out (from a MD friend) that the other private practices in town were reimburst at $56 a visit. Another fight, another change in rates...remember, our clinic has the only Fellow of the Academy and two OCS (now of 3 in town). 5-6 years later the HMO has a fight with the large, local hospital over Medicare reimbursement. The HMO used a marketing ploy to leverage the hospital (backfired). The HMO posted the reimbursement rates for the hospital, $125 a visit for outpatient PT, vs. $60 (wow a $4 increase in 5-6 yrs). They asked customers to help them cost-control by choosing cheaper services. The hospital withdrew from the HMO, the HMO renegotiated new rates for Medicare (and probably PT)...on we go.
We set our private practice cash rates at approximately a Medicare rate for 30 minutes...a flat fee of $56 for up to an hour of care. It's in line with the HMO, and appears to be a financial burden the locals will carry for a few visits.
Personal trainers and massage therapists aren't far of this price.
Our next step might be to post the labor costs of PT,$25-30/hr (a strategy the mechanics in Berkeley used: rates 12 yrs ago were $35-60 an hour for LABOR alone). Plumbers are in-line with the mechanics. Carpenters, etc. I've heard the PTs in the local POPTS are getting $40 an hour for their services. I value being able to sleep at night and looking at myself in the mirror while I shave.
That's a small story from this side of the Rocky Mtns, my friend.

[Ken Mailly, PT]

Well, this is a pretty ambitious topic for e-mail, but since we don't seem to be having such discussions anywhere else in our professional community, here goes!

I would add a couple a couple of caveats as we, and ALL parties, undertake any discussion about "pricing" of our services.

Before even attempting to address price transparency of health care services, including PT, we need to need to define at least 2 things:

1-What service is truly being purchased?

2-What restrictions and/or requirements are being placed on the transaction?

I always chuckle when hear the phrase "free market" applied to health care. We are neither operating in a free market, nor have we ever been, or are likely to ever be. We are operating in a highly regulated market, perhaps THE most regulated, which by it's very nature, affects "pricing"

Unless, and until, all parties are willing to decide upon a common description of the service being provided, pricing discussions are meaningless, and ultimately misleading.

Are we asking about the pricing of professional services, paraprofessional services or non-professional services?

Are we talking about a 2 party transaction between seller and buyer, or a mediated 3 (or 4, or 5) party transaction?

If all of our services were provided as true 2 party transactions, would we truly need more than a cashier in our "business offices"?

Isn't the administrative expense of a transaction totally dependent on the requirements placed on the transaction by the other party/parties?

Most importantly, aren't some "PT providers" really providing non-professional services, yet charging for professional services?

These are critical issues to address before we even begin to talk about things like quality, pricing, or anytihng else for that matter.

To summarize; before asking what it costs, or what we should be paid for it, we must decide what "IT" is.

To paraphrase James Carville, "It's the service, Stupid!"

[Larry Benz]

Some excellent points made by all. Glad to hear that our experiences are consistent on this side of the mountains Britt.

Ken, we have found something that we significantly agree on. The issue regarding the service is very true and in fact has become an issue in and of itself-the "commoditization" of PT.

Despite attempts for many years to promote outcome, patient satisfaction, and utilization data to payers, it has been extremely unconvincing in terms of reimbursement differentiation in contracting. Unfortunately, outpatient PT is viewed as a commodity by most payors and a total commodity by medicare (except for the notion that if it is provided in a hospital setting there is no cap-who says the government doesn't have a sense of humor). This is disappointing when you consider that payors should be impressed and driven by data. I am certainly for outcomes but it can be reasonably argued that the efforts have not yielded any economc gain (return on value) which is different than almost all other industry (but let's keep trying).
Interestingly enough (and a path that I didn't go on in the initial post) is that the biggest fallacy of consumer driven health care in terms of patient "choosing" based on prices is that this notion runs counter to what has been convincingly demonstrated and that is consumers don't buy on data or even rationality but emotion (Nobel prize in economics was won a few years ago by a psychologist who showed empirically this phenomenon). Couple this with the fact that many of our referral sources vew us as a commodity and refer patients to entities for various self-interests and in adding this up you can throw away any effort to promote price transparency in outpatient PT.

Outpatient PT is a small industry for payors to pay too much attention to as their efforts will not significantly aid in saving them more money. However, with the exponential rise in musculoskeletal claims of which PT plays a significant part, you just might see more "regulatory" constraints on our access to these problems as we continue to be viewed as a commodity. Hopefully, EBP will just be the driving force to get us the differentiation that we need.

[Brian R. Duncan]

Below are comments from my brother-in-law, a hospital administrator with an MHA and undergraduate in econ. I thought it would be good to share an administrator's thoughts on the matter as we don't hear from them much on the blog (that I know of). His comments remind me of Tom Peters, both passionate and cynical.

I totally agree with the response (Larry's original post). Price data is dangerous because John Q Public doesn't know squat about how the system works and why the "cost" of healthcare is so outrageous. I hate it when the media reports stuff like "Last year, Americans spent 3 Trillion dollars on health care." I feel like screaming "Yeah, but only 100 Million of that got paid." They should report what was actually paid instead of gross charges. If I'm having to subsidize the care for more uninsured people every year on the Inpatient book of business to stay afloat, then I'm going to have to inflate charges house-wide so that I keep relatively equal net revenue year to year (applied to managed care contracts where I'm paid on % of charges). People are appalled when they see that a CT's price is 1,600 bucks but when your hospital's realization rate on gross revenues is 29 cents of every dollar, that means you're getting $464. The CT cost me 3.5 Million and people want the best because they heard some add on the radio from Mother's Rims, Window Tint and Dx Imaging (not an inpatient facility, by the way) that told them to accept nothing less than a 128-slice CT. I wish everything was regulated like health care. I'd love to walk into Best Buy feeling ill because I don't have an XBox 360 and I can't afford to get it on my own; and they have to provide me with one. After a few of these cases, the price of an XBox 360 would be like $2,000 dollars at Best Buy but like $10,000 at Toys R Us, where they don't have additional high margin business to subsidize all the XBox 360 give aways (GI Joes will also go up in price).

Look at the cost to charge ratio for any hospital and you'll see that everyone basically HAS to do this. Though it looks insane, the average hospital probably makes around a 2% operating margin, and has a pizza party when that happens. Do you know of any other industry that celebrates 2% operating margin? I'd rather take my $$ and put it in US Treasury Bonds. One might argue hospitals are inefficient in their expense management but compared to other industries, our skilled labor is far more expensive and that's only getting worse. Let's go back to nursing school, brosiff. I think that publishing outcomes data is a good idea, provided that it's standardized and accurate. What's out there now varies too much and is garbage from what I can tell "based on mortality figures (unadjusted for case mix and acuity), I should get my heart transplant at ABC hospital in the Rio Grande Valley." I don't have even the slightest idea how to fix the system. I know I sound an awful lot like the ACLU right now and it's making me want to close my office door and haze myself. I'll think of some ideas and get back to you. PEACE!

[Jeff Hathaway]

I grew up in the country and My dad always said that every young man should have to work on a farm and spend at least 2 years in the military. I did work on a farm (the military... well I probably should have). I gained enormous respect for what they do and how hard they work. Then I began to get "schooled" by the farmer about their "pricing issues" way back then. Make a long story short - It seems to me we have become the farmers of the professional world! We own a business where we have no control over what we get paid, the expectations are created externally then we sit and watch the third party record huge profits and pass their increased costs onto their customer!!
Wow - all this schooling to become a "farmer in a tie" - (no disrespect for farmers as I have an ernormous respect for them and now even more empathy!!) What do we do - did dumping milk help? There must be a way to affect change - I beleive that EBP may have some part in getting us closer to a solution.