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Despite New Rules, Hospital Pricing Remains Murky

Emergency room entrance
Ambulances parked outside the entrance to an emergency room. (Photo: Crixell Matthews/VPM News)

Several hospitals in Central Virginia are violating federal regulations that require them to post prices they negotiate with insurers for thousands of medications, procedures and other services.

Hospitals nationwide have been required to post “charge” prices since 2012, following the passage of the Affordable Care Act. Those prices, though, are only paid by a few people.

“Charge is the well-known, sticker price,” said Mark Maffett, an accounting professor at the University of Chicago. “The actual price is what a patient would pay after considering insurance or discounts.”

Maffett was part of a team of researchers who looked at how state-level charge-price regulations affected the cost of healthcare. They found that while charge prices did decline in the wake of transparency rules, what people actually paid didn’t change.

“There’s not a strong relationship between the charge and actual prices, meaning there’s so many dials behind the scenes they can turn that those two things aren’t very closely linked necessarily,” he said.

Changing that is the impetus behind a new regulation from the Centers for Medicare and Medicaid  Services which took effect in January. The rule requires hospitals to divulge not only their charge prices, but also the prices for patients who pay in cash and rates negotiated with third parties, such as insurance companies.

Hospitals must make that information available to consumers in two ways. First is a “consumer friendly” display of services that could, in theory, be shopped for in advance. But Maffett said in their research, they found almost no evidence that people shopped for healthcare.

“On charge prices, there was very little shopping around based on those prices,” he said. “If Northwestern vs. the University of Chicago were charging dramatically different charge prices, we found very little evidence that patients actually pay attention to that.”

Maffett noted that finding is somewhat limited, because their sample included only insured patients, who are likely less sensitive to price, but other studies back the idea that very little shopping on price occurs in the healthcare industry.

Ahteev Mehrotra, a professor of health care policy at the Harvard Medical School, says that while regulations have increased the availability of price information, that information can still be hard for people to find.

“I could sort of sit down with you on a website and walk you through places, but I’m a doctor who [specializes in this field], so I have a little insider knowledge,” he said. “I think if you ask the average Richmond resident, ‘Hey, figure out what the price of a gallbladder removal is at local hospitals,’ they would really struggle with that, because they wouldn’t even know where to start.”

To address that issue, hospitals must also publish a machine-readable file of their prices. These files, which often take the form of large spreadsheets, can be quickly fed into a computer for processing.

CMS argues third-party groups, like Turquoise Health, can use the files to make pricing information public, putting pressure on hospitals that charge more. And, according to Maffett, that pressure might work. He said in their study, public scrutiny, or the potential for scrutiny, was the primary driving factor for hospitals to lower charge prices.

In Richmond, however, it is with machine-readable files that hospitals are skirting the law. While each hospital does post a machine-readable file of prices, many do not include all of the required information.

VCU Health posts rates for some insurers, but only for people covered by Medicare and Medicaid. Hospitals run by Bon Secours, such as St. Mary’s and Richmond Community, post no third-party negotiated prices.

According to a spokesperson for VCU Health, the hospital is currently working with an outside consultant to expand the number of insurers included in their reports. Bon Secours maintains that their files meet CMS requirements but ceased replying when asked where payer-negotiated rates could be found on the files they provide.

Hospitals run by HCA Virginia, including Chippenham and Henrico Doctors’ recently added payer-specific charges to their price transparency reports, which show staggering differences between insurers’ prices.

Among Virginia’s top insurers, such as Aetna, Anthem, Cigna and United, vaginally delivering a baby at Chippenham Hospital can run as little as $7,866 if you have United Healthcare or as much as $9,850 if you’re covered by Aetna.

If you’re looking for a CT scan at Chippenham, which insurer you have can nearly triple your price. With Anthem, they cost just over $700 while with Cigna they top $2,000.

Mehrotra says if third-parties could provide information like that, it could help lower healthcare costs in the U.S. But he adds that even if each hospital included payer-specific prices, it might not be enough.

“There are companies that are doing this already… but it’s so difficult, because every hospital is structuring the data right now so differently,” he said. “I’m hopeful with time what will probably happen is CMS will say, ‘Ok, Ok, we’ve got to stop the chaos. This is the format in which you got to do it.’”