Without taking time to think about an answer, what first comes to mind when asked where the cost for healthcare services is the highest? In or connected to a hospital is the usual answer. Is that the correct answer? It can be complicated (as everything in healthcare usually is), but there are more than a few grains of truth and accuracy to the answer.
A new analysis from the Blue Cross Blue Shield Association provides some insight into the issue. It is necessary to offer a disclaimer that the BCBS Association may have some form of vested interest in pushing the dialogue that hospitals are more expensive because it could impact negotiations for members of the broader BCBS network.
With that disclaimer thrown in there, the analysis focused on six particular types of services: (i) mammogram, (ii) colonoscopy screening, (iii) diagnostic colonoscopy, (iv) cataract surgery, (v) ear tympanostomy, and (vi) clinical visit. The services selected represent a somewhat broad selection of services and involve different specialties. Bearing out a common refrain (usually raised after the acquisition of a physician practice by a hospital), the analysis showed that a hospital outpatient department charged consistently higher prices than both ambulatory surgery centers and physician offices.
The differences were quite material as well. The bulk of services were more than 30% higher in a hospital outpatient department than in either an ASC or office setting. Were the services provided differently? The analysis does not get into that question, but it would be difficult to find a way in which the services were different. Each of the reviewed services has a standard approach, so there should not be much if any variation in how the services are delivered.
Diving into the findings a little bit more, some of the points raised show the bias in the health insurance direction, which was hinted at above. One of those points was stating that the costs seemed to consistently rise year over year for the outpatient hospital departments. There is no statement of whether the costs or other expenses associated with providing the services increased, only the flat statement that the charge rose. The report then states that those increases translated to higher insurance premiums and cost-sharing or co-payment responsibilities for patients (this is outside the scope of this post, but it is a pretty clear push to blame the hospital for insurance costs rising).
The higher costs are also used to argue in favor of site neutral payments. The site neutral payment concept is a push (coming from Medicare) to reimburse the amount for a service regardless of the location of the service or who operates the service location. Using the report as an example, it would be a single rate regardless of whether the colonoscopy (one of the sampled services) occurred in an outpatient hospital setting, ASC, or physician office. The argument for site neutral is that the service is the same regardless of where it is performed and shifting ownership should not support wild variations in the amount charged and reimbursed.
Another argument identified in the report showing a bit of a bias is that the higher prices in outpatient hospital settings also drive more consolidation primarily with the hospital being the acquiring entity. The concern about consolidation resulting in higher prices has gained a lot of steam as consolidation has continued to run rampant, so it is not a misplaced concern. Pushing the point in this report is a bit self-serving because it is designed to further pressure hospitals on top of the other findings. Again, it is not necessarily the wrong point, but the source could color acceptance of the argument.
Why Price Differences?
Getting data about the price differentials is important. Data hopefully allows dialogue to occur, which is important. With healthcare prices continuing to rise, though a little more slowly recently than had been, the ability to afford care is not just a theoretical issue. Reports prove that patients forego or delay care because of the cost. Should where a service is provided impact that cost? It is an easy question for individuals on the outside to ask and it feels like there should be an obvious answer to the question.
However, the answer is likely not so simple or easy to answer. There is some truth to the pushback that the cost inputs are different depending on the location of the service and who operates the location. The response is certainly more complicated when that issue can change overnight as often happens in the instance when a physician practice is acquired by a hospital. While there can be some honesty in that answer, there should also be more transparency into the issue. Just pushing the assertion of a difference is not sufficient. Without some clear justification and evidence to support the argument, the counter becomes easier to raise and attract sympathy to.
The argument, therefore, goes to let’s have clear data available that enable a real assessment. Pursuing headlines to garner support for one position or the other is not productive. Fighting in public in that manner drives all interested parties to become entrenched in their positions. However, parsing data would optimistically remove emotional arguments and allow for a more informed discussion that could produce better outcomes for all involved.
In fact, getting more information can often reveal some unexpected insights. It is easy to raise prices because of a fear that others in the market are doing so or that costs are rising. However, if all of that occurs solely on the basis of an assumption or the “just because” argument, then it becomes easier for prices to run rampant. If a more deliberate approach is taken based upon assessment of all factors, then prices become more justifiable and some unexpected outcomes may be found. All of that begs for disruption to how prices are determined for healthcare services and not doing it the same old way.
Does Consolidation Impact?
The inclusion of consolidation as a factor causing higher prices in the BCBS Association report may seem like a thrown-in, but is really an important point. When hospitals or other large institution merge or drive consolidation, market efficiencies are often cited to garner support for the proposed transactions. The argument goes that bringing more groups together under a common entity will allow for efficiency in operation, improve outcomes, and lower costs for all.
Despite those arguments, the evidence consistently shows the reverse. Efficiency is not realized and the larger entities take advantage of negotiating power to extract higher reimbursements. Further, the change in ownership, especially when physician groups are involved, allows regulatory nuances to be utilized. Leaving aside the specific details, it often comes down to consolidation means higher prices.
If that is the proven outcome, then it is necessary to think about whether the ongoing rush to consolidation really is beneficial to the healthcare industry. Some positives are likely there, but maybe a different approach is needed on the cost or price side. Answers are not ready at hand, though if activities keep going in the current direction, regulations could force everyone’s hand.
Next Steps for Cost
Addressing the ever rising cost of healthcare must happen. It is a growing piece of the economy and even individuals who are relatively well off can be catastrophically impacted by a healthcare event. If too few individuals can actually pay for care or are pushed into less than ideal circumstances, all will suffer. Instead, there is time to take the issues seriously and begin charting a course that gives and takes from all involved. Remember, when compromise occurs everyone can come away feeling happy and frustrated because compromise ultimately means that no one got everything that they wanted. Not even attempting that approach though is a dangerous path for healthcare that would lead to ongoing troubled waters.
This article was originally published on The Pulse blog and is republished here with permission.