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Pricing Transparency Or Payment Reform? One Policy Leader's Perspective

June 22, 2013
by Mark Hagland
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Paul B. Ginsburg, Ph.D. of the Center for Studying Health System Change wants policymakers to take a holistic look at hospital pricing—and payment

On June 18, Paul B. Ginsburg, Ph.D., president of the Washington, D.C.-based Center for Studying Health System Change (HSC), testified before the United States Senate’s Finance Committee, during a hearing on the subject of “High Prices, Low Transparency: The Bitter Pill of Healthcare Costs.” As Ginsburg said in his testimony to the committee, led by chairman Max Baucus (D-Mont.) and ranking member Orrin Hatch (R-Ut.), “To date, most policy activity related to healthcare price transparency has missed the mark and has not achieved the prime goal of lowering prices by engaging consumers to choose providers on the basis of value. Without changes in insurance benefit designs that steer patients to high-value providers—those that provide high-quality care efficiently—price transparency initiatives are likely to continue to have limited impact. Additionally,” Ginsburg told the senators on the committee, “the effectiveness of price transparency approaches is limited by a lack of useful quality information for consumers. I do believe, though,” he added, “there is a role for federal and state policy to achieve lower prices through price transparency initiatives that engage consumers.”

As Ginsburg went on to note, “one source of confusion in discussions of price transparency comes from the fact that there are different goals for price information, and distinct audiences with different needs. The importance of transparency as a core value of our society continues to grow, and by this light, transparency is a goal in and of itself,” he said on June 18. Yet the reality is that price transparency alone is not sufficient to change underlying dynamics around costs in healthcare, since a number of other factors influence costs. For example, concerns over the limitations of pricing transparency alone erupted among healthcare provider leaders, after the Centers for Medicare & Medicaid Services (CMS) on May 8 for the first time publicly released hospital charge information from hospitals across the U.S., unleashing a wave of mainstream news media coverage, which focused primarily on the wildly disparate charges hospitals post for the same procedures and treatments.

Provider associations, including the American Hospital Association, protested that the release of such information on the part of CMS was potentially misleading to the public, since under the prospective payment system, what the Medicare program actually pays hospitals is usually different from what it is “charged.” As Rich Umbdenstock, president and CEO of the AHA, said in a press release statement on the day that CMS released the charge data, “Today, the Medicare program no longer negotiates hospital payment rates—it unilaterally sets them through annual regulations, resulting in payments that now average about 95 cents on the dollar of Medicare-allowable costs… In addition, large insurance companies negotiate rates with individual hospitals based on an array of factors, including each hospital’s proposed rates, scope of services, and accessibility to and reputation within the community. It would create serious antitrust risks for hospitals to share the proposed or negotiated rates with each other,” Umbdenstock pointed out. “Variation in charges, therefore, is a byproduct of the marketplace, so all parties must be involved in a solution, including the government.”

Such concerns are definitely on Ginsburg’s mind these days, as he works to enlighten policymakers in Washington on some of the complexities around pricing, charges, payment, and costs in the U.S. healthcare system. A few days after testifying before Congress, Ginsburg spoke with HCI Editor-in-Chief Mark Hagland regarding this important topic. Below are excerpts from that interview.

What was your main policy message to policymakers about price transparency earlier this month?

I’m very concerned that the first thing that policymakers think about, which is just publishing a lot of data, is not likely to have much of a favorable impact. The most charitable thing that can be said is that there is some benefit from having policymakers and the public having some awareness of the discrepancies in pricing data; but I fault CMS specifically very much for publishing misleading pricing data, since reimbursement doesn’t match charges.

And the bill charges don’t correlate very closely with the rates that private insurers pay hospitals, either, which leads to what I found most interesting about this rate release, which was The New York Times doing a profile on the most expensive hospital in the country, according to the reports, which was a fairly ordinary hospital in New Jersey that was following an extremely aggressive strategy of refusing to contract with private insurers, raising its rates very high, and raising rates for ED care—I think they’re particularly focused on the admission. And so they were essentially looking at the wrong data.

Paul B. Ginsburg, Ph.D.

Where would you like the transparency journey to go?

Well, to me, greater transparency is not the goal here; to me, the goal is getting lower prices for patients who are purchasers. That’s why I have an issue with releases like those from CMS, because not only are the data misleading and not particularly meaningful; but even publishing better data in that area does not contribute to what I see as the principal goal, which is getting lower prices.

So in a sense, first of all, in my testimony, I made the point that the most potent approach to getting lower prices is benefit designs that provide incentives to use higher-value providers.

Now, there is a data element there, of course, correct?

Yes. Once you have these benefit designs, then the data are very important in steering the patient. And here, there are two approaches. One that is useful for high-deductible plans for outpatient services, is to provide the enrollee with their co-pay information under their insurance policy, to go to different providers. But then the other approach, which I said in my testimony is probably more powerful, is to have insurers crunch the data and give the enrollees very simple incentives, such as grouping hospitals into tiers and saying, you’ll pay less for going to that tier.

Now, some of the politicians talking about transparency believe in transparency as a societal value, whereas I’m talking about how to get lower prices for patients.

Where does clinical outcomes information fit into that kind of insurer schematic?

That would be a part of it—information on both cost and quality.

Have the initiatives that have published outcomes data so far been helpful?

I think that publishing quality data is very important, and unlike putting out a lot of data on prices, where I have some reservations about it, putting out data on quality, I think that can only be positive, as long as the data are meaningful.  And what the California Health Care Foundation has done, is a much stronger effort than Medicare Compare.

What should our audience know about all this?

I think that developing measurements of outcomes and costs—sophisticated measurements—is going to be very important going into the future.

And what do see happening in the next couple of years?

Well, I think there are issues about provider pushback against tiered benefit designs; that’s something policymakers need to address, and they basically need to prohibit contracting practices that obstruct that. I think what’s happening is that, based on some significant informatics, we’re seeing a lot of limited or narrow-network insurance products, which to me is a useful direction; it’s important for purchasers and health plans to gain leverage with providers. But I think it’s a second-best approach, second-best to tiered designs, but because there are no barriers to it, that’s where a lot of the movement is. Point-of-service incentives, to choose higher-value providers—I think that consumers would prefer that to the more common approach of keeping some providers out of the network. I’m drawing on what happened with prescription drug designs, where we went to tiered designs, rather than going to closed formularies.

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