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Transparency: How Important Is It Anyway?

The November 15, 2019 release of a final rule on Transparency has raised the awareness of transparency.  For years this has been a discussion topic in Board Rooms, marketing departments, provider relations departments, etc.  Patients have been caught in the lurch when they were surprised by a significant charge after the fact, especially if a particular service was out-of-network or much more expensive than anticipated.  Providers have been secretive about the discounted charge they would be willing to accept.  Health plans have acted similarly as they create their secret sauce for a competitive network.  Provider agreements often prohibit parties from disclosing to outsiders the results of their provider reimbursement negotiations.  This secrecy has resulted in demands for transparency.  But is it a real or imagined issue?  This article will discuss transparency and the need for it from multiple perspectives.

Billed vs. Allowed Charges

Health care providers are somewhat unique in today’s business world.  Providers, both professional and institutional, live in a world of both billed and allowed charges.  Billed charges are almost always discounted to a lower level (the allowed) depending upon who writes the claim check.  If government funded (i.e., Medicare or Medicaid), the allowed level involves a substantial discount.  Medicaid usually gets the biggest discount, in some states exceeding a 75% discount. Medicare obtains at least a 50% – 60% discount in most markets.  The private sector rarely obtains discount as large as Medicare often settling for 30% – 40% discounts.  Unlike the traditional marketplace where everyone pays the same price, health care providers confuse the already confused public by having multiple prices for the same service.  They are not alone.  For example, airlines and hotels also vary prices based upon the website used to book a flight or room.

Unlike the traditional marketplace where everyone pays the same price, health care providers confuse the already confused public by having multiple prices for the same service.

Significant resources are required to maintain the variable price world.  Health plans employ large departments to negotiate charges. Providers employ many and retain consultants to assist in their reimbursement negotiations.  As the health plans try to push prices down, the providers work hard to keep the prices as high as they can.

The mystery this intense negotiation process in itself creates confusion in the market.  No one is able to openly tell their publics what things will cost.  This is further complicated by the extreme complexity of the health care system. There are thousands of items and services that can be provided to patients and this often varies from one patient to the next.  Some have compared this to a giant restaurant buffet line where each item has its own price. There are few all you can eat for the same price menus.  With the advent of bundled prices, providers and payers are attempting to minimize the variance.

In vs. Out of Network

Complicating the already complex and numerous prices for different services, is the impact of being in or out of network.  If a provider is in the network, the patient copays and out of pocket amounts are usually smaller (a better deal for the patient).  If out of network, the patient often has to pay more since the payer was not able to negotiate a favorable price with the provider.  The patient pays most of the difference between what the provider wanted to be paid and what the health plan was willing to pay.

Even when a patient chooses an in-network provider to provide the service, they often encounter someone involved in the care that is out-of-network.  The most common example of this is an in-network emergency room with out-of-network ER physicians.  The patient can be surprised with the bill from one or more of the providers who were not in the network.  This also happens with some outpatient surgery centers.  I remember when my wife was having an outpatient procedure performed by a carefully selected in-network surgeon who just happened to do his outpatient surgery at an out-of-network surgery center.  When we checked in, I thought I would confirm they were in-network. To my surprise they weren’t.  At this point we were minutes away from my wife being rolled into the surgery bay and I learn they were out of network. What do we do?  At least it was prior to surgery.  Without any negotiation on my part they said not to worry, they would write off the excess charges.  They just didn’t want to be in the network of the health plan we were covered by.  This turned out positive to me but it was confusing and I spend my work-life in the health care field.  I pity the poor patient who didn’t know enough to ask and whether or not they would have enjoyed the same privilege.

Reasonable vs. Egregious Pricing

Another issue involves unreasonable and egregious pricing.  Unfortunately, there are always some players that seem to ruin it for all. I recall a project several years ago where an outpatient surgery center client was planning to significantly expand their operations, eventually have an IPO and hopefully enjoy a giant windfall. They had discovered that in a particular state workers compensation reimbursement rates for outpatient surgery facilities was not closely monitored and they could get nearly 100% payment on whatever they billed.  In fact, they were charging in excess of $60,000 facility fees for a procedure that lasted less than 20 minutes.  They submitted these excessive fees to the workers compensation administrator and were paid in full.  They realized \ this created a significant surplus and could be used to fund the development and expansion of a large number of additional facilities, all at the expense of their state.  They were convinced this could be replicated in other states and were in the process of expanding at the cost of other taxpayers.  Although we stopped our working relationship upon this discovery, they did expand and had a successful IPO.  This was taking advantage of an unsuspecting party with an unreasonably high and inappropriately generous reward.  Sometimes this type of action surprises patients leading to discussions about transparency.

Planned vs. Urgent/Emergent

Perhaps the most important issue is the opportunity for choice.  In a planned event there is oftentimes plenty of time to choose the best or most cost-effective provider alternative.  However, in urgent/emergent situations, there may be no time for a choice and frankly no interest in choosing.  In these situations, people are concerned about survival of their loved one, not the cost of this survival. This will come later.

There is limited published information about the split between planned vs. urgent health care services.  Rough estimates suggest that the urgent/emergent conditions are at least 15% – 20% of the total health care cost, a non-immaterial component. Clearly it is important to avoid charge surprises whether or not the care was planned.

Is Affordability the Real Issue?

Since the system is increasingly becoming unaffordable, the lack of affordability seems to be an important component regarding the need for transparency.  The substantial difference between billed charges and allowed charges create a consumer risk when providers are not in the provider network.  The positive impacts of provider networks are unintentionally creating a problem for those not in the network or no longer in the network.  Although a small part of the provider world, the egregious pricing observed in some sectors leads to problems for some consumers.  Prices have reached a level where bankruptcy is too often discussed. But is transparency the natural answer?


Does transparency solve the issues discussed above?  Perhaps yes, perhaps no.  Is it the best answer?  Perhaps yes, perhaps no.  Is there something else that helps solve it with reliable oversight?  My personal opinion is that an all-payer system goes a long way to eliminate many of the problems.  An all-payer system simplifies the pricing so there is only one price for a service no matter who the payer is.  No longer would in vs. out of network be an issue.  It would eliminate much of the administrative burden of developing and maintaining complex provider networks.  Perhaps it could be expanded so that everyone charges the same price or prices are standardized.

Under an all-payer system, billed could become the allowed, since no one pays more or less than a single level.  If it varies by provider, then transparency would be a meaningful enhancement. Egregious pricing would disappear since there would be a reasonableness test in setting the all-payer price, especially in a transparency environment.  There would be no surprises in emergent situations.  Planned situations could take full advantage of understanding market prices.  Again, transparency would be a significant enhancement in this type of market.

Transparency is a useful solution to help compare and analyze the marketplace.  Transparency combined with the advantages of the all-payer reimbursement system might be the best solution to stabilize the market and eliminate patient surprises.  There are obvious complications of the all-payer model, not the least being minimizing or eliminating the significant government cost shift dominating today’s market.

About the Author

David AxenePartner and Consulting Actuary
David Axene, FSA, FCA, CERA, MAAA, is the President and Founding Partner of Axene Health Partners, LLC

Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of the company. AHP accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided unless that information is subsequently confirmed in writing.


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