At What Price Transparency

On May 8^th the New York Times headlined the article, Hospital Billing Varies Widely, Government Data Shows.  For Democrats, further evidence that hospitals continue to use their market prowess to gouge the poor and uninsured. For Republicans, further evidence that the Affordable Care Act is failing miserably in controlling costs and empowering consumers. For news reporters, fodder for controversial content. For anyone who has worked in healthcare for any meaningful time – a BIG YAWN (see also, Pick a Price, Any Price, addressing this phenomenon from a Consumer-Driven Healthcare perspective).

It’s not just a non-story but a very old and very tired non-story as well. The cause and effect relationship between the cost of resources that go into delivering care at hospitals and the established charges for that care (i.e, the hospital charge master) bears a weakly causal relationship at best. That reality is a result of the Medicare reimbursement methodology (and, in turn, other governmental programs – e.g., Medicaid – as well as commercial insurers largely adopting very similar approaches).

Healthcare reimbursement in the US is a long and complicated story and one that, from a financial perspective, has seen many winners and many losers – neither of which group represents the individuals that are supposed to benefit from healthcare: the patients. If I can try to sum up the experience of the past half century it would be that effort upon effort has been made to develop systems that fairly reimburse healthcare providers for their costs plus a profit (or income, as it were for the individual).

There are two major problems with cost-based reimbursement: the first is the ability to prospectively allocate overhead costs in a logically consistent manner for a production model that is extremely complicated and constantly changing; the second (and a by-product of the first) is the faulty logic that holds historical production/cost relationships are reasonable predictors of future costs, which belies the effects of innovation, efficiency and productivity improvements.

So why am I jumping on the bandwagon to beat a dead horse. Because I believe the media attention focused on the wide variability in hospital pricing is symptomatic of a much bigger challenge we have in healthcare delivery – and in turn, healthcare public policy: that is, transparency. And in an age of electronic information enlightenment, the public policy issues surrounding transparency both transcend and go well beyond healthcare.

Take for example the two current scandals adding more paralysis to an already ineffective government in DC (as if that were possible).  In the first, the IRS appears to have selectively targeted 501(c)(4) applications based, at least in part, upon political motivations.  In the second, the Justice Department secretly obtained phone records of AP reporters last year stemming from concerns over national security leaks. Information is power – and power easily abused, particularly when the stakes are high as in politics.

The term, transparency, calls up thoughts of truth, honesty, candid, forthright – all terms that are generally consistent with values espoused by the better parts of our nature. So it is a difficult reconciliation that the promotion (or abuse) of transparency can lead to information ending up in the hands of those for whom it was never intended. In other words, as the recording, storage and sharing of electronic information proliferates transparency and privacy are going to increasingly become public policy enemies.

And other than issues of national security nowhere is this confrontation already more acute than in healthcare. Concern over patient privacy has long been one of the primary obstacles to IT adoption in healthcare, and right that it should be. What is more private than our individual health records? But the knife cuts both ways as we know. Under our legal system, quite often the right of privacy is abused as a faux obstacle impeding transparency. This is often manifested in healthcare as over charging third-party payers for services and care not actually provided.

A common theme of the Affordable Care Act is the promotion of transparency with particular emphasis in two areas: patient outcomes and cost data. While the latter faces allocation methodologies and consistency challenges, the former faces the additional challenge of subjectivity in establishing measurements. These are challenges that absolutely must be overcome.

Transparency in healthcare is a necessary prerequisite to patient empowerment, which has the potential to drive organic performance improvement that doesn’t come at the cost of additional regulatory oversight. Transparency is also a prerequisite to determining value (i.e., outcomes divided by costs), which is the basis upon which many employers, commercial insurers and governmental programs are developing new healthcare payment models (i.e., payment for value – not volume).

Throughout history strategies of both business and war have often depended upon the advantage gained from having access to information where others do not. Whenever there are two competitors – or world enemies – transparency holds the potential to give an advantage to one over the other. And so as long as the US healthcare delivery system remains positioned someplace between a market-based system and universal system the push for transparency is likely to continue facilitating unintended and undesired consequences.

Cheers,
  Sparky