Great piece on ER pricing

By Nicholson Price

The New York Times has posted another installment of its excellent series, “Paying Till it Hurts,” by Elisabeth Rosenthal, this time on the astonishingly high costs of emergency room visits.  The piece is worth a read in full for its infuriating detail—really, I think the whole series is—but the message is pretty clear.  I’d also be remiss in not noting that the basic message, with its own set of excruciating details, was laid out in Steven Brill’s piece in Time magazine back in March.  But it’s such a big issue that it deserves this kind of attention.

The basic point is that the costs charged by hospitals are incredibly high, highly variable, and invariably opaque.  Hospitals price procedures, products, and everything else based on the typically secret (but not in California!) “chargemaster,” which lists sticker prices for everything.  Hospital executives speaking about the chargemaster say no one pays sticker price.  That may be true, but the discounts from sticker are almost totally opaque, which hampers the market’s cost-checking role (the Times piece describes Sutter Health contracts as having “gag clauses” so that insurers who negotiate with Sutter can’t tell the employers who are paying for the insurance what rates have been negotiated).  In addition, lots of locales are dominated by one or two hospital systems, which consolidate then raise prices without worrying much about competition.  Finally, most people aren’t comparison shopping for an ER visit anyway – even if they could.

The effect of opacity and consolidation looks to be pretty regressive—even if no one plays the sticker price, the people paying closest to it are those without insurance, who have no prenegotiated discounts and no one to argue on their behalf.  Cal. Pacific’s CEO, Dr. Warren Browner, argues for opacity for pseudo-progressive goal of fleecing rich foreigners (“You don’t really want to change your charges if you have a Saudi sheikh come in with a suitcase full of cash who’s going to pay full charges.”), but that seems a lot rarer than near-poor coming in to ERs uninsured and getting billed full fare (especially if, a la a certain recent presidential candidate, ERs are our health care system for the uninsured).

As in the rest of the US health care system, higher costs appear to be totally divorced from quality of care or outcomes (national variation here (pdf), international comparison here).

It’s hard to see what effect PPACA/ACA/Obamacare might have on this problem.  The Independent Payment Advisory Board has lots of power (or will once it has members), but is still Medicare-focused.  Cost-savings in Medicaid or Medicare payments might spill over into the private insurance market, but if the opacity and market power mechanisms remain, it’s not obvious to me how and why that would really happen.  Medicare is already paying by care episode much more than private insurers, who are still usually fee-for-service.  More competition and transparency might help (More vigorous antitrust enforcement?  Required disclosure of billed/paid costs? (maybe, but maybe not)).  Maybe the fact that more people will be insured will make a difference; if the biggest burden is borne by the uninsured, who have little leverage, lowering that numbermight lower the burden.  But it could also just make it even more unfair for those who remain outside the system.

[UPDATE 12/5/13: I missed Section 9007 of the act, which requires charitable hospitals to publish their chargemasters and prohibits charging chargemaster rates to individuals who qualify for financial assistance (instead, they’d be charged insurer-negotiated rates).  Unfortunately, the implementing regulations haven’t been promulgated by HHS or Treasury, so these provisions aren’t yet applicable.  But eventually they may help, once they’re implemented.  Steven Brill has a piece on this here, and Sarah Alder here.]

In any case, the Times piece is worth a read.  And so are the previous four entries (on colonoscopies, pregnancy, joint replacement (with a nice discussion of medical tourism), and prescription drugs).

W. Nicholson Price

W. Nicholson Price

Nicholson Price is an Assistant Professor of Law at the University of Michigan Law School. Previously, he taught law at the University of New Hampshire. He holds a PhD in Biological Sciences and a JD, both from Columbia, and an AB from Harvard. He clerked for Judge Carlos T. Bea on the Ninth Circuit, and was then appointed as an Academic Fellow at the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard. Nicholson teaches patents and health law and studies life science innovation, including big data and artificial intelligence in medicine. He recommends reading Bujold, Jemisin, and Older. His work has appeared in Nature, Science, Nature Biotechnology, the Michigan Law Review, and elsewhere. Nicholson is cofounder of Regulation and Innovation in the Biosciences, co-chair of the Junior IP Scholars Association, and a Core Partner at the University of Copenhagen’s Center for Advanced Studies in Biomedical Innovation Law.

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