In an attempt to further its goal of creating a more transparent, patient-centric health care delivery system, the Centers for Medicare & Medicaid Services (CMS) recently released data related to Medicare provider charges for certain inpatient hospital services and outpatient procedures.[1] These releases have sparked substantial discussion in various industry and political circles surrounding the actual usefulness of the data released. While the usefulness of the raw data may be subject to debate, in combination with other metrics and quality scores, the data and further transparency will force providers to react, as quality of care and efficiency are linked to payment.

CMS has collected information related to these charges for years, it only recently decided to make these data public. In releasing the hospital inpatient data, Department of Health & Human Services (HHS) Secretary Kathleen Sebelius explained, “Currently, consumers don’t know what a hospital is charging them or their insurance company for a given procedure, like a knee replacement, or how much of a price difference there is at different hospitals, even within the same city.”[2] Likewise, when releasing the outpatient data about a month later, Secretary Sebelius stated, “A more data driven and transparent healthcare marketplace can help consumers and their families make important decisions about their care. … The administration is committed to making the health system more transparent and harnessing data to empower consumers.”[3]

The release of these charge data is a piece of the three-part initiative by HHS to increase transparency in the delivery of health care in the United States, encourage competition, and provide consumers with more purchasing power. In addition, in an attempt to make all these data more useful to consumers, HHS is providing funding to data centers to collect, analyze, and publish health pricing and medical claims reimbursement data. CMS hopes that this effort will help consumers better understand the comparative price of procedures in a given region, within specific care settings or across different health insurers. HHS also made approximately $87 million available to states to enhance their rate review programs and further efforts in health care pricing transparency.

Hospital Charges

Released on May 8, 2013, the hospital inpatient data (compiled by CMS from hospital FY 2011 claims) details hospital charges from approximately 3,400 hospitals that receive payment for inpatient acute care services under the Medicare Hospital Inpatient Prospective Payment System (IPPS). These hospital charges are for services provided in connection with the top 100 most frequently billed inpatient claims, including kidney and urinary tract infections, pacemaker implantations, and chronic obstructive pulmonary disease. Combined, these claims account for almost 7 million discharges, or 60 percent of total Medicare IPPS discharges.

Less than a month later, on June 3, 2013, Secretary Sebelius released the outpatient charge data as part of Health Datapalooza IV, an annual conference on data transparency. The outpatient dataset released include a hospital’s average charge for 30 given outpatient procedures, as well as the average Medicare payments that the hospital actually received for the procedures, including the Ambulatory Payment Classification amount, the Part B coinsurance amount, and the beneficiary deductible amount. Like the hospital inpatient data, the outpatient data was culled from charges and payments from FY 2011. The 30 procedures in this dataset include clinic visits, echocardiograms, and endoscopies.

Both data sets released by CMS show wide pricing variations, not only regionally, but also among hospitals in the same geographic area or city.[4] The following map, compiled by CMS and included in its Fact Sheet for the Inpatient data release, visually illustrates the vast disparities throughout the nation.

Click here to view image.

 Is the Release of Data Beneficial?

These data, and in particular, the variances in charges from hospital to hospital, have prompted a number of discussions over the data’s ultimate relevance to a consumer’s decision making process. For example, hospitals determine prices based on a number of components including geographic variation, patient acuity, supply costs, hospital status, patient characteristics, and patient mix. Medicare, Medicaid and commercial payors subsequently negotiate discounts from these gross charges, thus resulting in significantly lower actual charges to payors and patients. Likewise, individual states and the Affordable Care Act (ACA) have instituted certain limits on the amounts low-income, uninsured patients pay hospitals[6] while many, if not most, hospitals offer significant discounts to uninsured or underinsured patients who avail themselves of a hospital’s financial assistance policy. Current patient responsibility under many benefit plans would also render these data somewhat irrelevant especially with respect to inpatient care. For example, under Medicare Part A, a beneficiary has to meet the deductible, which is the same regardless of what provider he/she uses and then Medicare pays one hundred percent for the next 150 days in an episode of care. Therefore, from a purely financial standpoint, a hospital’s gross inpatient charges should have very little impact on the decision-making process of a prospective patient because without further data these numbers are meaningless to the patient’s potential out-of-pocket spend.

This is consistent with a recent study conducted by PwC’s Health Research Institute released in July 2012 entitled “Customer experience in healthcare: The moment of truth”.[7] This study surveyed over 6,000 consumers to determine what factors influenced their decision in choosing a health care provider while comparing these results across other service-based industries. PwC found that despite consumers shouldering an increasing amount of their health care costs through insurance premiums, deductibles, and copayments, a consumer’s selection of a provider is based more on convenience and perceived quality of the health care experience than on actual price.[8] In fact, only eight percent of consumers surveyed ranked price as the primary driver of their decision making in the health care context.[9]

As an illustrative example, consider the comparison CMS provided in its Inpatient hospital data press release. CMS noted that on average, inpatient charges for services a hospital may provide in connection with a joint replacement range from a low of $5,300 at a hospital in Ada, Oklahoma, to a high of $223,000 at a hospital in Monterey Park, California. While this discrepancy in charges is confounding on its face, the press release offers no further explanation for this variance, which could lead one to the logical conclusion that patients in Monterey Park, California are being overcharged. However, traveling to Ada, Oklahoma, for care is probably not convenient for patients in the Monterey Park service area.

Likewise, this begs the question as to whether patients would even desire, when possible, to travel to a facility with a lower gross charge to receive inpatient care — a question that could not be answered, according to the PwC study, without additional information, such as outcomes for the specific procedure types, quality scores for the institution, and the reputation of the provider. While patients may be more likely to price shop when obtaining outpatient services as a result of increased cost-sharing obligations under many benefit plans, data shows that convenience and quality will still be a consistent driver in these situations, as well.

There are other agency and congressional efforts that will also ultimately affect efforts to evaluate hospital and other provider quality. For example, CMS recently announced the redesign of its Physician Compare website, which now provides additional information on physicians including a physician’s board certification, whether electronic health records are utilized, affiliations with hospitals and other health care providers, and information regarding physician specialty and group practices.[10]

Within Congress, CMS’s transparency efforts have captured the attention of lawmakers, particularly after the recent Steven Brill epic Time article[11] exposing the hospital charge master and lack of transparency in the health care system. Former Senate Finance Committee Chairman Chuck Grassley (R-IA) and Senator Ron Wyden (D-OR), poised to be the next Chairman of the Senate Finance Committee, have introduced legislation[12] requiring CMS to make public data on Medicare payments to physicians and suppliers. Reportedly, this legislation is being considered for inclusion in annual legislation to address impending reductions to Medicare reimbursement to physician services. Of course, price transparency remains but one piece of a much-larger puzzle. Congress so far has largely acknowledged such transparency efforts as a good first step, though it is questionable the extent to which such efforts will be sufficient to curtail spending for the ever-growing Medicare and Medicaid program.

CMS’s data release could become more interesting and relevant if and when combined with certain quality of care data collected by both CMS and other third-party sources, including data published through the Medicare Hospital Compare program[13], the Leapfrog Group, by insurance providers and through certain other third-party organizations such as Consumer Reports, or Angie’s List. This premise is consistent with another study by PwC’s Health Research Institute released in April 2013, in which PwC notes that consumers are increasingly turning to various rating systems to guide their decision making in selecting health care providers.[14] By aggregating all of the data related to both cost and quality, patients may begin to select certain facilities or providers based upon a combination of these factors with the perception that a facility that has comparable quality scores and lower costs could be the best treatment option. As a result, going forward, all providers need to consider how the combinations of these types of data may be perceived and influence the marketplace and how to better position themselves to react and/or take advantage of increased transparency, data analytics, and the resulting rankings and other comparisons.