It’s no secret that prices in health care are berserk. For years, industry experts have detailed the price gouging and layers of opaque business practices that distort the cost of care.
A new study published this week in JAMA Internal Medicine makes this abundantly clear: Hospital emergency departments across the country are prone to excessively overcharge patients with private insurance, the study found, demanding that patients pay — on average — more than four times what Medicare pays for typical emergency procedures.
For example, Medicare will pay $16 for an electrocardiogram, but different emergency rooms will charge patients with private insurance anywhere between $18 and $317 for the procedure. Stitches and sutures can cost up to seven times more than what Medicare pays; a CAT scan can cost almost 28 times what Medicare pays.
These prices vary widely — and almost randomly — depending on the hospital providing the treatment. And as it turns out, low-income patients and minority groups are more likely to receive care from hospitals charging the most, the JAMA study found.
“This is not the heritage of sound medicine,” said Martin Makary, professor of surgery at the Johns Hopkins University School of Medicine and the study’s senior investigator.
Makary argues that this is the outcome of an extremely complicated and disjointed health-care system — and it’s not necessarily the result of greedy hospitals trying to milk large profits out of vulnerable populations. Instead, it’s the result of messy provider networks — rife with discounts and confusing contracts, designed by insurance companies and providers to attract customers.
Every time someone pays a higher price for health care, they’re essentially subsidizing care for other people. Medicare consistently pays the least, so higher prices in private plans equate to a hidden tax on the rest of patients in the form of higher insurance premiums. The situation is most painful for the uninsured.
There are policy solutions to correct this system. Maryland, for example, has long operated under an “all-payer system” in which everyone pays the same rate for the same treatment — set by an independent state agency. Under this system, Medicare pays higher rates for care than in other states, but in the long run, it saves money — to the tune of $319 million — because the payment system incentivizes hospitals to reduce the number of people they admit.
In other words, it encourages payment for quality of care, not quantity. Health-care providers have an incentive to work more closely with nursing facilities to deliver preventive care. Physicians also work more closely with patients to reduce preventable complications and hospital readmissions, which have dropped in Maryland faster than the national average in recent years.
For Makary, this innovative approach to solving price disparities in health-care costs is refreshing, although he notes that what works in Maryland might not work everywhere else. But other states have also passed laws to reduce price variation in health care, particularly for uninsured and low-income patients who would be most harmed by surprise medical bills.
Unfortunately, reform efforts led by Republicans in Congress will likely worry the health-care industry enough to threaten state-led initiatives. Uncertainty — especially in terms of what our insurance markets will look like a year from now — makes it difficult, if not impossible, for states to experiment with different policies. That’s a shame, because that’s where the exciting and innovative reforms are happening.