Is Your Pricing Intellectually Consistent? 

Between the No Surprises Act, Price Transparency regulations, and a variety of state laws and news articles, there is a great deal of scrutiny on healthcare pricing right now. While I generally feel like the healthcare industry gets an unfair bad rap (many claims about widespread fraud in the industry label documentation deficiencies as “fraud,” and that is terribly unfair), I would posit that healthcare pricing is not one of the industry’s points of pride. 

I think that much of the problem stems from a decision to create a system featuring payers getting a large discount off billed charges, with everyone feeling that a large discount suggests the payer obtained “value.” As soon as many payers are paying 60 or even 50 percent of billed charges, it suggests that the billed charge is actually close to meaningless. When insurance companies have such large discounts, is a patient walking in off the street the only person who pays full price? Such a result yields terrible optics, and potential legal problems. 

In the healthcare world, patients often obtain services without first agreeing on price (the new Good Faith Estimate requirement for uninsured patients will likely start to change this.) When someone receives services without an agreement on price, there is an implied contract between the parties. Courts will impose a price term that is commensurate with what a reasonable party would pay/charge for the service. If a court is asked to review a situation in which a hospital charges $1,000 for a service, but most insurers pay between $500 and $600 for the service, the court is unlikely to require the patient to pay the full $1,000. When a healthcare organization gives large discounts to most payors, it may be inadvertently giving the same discount to others.

Healthcare pricing, much like airline pricing, tends to be mysterious to most of us, often including the people involved. The charges on bills are often a form of funny money, with almost no one paying the list price. If you had to explain healthcare pricing to an outsider, the lack of logical consistency in the system would quickly become apparent. There is a message there. It would be prudent for us all to take a step back and consider whether there are ways to make healthcare pricing more logical. Perhaps the first step is avoiding entering contracts that feature large (more than, say, 10 percent) discounts off of billed charges as a means toward creating a fee schedule.

Programming Note: Listen to David Glaser’s “Risky Business” segment every Monday on Monitor Mondays, 10 Eastern.