Complexities Inherent to Healthcare Price Transparency

By March 14, 2019Uncategorized

In the dialogue on healthcare in the United States, price transparency remains a major issue that has served as the impetus for debate. To understand accurate price transparency, it is essential to be knowledgeable on the difference between cost and charge. Particularly in the perioperative care and anesthesia services setting, this understanding is crucial for realizing how costs of care are computed and subsequently presented to patient populations.

Cost of care broadly refers to the specific expenses that a healthcare system utilizes in order to deliver comprehensive care. The cost of care can either be calculated from a top-down or bottom-up costing method1. In this way, healthcare administrative managers essentially divide the total cost of, for example, an operation into the sum of its parts. Therefore, each subsection can be a resource by detailing the personnel and supplies that are necessary for each stage. In surgical services, this process must include all stages of the perioperative cycle, including pre-operative planning, sterilization and decontamination of needed surgical instruments, and preparation of the anesthesia necessary for the specific operation. Furthermore, the cost for housing a patient in the wards also factors into such calculations, including referencing relevant expenses for the floor space, accommodations, housekeeping, and meal service. The surgery itself is similarly composed of many costs, such as all required instruments, and the compensation of surgical staff, which may be fixed or variable depending on the scenario. Post-operative costs will reference the bed fee, as well as any dictated medications or physical therapy that is ordered by the physician. Each of these costs are thus summed into a global cost per procedure, which can further be separated into the total cost per minute in the OR.

Yet, this cost is very different from the charge. Most patients will only see the charge for their procedure, which is in many cases billed to the patient’s health insurer. However, this charge is not necessarily the same as the cost of the procedure. Rather, the charge has been calculated by the administration’s forecast averaging of all procedures over time, thus allowing for the hospital to remain viable whilst reimbursement processes ensue. Hence, charges may be greater than the detailed cost of a procedure, in relation to these factors.

In response to the complex distinction between cost and charge, patient coalitions have advocated for the ability to view charges prior to entering the hospital, in a public forum. The Centers for Medicare and Medicaid Services subsequently provided a solution. The 2019 Inpatient and Long-Term Care Hospital Prospective Payment System Rule expands previous requirements of the ACA, and requires hospitals to produce lists of standard charges for all operations and related drugs online in an easily accessible format2. This list, known as the hospital’s charge master, was previously only accessible internally amongst healthcare administrators. The CMS rule will require administrative effort on the parts of hospitals, but will greatly expand price transparency between patients and their healthcare provider.

Policies will continue to refine the U.S. healthcare system, enhancing the ability of patients to understand the accurate cost of their healthcare. Recent changes have furthered this initiative, expanding transparency from hospital administration to patient population.

1 Macario, Alex. “What Does One Minute of Operating Room Time Cost?” Journal of Clinical Anesthesia, vol. 22, no. 4, 2010, pp. 233–236., doi:10.1016/j.jclinane.2010.02.003.

2 Centers for Medicare & Medicaid Services. “2018ASPFiles.” CMS.gov, 30 Nov. 2018, www.cms.gov/medicare/medicare-fee-for-service-part-b-drugs/mcrpartbdrugavgsalesprice/2018aspfiles.html.

About XenonHealth