Friday, September 29, 2006


In the health care world, it has become fashionable to be in favor of "transparency," which roughly means public access to how well providers deliver care and what they charge for it. I agree with this. Health care is one of the few industries in which consumers do not see this information, and it is time to change that.

There are two ways to provide information on how well providers deliver care. One is based on processes, e.g., what percentage of emergency room patients with chest pain are advised to stop smoking (yes, that is one that is commonly collected.) The other is based on results, e.g., what percentage of cardiac surgery patients survive. Both can be important, but is obviously the latter that most consumers will care about. I am in favor of publication of both of these kinds of data, but especially the latter.

The price issue is more problematic. Hospitals and doctors don't get to set their own prices. These are negotiated with insurance companies. Recently, two CEOs of insurance companies in Massachusetts, Charlie Baker of Harvard Pilgrim Health Care and Jim Roosevelt of Tufts Health Plan, were heard to say or were quoted in the newspaper as being in favor of posting the prices that hospitals and doctors charge. Did they really mean that? This would mean that HPHC and Tufts would have to disclose to the world the rates that they have negotiated with BIDMC, Mass General Hospital, New England Medical Center, and the like -- in addition to the rates they pay different groups of physicians. In the past, sharing and publication of these rates was not permitted and was actually a violation of anti-trust laws.

Let me make it clear. We would LOVE to have those prices made public because we believe it would make clear that the largest player in our market, Partners Healthcare System (the owner of MGH, Brigham and Women's Hospital, and several others), gets higher rates because of its market dominance. We would rather have rates based on the quality of patient outcomes -- where the providers that achieve better results would be paid better. Maybe that is what Jim and Charlie are hoping for, too, so they can get out from under the market power of Partners and so consumers could make more rational choices about where to get their care. Maybe they believe that the best way to achieve it is for the state to order them to post their prices. Whatever their motivation, they deserve our support.


Bwana said...


Perhaps the goal is to have uniform rates that are lower. If publishing rates by Harvard Pilgrim and Tufts Health Plan would lead to this, Partners may get lower rates but you will not necessarily get higher rates.

Perhaps you could explain, when you have a chance, why hospital costs are at the levels they are. I have some understanding of the costs involved, but I am sure my understanding is outdated and not as comprehensive a one as you, sitting atop the actual pyramid, can provide.


Anonymous said...

Right, but in the meantime, their payments to Partners just aggravate the competitive advantage enjoyed by the dominant provider in the marketplace, enhancing its market power even further. I would take my chances against anybody in town if we were given the same rates because we intend to be incredibly efficient compared to the others in how we run our hospital.

On the hospital cost side, it is pretty straightforward. There are the normal operating costs of running any organization: Salaries, benefits, supplies, utilities, equipment, depreciation. And then there is the amortization of funds borrowed for buildings and other major capital items: interest and principal payments on debt. As a non-profit, we pay no income tax and no return to shareholders (dividends), and no property taxes, although there are some payments made to municipal governments.

What makes it more expensive is the highly complex nature of what happens. First of all, the place has to run 24 hours a day, so you need staffing to cover every minute of the day on every floor. Second, the utility costs are very high because all rooms need to be climate-controlled in all weather, and there are strict regulatory requirements about the number of air changes per minute. Third, salaries for technical workers (nurses, lab technicians, and the like) reflect shortages in those fields and the high degree of training those people need. Fourth, the cost of medical supplies is high and rising quickly. Think about drug costs, operating room devices, drug-eluding stents for cardiac procedures. Most of this stuff is used once, inserted into patients or disposed for sanitary reasons after use. Some is re-used, but it must be sterilized, another expensive process. Fifth, the construction costs that must be financed and amortized are higher than other commercial buildings because of regluatory requirements and patient needs. As a rule of thumb, we expect new space to cost $500 per square foot, not including the furnishings and equipment that goes into that space. Compare that to normal commercial or industrial space which is probably half that cost.

Anonymous said...

Mr Levy,

I applaud your embracing of transparency of outcomes and pricing.

I also applaud your improvement journy to establish transparency of cause and effect within your clinical and non-clinical processes. While not intended for patients, this type of transparency into real problems and real time problem solving will drive the outcomes that everyone wants to see.


Patient Dave said...

This is news to me, and I'm pretty outraged. It's disgusting to me that negotiations and price-setting would be going on out of the public eye. I had no idea MGH etc got paid a different amount from anyone else.

Far worse is that if somebody (insurance companies) is/are going to unilaterally set prices, without the knowledge of their customers (us), they'd base prices on anything BUT quality of care or efficiency.

It seems especially perverse that a major player would use its higher volume ("dominant market position") to charge HIGHER prices. That's anticompetitive.

Free markets are supposed to lead to efficiency and more of what the customers want.

So yeah, I'd say transparency would be a very good thing.

Patient Dave said...

Paul, I'm puzzled by your asking "Did they really mean that?" Both seem to indeed mean exactly that.

I followed the links in your original post. Here's some additional info for those who want to know more:

The Jim Roosevelt (Tufts) item is a letter to the editor, approving of a Romney administration proposal reported in the Globe:

The Charlie Baker (HPHC) link goes to a press release. The relevant quote is "As the health care industry seeks to control costs and improve care, it is absolutely necessary to provide patients with information about how much a procedure costs and how well a provider performs that service before the patient decides on his or her care. According to a survey we sponsored last year, consumers spend more time comparing the cost and quality of their groceries than health care services. We must give patients the tools they need to be smart consumers.”


It looks to me like they both agree with you, and that would be great news to me.

Anonymous said...

Of course not! The way things are structured, we probably all have a similar “fee schedule” which can be their lame attempt at transparent. What you don’t see is signing bonuses, pay for performance, side payments, etc. It’s a crock!

Punketta said...

I work for Tufts Health Plan, and so it interested me to see a blog from the other side of the business. I'll be checking in often!


Anonymous said...

I wish more dissatisfied patients reported their experiences to their insurers. If you spend 2 days in the post-operative care unit and never get admitted to a room, why should your insurer pay the hospital for a room? People assume that they have no control over what the insurers will and won't pay for. Health insurance is expensive and if you aren't happy with the care you receive, then make yourself heard: tell your health care providers and your insurer.

Roy M. Poses MD said...

I applaud a hospital system CEO brave enough to enter the blogsphere.

Re: the issue of quality measures - I agree that outcome measures are superficially easier to interpret, but they may be confounded by factors other than quality, particularly the severity of the illnesses of the patients going to particular doctors or hospitals.
At Health Care Renewal ( we have discussed that and other problems with the present state of quality measures, see:

Anonymous said...

Yes, Roy, outcome measures can vary according to severity of the illness, but this is often used an excuse by doctors and hospitals not to publish anything -- or not to publish anything that is really useful to consumers. So, how can we get past this deadlock?

One approach is to just post the measures -- let's say, cardiac surgery mortality rates -- but then give each hospital a chance to comment in an adjoining box as to why they think their number might be overstated -- for example, because they treat more cardiac cases in patients who have other complications. Consumers with those complications who are looking for the best hospital might actually be pleased to know that such a center handles more difficult cases with their particular characteristics.

In other arenas, the absolute number of cases performed by a hospital and by particular cases could also be of value and could easily be publicized. See my posting on Transplants. There are some procedures where numbers count.

Roy M. Poses MD said...

First of all, outcomes are not just affected by the severity of the primary illneses, but by co-morbidity, health status and/or physiologic functional reserve, and biopsychosocial issues.
Second of all, even for clinical problems in which predictors of outcomes have been studied to any extent, there are often competing outcome prediction instruments which may lead to different hospital or physician rankings if used to adjust outcome comparisons.
So, in your scheme, on what would the hospitals base their arguments that their patients had a higher risk of the outcomes? And how would the reader judge their claims?
PS - the differences in numbers of cases seen at different hospitals has another effect, on ability to detect statistically significant differences. And if the differences between hospitals are not tested for statistical significance, it is impossible to tell whether they are due to chance alone.

Anonymous said...

Roy is correct, of course, so how do we thread the needle between a patient's right to know about the quality of an institution and the statistical correctness of the data presented? I think some simplification will be necessary to make the information understandable. If overly simplified, it will be understandable, but inaccurate. If totally accurate, it will not be understandable. But, the public really does want this information and does not necessarily want to deal with the implications of all the confounding variables. So, I think some compromises will be necessary.

Anonymous said...

Have you given much thought to all the facilities being opened by Partners using their excessive "profits". It seems illogical that 1 provider can earn so much and all others seem to be far behind. It seems they have an unfair advantage at Partners.

Roy M. Poses MD said...

One alternative to outcome measures is process measures. There are a few truly evidence-based measures available, like the proportion of patients without contraindications getting aspirin and beta blockers post-myocardial infarction, the proportion of eligible patients getting influenza vaccine, etc.

Unfortunately, we have developed only a limited number of process measureswhich truly are evidence-based, and these measure only a fraction of the processes used in patient care. So if we just deploy these, we don't really get a good measure of overall quality of care, and risk encouraging doctors to do the processes that are measured, maybe at the risk of not doing more important things that aren't yet measured.

One reason our alternatives aren't so good is that as a society we have invested too little in clinical studies to determine what really works (really provides benefits that outweigh harms) in health care, and much too little in improving quality improvement methods.

Anonymous said...

Are there confidentiality agreements that prohibit your hospital from disclosing what you are actually paid by insurers, Medicare and Medicaid for various operations and procedures? If so, are you seeking regulatory changes, by legislation if necessary, that would outlaw such agreements?

Major insurers tell me that over 80% of inpatient admissions are paid on a case rate or per diem basis. For operations that include the insertion of an expensive device, there is usually a carve out for the device and a per diem reimbursement for the rest of the episode. This suggests that providing pricing transparency would be a relatively simple matter under most circumstances and an even simpler matter for outpatient procedures.

Pricing transparency is especially important, in my view, for big ticket hospital charges and surgeons' fees. Disclosing actual fees paid to radiologists, anesthesiologists and pathologists (the RAP's) would also be very helpful.

I am pleased to learn that you are generally supportive of transparency, and I hope you will work hard to make it a reality.

Anonymous said...

There are legal factors that prohibit disclosure. I think, but am not sure, that most of these relate to antitrust concerns -- e.g., that hospitals and/or insurers would band together to compare rates and then use this knowledge to restrain competition in the setting of rates. However, I am not a lawyer, so I am not sure of those details. I do know that we cannot unilaterally publish our rates, nor talk with any other hospital about them. Nor can an insurer disclose to us the rates that it is offering to another hospital. So, yes, legislation or some other state regulatory action would be would be required to make this a reality. We do not have the political influence to cause such legal changes to occur, especially in the face of the political opposition by those players in the market who benefit from these prohibitions. (I don't generally ask legislators to bother filing bills that have no chance of success. There needs to be a broader public demand to make such things happen.)

Anonymous said...


Thanks for the fast response. I do not understand how anyone could prohibit hospitals or insurers from disclosing their prices on anti-trust grounds. How is this different from airline fares or hotel room rates or sticker prices on cars, along with millions of other products and services throughout the economy for which prices are readily available?

Health care is not a uniform product in any case. As an academic medical center, your hospital has many capabilities that community hospitals can't match. When you negotiate prices with insurers, I think it would also be helpful if your accounting systems were sufficiently robust to be able to demonstrate fairly clearly what it cost to provide various services. If other acamdemic medical centers have lower costs due to greater efficiency, your challenge would be to find out where you need to improve and drive the organization toward best practices. If higher costs also come with superior outcomes you should (and probably will) be paid appropriately.

Since all insurers presumably know what Medicare pays for every DRG and APC, reimbursement negotiations tend to be up from Medicare these days rather than down from chargemaster. I urge you to have your legal staff look into this in more detail and see if the transparency ball can be moved forward. Governor Romney, especially as a former businessman, should be interested in this as well. The winners in a price transparency environment will be the efficient, low cost providers and the centers of excellence (like your hospital), in my opinion.

Finally, with respect to the uninsured, I think it would be appropriate to limit what you actually expect to get paid to, perhaps, 20% above Medicare or a rate in line with what you accept from the private insurer with whom you do the most business no matter what the chargemaster price is and even if the patient is wealthy. Afterall, how would you like to be on the receiving end of a bill that you knew was three or four or five times what the hospital routinely accepts as full payment from Medicare for the same set of services?

Anonymous said...

It is not necessarily our posted charges that cannot be disclosed, it is the contract between us and the insurance company that provides the actual payment amounts, which are substantially different. The insurance companies get a contractual allowance (reduction) off the posted charges.

We have a very rigorous accounting system, and we know our costs to a great level of detail. Those do not determine the rates we get. The rates are the result of a back-and-forth negotiation on a large number of topics, and they are influenced by the degree of market power of the provider. Several years ago, Tufts Health Plan found this out when the Partners' physician contracting organization threatened to drop them as an insurer if they didn't offer higher reimbursement rates. Tufts quickly had to give in because they could not survive without the partners' doctors in their network.

I think Governor Romney has completed his legislative agenda on health care issues. This will have to await the next governor.

Anonymous said...


I understand that it is the contract rates (not list prices) that need to be disclosed to provide patients with useful information. As a starting point, I think, at the least, every hospital could post its Medicare rates on its website for every DRG and APC code.

An executive from Humana recently told me that they would like to disclose actual contract rates, but hospitals impose confidentiality agreements on them that prohibit it. In Milwaukee, however, presumably with the permission of participating hospitals, Humana recently launched a transparency initiative that includes actual prices paid for at least some of the most common procedures. Wellpoint says it wants to be able to provide information that would be useful to consumers such as the cost of what it calls a total episode of care. United Healthcare has made similar comments as well. Whoever is standing in the way of transparency, it just doesn't make any sense. Perhaps when your contracts with insurers come up for renewal, you can take this issue up with them at that time.

Anonymous said...

I thought hospitals within geographic regions have the same Medicare rates. Is there someone out there who wants to clarify that?

As for getting insurers to allow us to post their rates, I don't know their legal constraints. I don't think it is the contract that binds on this issue, but the law. Once again, is there someone out there who knows the law?

Anonymous said...

While I don't know this for a fact, my understanding is that even within a region, Medicare may pay academic medical centers more than community hospitals. Also, hospitals that treat large numbers of uninsured patients, receive extra money known as disproportionate share payments. However, even if rates are identical among hospitals within a region, consumers do not know what they are. If they did, Medicare rates would be a useful benchmark in assessing the reasonableness of their own bills.

With respect to the transparency issue, I don't know whether it is the contract that binds or the law either. Your legal department probably either knows or could easily find out. It may also be an issue that varies by state. If you learn anything more definitive on this, I (and probably others) would be very interested to learn more. Thanks so much for your indulgence. I'll try to lay off of this issue for awhile.

Anonymous said...

A helpful explanation from one of my finance people:

"All hospital chargemasters (price list) are public record. Hospitals are required to submit this data to DHCFP (Division of Healthcare Finance and Policy) on a regular basis. BIDMC makes every effort to provide comprehensive price information to patients so a patient can make an informed decision. Also, BIDMC makes every effort to assist patients in accessing insurance coverage through Medicare (disability), MassHealth and free care. We also work with charitable organizations, where possible, to find sources of payment to make a patient’s financial burden lighter (example: CJP.)

"When a self-pay patient is booked for a service, we provide an estimate of charges based on the actual test (example: lab or radiology) or the “case” (example: normal delivery of a baby). For the cases, we use a year’s worth of data for that particular DRG. All patients are offered a discount for payment at the time of service, except for cosmetic surgery. (Higher discounts can be approved by selected finance folks -- usually for chemo, etc.) The payment received is in line with some of the smaller contracted payors. BIDMC’s prices were recently reviewed and are within market for the other Boston academics."

Anonymous said...


Thanks for that explanation. Very helpful indeed. As a busy CEO, I don't know how you find time to do this, but I, for one, really appreciate it.

For insured patients, the responsibility to provide transparency should really lie with the insurer, in my opinion. Since many health insurance policies have a lifetime benefit cap, patients who have such policies should care about their healthcare costs, especially for the more expensive episodes like surgeries and hospital stays.

I think BIDMC's approach to dealing with self-pay patients is very reasonable. I still believe, however, that posting your Medicare rates would provide a useful benchmark.

Anonymous said...

What about the pricing for the uninsured....... wrapped up in this whole issue is the terribel state of affairs that places the population that has no insurance at a double disadvantage. They have no insurnace and get charged rack rate - that does nto seem fair!

Anonymous said...

See second comment above. They don't get "rack rate".

Anonymous said...

The system is broken and if it continues on the path of the last few years it can do nothing but crash.

I am not a hopital administrator or professional health insurance or Medicare person, but I am a consumer. My wife recently went to the hospital for chest pains. She was kept in the emergency room for almost 24 hours and then moved to a room in the hospital. She was given a stress test and the conclusion was that she was fine, but there might be a little problem with a vein near her heart. She was given a heart catherization and the physician said there was nothing wrong.

The hospital bill was $20,000. We have not yet received the physicians bill.

Regardless of who pays, the hospital cost is absurd. In addition, the hospital bill is unintelligble. I have spoken with the billing office and the responses to my questions are no better than a flim flam artist would make.

You can rationalize hospital costs with all of the line items of expense incurred by hospitals and you can conduct the discussion in the "buzz words" of the industry, but at the end of the day, it is all nonsense. Nothing more and nothing less. Unless the consumer can understand the pricing and have some confidence in its validity, the system will eventually fall apart, regardless of who ultimately pays the bill.

What can be done?

A Frustrated Consumer

Raf M said...

Anon. is right, cant the government step in to protect the uninsured? Or will everything depend on the privatized free market?
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