healthcare money imageThis week, NPR’s Marketplace aired a piece on what I have taken to calling the “black box of healthcare” – pricing. There is a committee, called the RUC, set up and run by the American Medical Association, that reports to CMS (the federal unit that runs Medicare and Medicaid) on relative value numbers for the thousands of medical procedures that wind up as billing codes for Medicare and your health insurer.

Those relative value numbers = PRICES. This isn’t considered price-fixing under anti-trust rules because the RUC reports to CMS, which then publishes the numbers on the Medicare reimbursement rate schedule. So the AMA isn’t publishing the prices, CMS is.

Fox, meet henhouse. Or, stated in another way: airplane, meet the black box that is making you crash and burn. The Marketplace page linked in the 1st graf has plenty of linkage to additional context for this issue. Read them, and weep.

How is it that an industry whose aggregate cost is now at close to 20% of US GDP gets to set its own prices, and then have them published by the federal government as The Official Price List?

It’s called effective lobbying, and it’s so effective that it’s essentially kept access to the pricing committee process a secret for decades. Which makes it pretty clear why so much of our GDP goes to healthcare, doesn’t it?

The sound bite in the story that I found the most hilarious was from Charlie Baker, the former CEO of the Harvard Pilgrim health plan in Massachusetts. His quote:

By having a process that for all intensive [sic] purposes isn’t a public process, and doesn’t appear to actually be accountable to much of anybody, I think that’s kind of un-American!

I find this hilarious because Harvard Pilgrim is a member of America’s Health Insurance Plans, the industry group that advocates (translation: lobbies) for health insurers, who also have their hands on the levers of healthcare pricing via reimbursement rates (granted, based on CMS’s published rates, which are based on the RUC’s relative value numbers). Which means that the very-American health insurance industry is a co-conspirator in this price-setting (-fixing?) game.

Healthcare pricing is such a black box that if a patient attempts to find out what something will cost before s/he has a medical procedure, s/he will be met with a blank stare, “I don’t know”, “nobody knows how to figure that out”, or some other version of “what?” that gets you no answer.

e-Patient Dave deBronkart has a terrific example of how shopping for healthcare can be done, even in the face of “what?” – click the link for the full story there. Patients acting on their own behalf to determine their economic exposure before they get medical care might begin to bend the healthcare cost curve IF they can get the price information.

Dave isn’t the only customer of the healthcare industry who’s looking for pricing, and answers to the variance in said pricing depending on who you ask. The LA Times had a piece in their May 27, 2012 business pages on how patients could negotiate cash prices at the hospital or in the doctor’s office that were far below insurance reimbursement rates IF they didn’t use their insurance.

As an industry, healthcare is deeply broken. Since the industry has been supported for decades by an economic model that hides pricing from its consumers – employer-based health insurance – the end users, patients, have no clear path to making informed choices based on quality and cost.

If you ran your business that way, you’d be out of business pretty quickly. It’s time to break the healthcare industry’s economic model – if ever there was a sector ripe for creative economic destruction, healthcare is that sector.


The black box that caused the crash (of healthcare)