The Price Is Right There

June 5, 2006
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GRAND RAPIDS — Most industries have a basic unit that their pricing system is based around. For colleges and universities, it’s the credit. For attorneys, it’s the hour. For apple-pickers, it’s the crate.

The health care system, despite being one of the largest industries in the country, doesn’t have this basic unit of measure. That’s why patients can’t call several hospitals and get a straightforward price quote on outpatient treatment the way they could if they were calling several mechanics for a price on a new muffler.

Spectrum Health is about to launch a new Web-based service that will attempt to solve this discrepancy. Like many health systems, Spectrum has tried for years to provide price information to its patients, but there has never been an easy way to do it. There are two main reasons for that: volume and terminology.

“What we don’t want to do — when you’ve got 11,000 procedure items out there — is dump it onto a Web page in a massive PDF file or something,” said Mike Freed, Spectrum’s CFO. “No one would be able to open it.”

Even if they could open it, they wouldn’t necessarily know what they were looking at. Several thousand numbers associated with pricing categories called “DRGs,” “APCs” and “CPTs” wouldn’t exactly give consumers the bottom-line number they’re after.

“If we knew specifically what procedure was being ordered, procedure codes are in our charge master. So if you got the right procedure code, it could give you the right charge for that particular item. That is probably a very reasonable step to take,” said Freed.

Notice that sentence started with the word “if.”

“Hospitals don’t build their thinking in terms of pricing for something generally around procedure codes,” Freed said. And patients don’t necessarily know the procedure codes associated with treating their injuries and illnesses.

“Where it gets a little confusing for people is that a lot of that stuff is diagnosis-based, and a lot of the pricing is procedure-based. There again, we’re trying to speak a number of languages here at once, and it’s a little tricky to do.”

So finding out the price of fixing a given health problem can be somewhat labor-intensive. What Spectrum is attempting to do is to create a limited menu of the most frequently ordered procedures.

But even if they narrow that list down to a few dozen items, there are still some other quirks in the medical system that would make it difficult for patients to obtain bottom-line prices. For example, insurers negotiate discounts on certain procedures. Also, rates vary based on whether procedures are performed on an inpatient or outpatient basis.

“That’s just one of the complexities you run into here,” said Freed. “But we decided to focus on outpatient procedures. That’s generally what the consumer calls up with.”

He said that Spectrum has already prepared price quotes on about 700 various inpatient and outpatient procedures, based on an average of 500 phone inquiries per month.

“Right now, what we’re trying to do by Aug. 1 is get up most of the pricing for the common things that people are requesting. I can’t tell you right now how many items that will be, but we’ll make it a sizable chunk of what people are calling about.”

Spectrum’s sharing of price information is part of a larger effort toward financial transparency. It is also aimed at providing information to consumers who, for numerous reasons, are becoming more involved in health care purchasing decisions.

“We’re trying to say, ‘How can we make this a process that will engage more people with the health care system, both from a quality standpoint and a pricing standpoint when it comes to transparency,’” Freed said.

At the same time, Spectrum doesn’t want to over-invest in a system that would only be useful to the uninsured or others paying “out of pocket” for their health care expenses. Individuals with broad coverage and low deductibles don’t share the same financial motivation to “shop around” for medical services.

“On one hand, you’re trying to be responsive,” Freed said. “On the other hand, you can’t put a ton of effort into something that’s not going to get utilized.”

The system that will go in place in August is far from perfect, Freed acknowledged. Like many of the areas where health care and technology meet, Spectrum’s online pricing data will be a constantly changing work in progress.

“I don’t know what else to do. We’ve got to at least give something a try and see where it goes. That’s better, in my mind, if we’re going to be a leader than doing nothing at all,” Freed said.

Spectrum hopes that other organizations will follow its lead, removing some of the mystery from the financial side of health care.

“If the health care industry is pretty closed in terms of what the pricing is, I don’t know what change will occur. It’s very difficult to say we’ve got to have consumers be more involved in health care shopping, so to speak, and then you give them absolutely nothing to shop for.”     

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