Insurance firms that negotiate low prices with hospitals will be viewed more favorably by regulators, legislators, and the public. So they have a substantial incentive to inaccurately report prices as lower than they are. For true transparency, prices would need to be reported by those with no incentive to fudge the figures. Would that be hospitals, doctors, Consumer Reports, or academic economists?
(p. A11) How much does a new hip cost in New York? The answer isn’t at all clear, despite Gov. Andrew Cuomo’s efforts to improve price transparency. . . .
. . . Michael Frank, a 52-year-old Westchester County executive . . . had his left hip replaced in 2015. The Manhattan hospital charged roughly $140,000. The insurance company paid a discounted rate of about $76,000, . . .
. . .
After hearing his story, I told Mr. Frank what I thought was an odd twist: I’d recently had two hips replaced, six months apart, at the same hospital that had treated him.
. . .
Eventually I learned that the hospital had charged $175,000 for my right hip and $180,000 for the left. The insurance company had paid discounted rates of $75,000 and $77,000.
. . .
In 2009, New York’s then-attorney general, Andrew Cuomo, announced the creation of a nonprofit organization called FAIR Health. Its mandate is to provide consumers accurate pricing information for all kinds of medical services.
I found the FAIR Health website and queried its database. It reported that the out-of-network price for a hip replacement in Manhattan was $72,656, close to what Mr. Frank’s and my insurance companies had paid. The problem: We were both in-network, and FAIR Health estimated that cost as only $29,162.
Something didn’t make sense, so I called FAIR Health. “Maybe you had complications,” the spokesperson suggested. Happily, I hadn’t. I was discharged from the hospital each time in under 24 hours, with no issues and no need for a home health aide. How many data points did FAIR Health use to calculate its price estimate? I was told “4,500 in Manhattan over the last six months.” Who submitted these prices? “The insurance companies.”
. . . Rather than relying on insurers, it might be more effective if FAIR Health collected pricing information directly from hospitals and doctors. That way the data would be less susceptible to selective reporting or massaging. That’s what happened in the early 2000s, when class-action lawsuits revealed the main pricing database was being manipulated to the advantage of insurance companies.
For the full commentary see:
(Note: ellipses added.)
(Note: the online version of the commentary has the date July 13, 2018 [sic], and has the title “Heard on the Street; New Biden Law Won’t Kill Drug Cures. It Will Reshape Them.” In the next to last paragraph quoted above, the second quoted sentence appears in the online, but not the print, version of the commentary.)