Speaking the Truth About the Cost of Healthcare

By James S. Noble 
Senior Vice President and Chief Financial Officer
Huntington Memorial Hospital in Pasadena, California

The science of medicine is inherently complex. But does the business of healthcare need to be so complex as well?

For 25 years I have worked in healthcare finance, and for those same 25 years consumers have asked the same question for what seems like 2,500 times:

  • “Why is it so hard to get a straight answer when it comes to my hospital bill?”
  • That is quickly followed by “Why does the same procedure cost more at one hospital than another?”

The complexity of giving accurate answers to these questions has created a culture of apprehension among hospitals and among many of my fellow CFOs. Yet our communities have the right to know what they are paying for, what they are getting for their dollars, and why charges are what they are. In this season of political rhetoric, it is helpful to remember that a free economy functions best with knowledgeable purchasers. Providing people with the information and tools they need to make intelligent decisions regarding healthcare – and cost is certainly part of that equation – is a greater consumer protection than any government legislation or political intervention.

  • It has now been more than six years since the American Hospital Association issued its report on hospital pricing transparency. That report called for hospitals to “share information that will help people make important decisions about their healthcare.”
  • It called for hospitals to explain to consumers how and why the price of their care can vary, to make information easy for consumers to access, and to encourage consumers to include price as one of several considerations in making healthcare decisions.
  • Yet in many communities across the country, the mystery still exists, the curtain remains shut and the overly intricate labyrinth of healthcare accounting goes on and on.  It is time to speak the truth.

Some states – such as Michigan, Illinois, Washington and Minnesota among others – have taken the lead through either mandated or voluntary posting online of hospital pricing. They and others like them are to be commended. At the same time, many individual hospitals have joined the fray as well. My own hospital, for example, has developed a pricing tool that creates minimum, average and maximum prices for the most commonly used hospital services. Prospective patients can go to the Huntington Memorial Hospital website, enter in their deductible and co-payments, and determine a range of expected prices. Payment options and other services patients may be billed for are also listed.

  • While this is far from perfect, it is a good first step in helping consumers find the information they need to make informed choices when it comes to their hospital care and payment planning.
  • But where we have failed as an industry, despite a spattering of well-intentions by local hospitals around the country, is to follow two other objectives set forth by AHA:

– to present information in a way that is easy for consumers to understand

– and to create common definitions and language to describe pricing information.

How many consumers understand how a hospital bill accumulates?

-Have we ever explained what’s included in indirect costs or why each patient is responsible for bearing some of these unseen hospital expenses?

-Have we disclosed our own industry’s failure to arrive at a standardized accounting system for allocating such costs, without which there continues to be great disparity from hospital to hospital?

Do consumers understand the mundane realities of how hospitals actually get paid?

-Do they consider the implications of the fact that the user of hospital services is often not the same person directly paying the bill?

-Do consumers understand that the government pays a set rate for its Medicare or Medicaid patients and that that rate is actually below cost?

-Do they understand that because of the rise of employer-based coverage and the collective muscle of health plans there is virtually no “retail” left in healthcare?

-Would they be surprised to know that the hospital industry averages an annual profit margin of only 2 percent, a rate that few businesses in America can survive year after year?

Questions for hospital leaders:

-How many of us are willing and comfortable taking up that challenge?

-How many hospitals commit some of its community education activities to explaining these realities?

-How many of us want to?

Hospitals and those of us in a position to make a difference; have a moral duty to provide this information, to answer questions regarding cost, to engage in frank discussion on these issues, and to be candid in our pricing structure. None of this will be comfortable to do nor simple to explain to a public raised on sound bites, bumper stickers and 140 characters. But without the oil of transparency, the gears of trust between consumers and healthcare will remain forever locked.

Thoreau told us to “simplify, simplify.” If it were only that simple.

About Aegis Health Group

This entry was posted in For Hospital Executives, Healthcare Reform, Hospital Business Development Trends, Patient relations, Uncategorized and tagged , , , , , . Bookmark the permalink.

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