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Health Care Industry's Moment of Truth Is Approaching

Health Care Industry's Moment of Truth Is Approaching

Peter Boland, PhD

The elements of a perfect storm are massing around the issue of cost equity. Health care providers need to take seriously the public’s perception that the deck is stacked against them and that they are unwitting participants in a national shell game. Three examples illustrate why a groundswell of skepticism may erode support for meaningful health care reform initiatives.

1. Researchers at Dartmouth have meticulously documented wide variation in health care quality, let alone price, from one locale to another for specific procedures. To date, public reaction to such variability has been relatively muted because this is largely seen as inside baseball and not well understood by consumers. Within the health care industry, however, policy makers and payers have taken notice and realize that “bending the cost curve” will not occur until this issue is addressed head on — and fixed.

2. More recently, Steven Brill’s searing expose of health care costs (“The Bitter Pill” in Time (requires subscription), exposed a raw nerve in the ongoing debate about health care reform. The most obvious villain cited by Brill was the infamous chargemaster used by hospitals to aggregate unit costs. It immediately became the poster child of what is wrong with our health care system. The public saw this as an egregious example of hospitals “piling on.” While there are sound operational reasons for using a master billing mechanism, the public outcry was rooted in widespread anger and dismay over a system that the average person — or purchaser — perceives as out of whack and far beyond the ability of individual patients to influence.

3. The Time article was followed by CMS releasing mountains of data on the wide cost variation of hospital procedures, even in the same city. Again, the public wonders: How could this be? Shocking price differentials between what is charged and what is paid make no sense to consumers. In fact, they make no sense to anyone, and can no longer be defended on reasonable grounds.

It is time for health industry leaders to undertake meaningful steps towards full cost transparency in order for the public — and purchasers and payers — to understand when and why price variation is justified. It is time to lift the veil, once and for all, on our uniquely opaque hospital pricing system. No other industry behaves this way.

Cost variation is far more than a public relations challenge. Efforts at damage control will fall short unless the industry adequately addresses the underlying issues of trust, sustainability and business integrity. Providers, and particularly hospital leaders, can ill afford to lose the trust of patients and purchasers over cost transparency. If hospital systems fail to take up the clarion call for full transparency, then regulators and purchasers will team up to support the “creative destruction” of how we currently price health care services.

If hospitals do not rectify black box pricing, the market surely will. It is time for the industry to finally admit that the emperor is without clothes.

Peter Boland, PhD, is president of Boland Healthcare in Berkeley, Calif.