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Andy Larsen: Understanding healthcare costs and why knowing how much something costs is not enough

Understanding healthcare costs
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Andy Larsen: Understanding healthcare costs and why knowing how much something costs is not enough

 

We have just come out of our open enrollment period at The Tribune, and I wasn’t particularly happy with what I saw this year.

To the credit of The Tribunes, our health insurance plan premiums have not increased. But everything else was bad news. You see, the deductible has increased significantly by 66% year over year. And just as badly, the amount of each procedure our insurance would pay for went down 10 percentage points, almost across the board. Not great, Bob.

I tell you this not to try to garner sympathy, but out of empathy for all of you. It turns out that most Americans, like me, saw significant increases in deductibles and/or out-of-pocket expenses this year as companies tried to keep premiums the same, according to Mercers National Survey of Employer-Sponsored Health Plans. Mercer also expects even bigger jumps going forward.

This means that you and I will likely bear a greater burden of our health care costs than we did last year. And that made me more interested in exactly how much those medical procedures, exams, and prescriptions cost. Unfortunately, healthcare billing is a topsy-turvy world where even solutions seem to cause problems. I’ll show you what I mean.

Cost transparency resources

The good news is that there are significant resources available in Utah for finding out the cost of healthcare procedures.

First, Utah is one of 18 states in the nation with a Consolidated All Payers Claims Database (ABCD). The idea here is pretty cool. Essentially, every bill sent to a health insurer is recorded in a huge database, which researchers can then work with to answer all kinds of healthcare questions: what procedures are performed most often, what drugs are given and when, how much it costs each procedure costs, which hospitals and doctors are more and less expensive, and so on. We love data and this is great data!

The most complete representation of this data that I could find is on the state’s open data website from 2021, published in a large Excel spreadsheet in late 2022. That sheet is a whopping 141,000 rows and really hard to use. Simply put, different hospitals bill the same procedure or set of procedures differently, making it really hard to compare apples to apples.

Unsurprisingly, the most common procedures were COVID-19 tests. The most expensive line item on the list is when Primary Children’s Hospital delivers a dose of nusinersen, a treatment for spinal muscular atrophy. On average, the hospital charged $120,000 for the procedure in 2021.

Or consider total knee replacements, total knee replacements. At various Utah hospitals, those range from $22,000 to $124,000 when the costs are added up.

However, the size and difficult comparisons make this data cumbersome. So the Office of Auditors has been trying to come up with a solution to make it easier for people to access health care pricing information: healthcost.utah.gov. You can go there, choose one of 177 procedures or tests and see how much it will cost you from various doctors and hospitals. For example, a strep infection test can cost anywhere from $5 to $124 because apparently it all goes into medical billing.

The biggest problem is that the data on the website is now quite old – at best it’s from the first half of 2020, at worst it’s from 2018. As we know, medical bills have exploded in the last 3-5 years. Also, if you want something done outside those restricted procedures, you won’t find information about it there.

If you want the latest information, sometimes the best source is the hospitals themselves. You can go to healthcare.utah.edu/pricing for the University of Utah Health Care System or intermountainhealthcare.org/patient-tools/hospital-cost-symmetrices/ for Intermountain Health Hospitals, fill in some information about yourself and your insurance and get an estimate of how much a procedure will cost.

Unfortunately, only 8 out of 20 Utah hospitals studied by PatientRightsAdvocate.org in February 2023 were fully compliant with federal cost transparency rules.

Problems

In announcing healthcost.utah.gov, State Auditor John Dougall explained his primary use case for the site: people shopping for the best price on a given medical procedure.

The problem is that this doesn’t actually happen all that often.

Most people don’t have much choice in where to have their medical procedures done. In emergency situations, proximity to the hospital probably matters most. In non-emergency situations, people go to where they can get their costs somewhat covered by their insurance under most plans, most local hospitals or doctors are out of network and therefore basically off limits.

Interestingly, where the site has gained the most traction is in its Cannibis section, where over 15,000 users they looked up the prices of medical marijuana. This makes sense, given how many people don’t use insurance to pay for that particular product.

Dougall also hoped primary care providers could use the site to intelligently refer their patients to doctors or procedures that fit within their budget. This also doesn’t seem to be happening much, although they seem to be relatively disappointed with the number of people using the website so far. Again, the issue of insurance exclusivity hits here, as well as supplier incentives. They’re probably more incentivized to make their customers feel comfortable referring rather than ones that are cheaper.

These problems are not unique to Utah. As these states set up these huge databases of complaints for all taxpayers and other elements that promote transparency, one of the main goals was to reduce health care costs. It is thought that, with transparency, hospitals will be susceptible to the influences of free market competition and perhaps be forced to charge less for their services or risk going out of business. You know, like a normal activity.

It didn’t happen. In fact, a November 2022 study titled The impact of price transparency and competition on hospital costs: A search of claims databases of all payers looked into exactly this issue. The results are pretty damning.

First, the study found that states with all-payer claims databases (APCDs) tend to have higher health care prices than states without them—the opposite of what you’d hope for.

Perhaps this is misdirecting the correlation: states with more expensive healthcare are trying to solve the problem by making APCDs, rather than APCDs are pushing more expensive healthcare. Or perhaps, hospital system administrators are looking at APCDs and seeing what they can get away with charging. Regardless, it’s not great.

Second, the researchers found that states with weak market competition and no APCD actually had the lowest hospital costs. In fact, market consolidation has helped them coordinate care more effectively, save on operational costs, and enjoy economies of scale due to their large size, they say. In other words, according to this study, competition simply doesn’t appear to reduce hospital costs.

Now listen: I love data. From an early age, I have always loved numbers. I was a math major. I’m a data columnist for The Tribune. But the research and frankly the consideration of the dynamics and incentives here seems to indicate that the cost of healthcare it’s not really an issue that data transparency can get us out of. Cost simply usually can’t be a factor in health care decision making, so bills can add up without much consequence to anyone but regular people like you and me..

This creates a problem for groups like the Utah Health Data Committee and the aforementioned Health Care Price Transparency Tool of state auditors. You see, the state legislature has scheduled both to fall on July 1, 2024. While this sounds harsh, this appears to be a relatively standard procedure where committees and projects must demonstrate effectiveness in order to continue receiving funding.

At the last meeting of the Legislature’s Committee on Health and Human Services, the proposal to end these programs was largely glossed over, but I’m told the committee’s June meeting will address the issues further. In their last meeting, the experts of the Utah Health Data Committee seemed relatively certain they would get funding again and I hope so too. It is helpful to collect this data so that you understand the state of health care in Utah. The Utah Health Data Committee also does much more than just its transparency initiatives.

But we must also understand the limits of the free market approach to reducing health care costs. Put simply, it doesn’t work, and it doesn’t seem likely to work going forward. For health care costs to become reasonable, our current system simply needs to change significantly.

No progress has been made on this issue for a long time, nor does it appear to be the top priority for our lawmakers. I guess our newly increased franchises are here to stay. Thus, health care costs will also hold spiral.

Will we stop the cycle and make real change? I’m not holding my breath. After all, it could cost me a trip to the hospital and I can’t afford it.

Andy Larsen is a data columnist for The Salt Lake Tribune. You can reach him at alarsen@sltrib.com.

Editor’s note This story is available only to Salt Lake Tribune subscribers. Thank you for supporting local journalism.

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