“I’ve been pounding the table about location-based pricing for years. Now we have hard data.”
Wolf here: Michael Gorback, M.D., who has authored a number of articles for Wolf Street on how opaque pricing in the US healthcare system inflates costs, has been a strong advocate of price transparency. He told me he is “one of the very few (only?) pain specialists who accept uninsured patients and publish their cash fee schedule.”
A “cash fee schedule” is essentially a price list. It’s the norm in just about every industry, except in healthcare, where opaque pricing dominates – to the detriment of consumers.
By Michael Gorback, M.D., at the Center for Pain Relief in Houston, TX:
Imagine you’re out shopping for a new car. You stop by Dealership A and get an offer of $35,000. You decide to do some comparison-shopping and head over to Dealership B. Their price is $39,000. You show them the offer from Dealership A. The trusty salesman says you should buy the car from him at the higher price because his store has a higher overhead. “Look at the fancy furniture in our showroom,” he says. “The chairs are really comfortable in the waiting area and we offer espresso and cappuccino. Our rent is also much higher.”
This is the logic behind higher prices for outpatient procedures done at a hospital as opposed to an ambulatory surgery center or office setting. I discussed this phenomenon on Wolf Street back in 2014.
Well, now we have some numbers. According to a report submitted to Congress by the Physicians Advocacy Institute (Medicare Payment Differentials Across Outpatient Settings of Care), hospital outpatient services cost considerably more than other settings without any evidence of added benefit. Whether it’s a colonoscopy, cardiac imaging, or just an office visit, costs are higher in a hospital outpatient setting.
“Medicare is paying hospitals more for the same services because (the federal healthcare program) thinks it costs (physicians) more to provide the same service due to higher overheads,” said Bhagwan Satiani, MD, professor of clinical surgery at Ohio State University’s College of Medicine, cited by Physicians News Network.
Yes! You should buy our $39,000 car because the furniture in our showroom is more expensive!
I’m not sure why Physicians New Network added “(physicians)” to the statement by Dr. Satiani. The physicians are not being paid the facility fee. The hospital gets the fee. Actually, if I do a procedure at the hospital, my professional fee is cut because I don’t have overhead. Think about that for a moment. Let’s say I get $250 for the procedure in the office. If I do it at the hospital I get $125, so CMS must think my overhead is $125. But CMS thinks that the hospital’s overhead is perhaps $800. Why are they subsidizing the less cost-efficient location?
Doctors working in such settings seem to have an incentive to do more medical procedures, Bhagwan Satiani said, according to PNN.
True dat! There is intense pressure on hospital-employed physicians to do more of everything – testing, procedures, treatments, and so on. Fail to order enough tests and you might find yourself having a heart-to-heart chat with one of the corporate suits.
This location-based cost differential is nothing less than cost-shifting. The hospital overcharges outpatients to pay for overhead for which it’s undercompensated. If I can do a spine injection in the office for $250, why should my patient pay $800 just to walk in the door of the hospital outpatient department? The hospital setting adds nothing to the value of the procedure: same doctor, same patient, same drugs, same supplies, same injection.
The only indication for selecting a hospital setting should be if the patient is a high risk due to health problems.
If the hospital outpatient department can’t provide the service for the same price as everyone else, then they shouldn’t offer the service.
I happen to be a shareholder in a physician-owned hospital but I still do most of my procedures in my office. I get my patients in and out faster and for a mere fraction of the cost. Many of my partners resent that but I have a fiduciary duty to my patient to put their interests ahead of mine.
I’ve been pounding the table about location-based pricing for years. Now we have hard data to support the claim that it’s costing us billions of dollars. It’s time to eliminate it. By Michael Gorback, M.D., Center for Pain Relief.
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.