Lack of Cost Transparency Costs Hospital

In a sign of what's to come, the University of Washington lost a lawsuit over lack of cost transparency:

John Phillips, the lawyer who filed suit on behalf of a patient who felt gouged by the UW's billing system, believes that the settlement is the first of its kind, but he hopes it will help set a precedent for better consumer information in medical care.

I suppose when "facility fees" are 20 times the physician fee, what do you expect?

Heidi Rothmeyer, the patient who initiated the lawsuit, had a skin lesion removed at a UW clinic in June 2005. The doctor's portion of her bill amounted to about $400, but she was also charged $8,000 for a "facility fee," Phillips said.

Having said this, it is not easy to derive "real costs" to any hospital system. There are utility, rent/mortgage, support-employee salaries (cleaning crew, facilities manager, security, food-service personnel, administrators, billers, receptionists and the like) that are paid from these "facility fees." Certainly those costs should be covered. But what is not clear are the pre-arranged reimbursement rates negotiated between hospitals and insurers. The consumer patient is powerless to know what their insurer is willing to pay out of that $8000 facility fee. That number is held close to the hospital administrator's chest, since to disclose this amount might set the bar during negotiations with other insurers eager to reduce their costs to the hospital system. A cogent discussion of this was recently reported in the Chicago Tribune:

The obstacles to making medical prices available are significant. The health-care industry has a strong tradition of secrecy and is enormously fragmented, with data scattered among hundreds of thousands of doctors, thousands of hospitals and scores of insurance companies.

Although providers support transparency in principle, they worry that pricing data could be misinterpreted. The cost of care can depend on many factors, from how sick a patient is to the quality of care delivered to whether a medical center supports teaching and research.

But as reported by the Seattle Post-Intellegencer, other lawsuits are coming:

At least one other hospital in this area is already facing a similar billing lawsuit.

Phillips has filed a class-action lawsuit against Virginia Mason Medical Center over its billing practices, noting that the cost of having the same procedure done varies at the medical center's various clinics. That suit is scheduled to be heard before King County Superior Court Judge Gregory Canova later this month.

So when prices are "disclosed" (as they most assuredly will be now), I suspect the costs listed will be like those of used car lot or sidewalk flee market: markedly inflated and still negotiable. The problem is, when the facility fee is 20 times the physician's fee, there's wiggle room for the hospital to negotiate. For the physician struggling with ever declining reimbursement rates and ever increasing costs to provide care (especially in the area of malpractice insurance), the wiggle room left long ago.

And I wonder if John Phillips is willing to disclose his renumeration for all of these suits.

- Wes