In a true competitive market, like the market for retail gasoline, it’s very easy to figure out the market price. I can drive around the neighborhood and read the prices on the signs. These days I even have a Google widget on my home page that shows me current gasoline prices for as many stations in my local area as I want to see. When I want gas I pull into the station of my choice and that’s that.
Sadly health care isn’t like that. The market price isn’t visible and can’t be readily compared by consumers across providers. People rely on their health insurer to negotiate prices for a network of providers. If they go “out of network” they leave the world of negotiated prices and encounter a concept called “usual, customary, and reasonable” (UCR) pricing. That’s the price their insurer will base its reimbursement on. You, the patient have to pay your out-of-network contribution –typically 20% or more of UCR. If the provider charges more, they can usually stick the excess amount to the patient as well.
UCR is a squishy concept and insurers have leeway to establish their own levels. If an insurance company sets a low UCR that transfers costs to the patient. It effectively takes money out of the pocket of providers, too, since they have a hard time collecting from patients. This is the basis for the recent dispute between United Healthcare’s Ingenix and the New York Attorney General. The AG accused Ingenix of publishing artificially low UCRs that were then used by many health plans to hurt providers and patients. Ingenix’s parent, UnitedHealth Group will have to pay $50 million and get out of the UCR database business.
Much of the news coverage on this topic has taken the angle that patients and physicians are getting ripped off by the insurers. I don’t see it that way. A big problem is that a lot of the “usual and customary” charges are not “reasonable.” There is huge variation in pricing for no logical reason. As one cost containment company executive explained to me recently, a chest x-ray can vary between $120 and $600 within a single metro area.
Imagine if gas prices varied five-fold (like chest x-rays)! Would we be sympathetic to the gas station owners who wanted to be paid the higher prices? No, we’d expect them to get their prices in line. Unfortunately with health care it’s very hard to find out ahead of time what a given provider is charging, and often the patient has little real choice of where to go.
I’m glad that one of the provisions of the Ingenix settlement is that the new database will be made available to the public. That should help make the market more transparent and pricing more rational. Unfortunately it will also probably encourage providers who are charging below market to boost their rates.
I don’t totally disagree with the AG’s pursuit of Ingenix. But let’s not lose sight of the fact that high charges by providers are a part of the problem, too.