Is your pricing intellectually consistent?

Between the No Surprises Act, price transparency regulations, and a variety of state laws and press articles, health care pricing is currently under intense scrutiny. Although I generally feel that the healthcare industry has an unfair bad reputation (many allegations of widespread fraud in the industry refer to shortcomings in documentation as “fraud”, and that is terribly unfair) , I would say that health care pricing is not one of the industry’s proudest points.

I think a lot of the problem stems from the decision to create a system where payers get a big discount on the fees charged, with everyone feeling that a big discount suggests the payer got a ” value “. As soon as many payers pay 60 or even 50% of the fees charged, it suggests that the fees charged are in fact almost meaningless. When insurance companies offer such deep discounts, is a patient who shows up on the street the only one paying full price? Such a result gives terrible optics and potential legal problems.

In the healthcare world, patients often obtain services without first agreeing on the price (the new good faith estimate requirement for uninsured patients will likely begin to change that.) When a person receives services without agreement on price, there is an implied contract between the parties. Courts will impose a price condition commensurate with what a reasonable party would pay/charge for the service. If a court is asked to consider a situation where a hospital charges $1,000 for a service, but most insurers pay between $500 and $600 for the service, the court is unlikely to compel the patient to pay. the full $1,000. When a healthcare organization gives large discounts to most payers, it may inadvertently give the same discount to others.

Health care pricing, much like airline pricing, tends to be mysterious to most of us, often including those affected. Charges on invoices are often a form of play money, with hardly anyone paying the going price. If you were to explain health care pricing to a stranger, the logical inconsistency of the system would quickly become apparent. There is a message there. It would be prudent for all of us to step back and consider if there are ways to make health care pricing more logical. Perhaps the first step is to avoid entering into contracts that include large discounts (more than, say, 10%) on the fees charged as a way to create a price schedule.

Note on programming: Listen to David Glaser’s “Risky Business” segment every Monday on Monitor Mondays, 10 Eastern.

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