Pay No Attention to That Man Behind the Curtain: Opacity in Healthcare

BY: Nathan Carroll & Adi Y. Segal

We all benefit from transparency. In just about every facet of our lives the more transparency we have the better. Transparency allows for the verification of truth. It’s a crystal clear lens through which we can see market drivers for what they really are. With increased transparency we can identify if an object’s presented value truly corresponds with reality. However, for some reason, U.S. healthcare has evolved in a way that shuns transparency and embraces the opaque. Opacity in medicine is what turns six liters of salt water into $500 dollars. Our healthcare system also asks us not to think about the secret of turning saline into an astronomical bill.

Oxford Pocket English Dictionary. Via Google.com

So, how did we get here and do other markets function the same way? If you’re like us, you probably hate all the prices and choices involved in shopping for groceries, new cars, plane tickets, cellphones, and clothing. The less information the better, right?! In all seriousness, if we don’t know what we’re paying up-front we don’t buy. Sure the sticker price may not include future expenses, like maintenance over the lifetime of a car. However, by-in-large the standard system when shopping is: identify what you want, compare prices, compare value for price, make a choice if the value for the price makes sense, then decide if you want to buy or not buy. When shopping online you can buy the Bose® QC® Noise-Cancelling wireless headphones for a brand name premium or the more affordable generic bluetooth earbuds that work perfectly fine for exercise and travel. But YOU get to make that decision. Healthcare doesn’t give us the same respect or choice.

Furthermore, insurance companies benefit from the opacity in healthcare. Closed door dealings between insurance carriers and providers means that the true cost of care is always hard to identify. At the heart of this confusion is a document called the chargemaster. It’s used for negotiating with the insurance companies for reimbursement. However, let’s assume that the person you’re negotiating with is always going to try and undercut you. With that in mind, of course you’re going to start high. A 2016 study by Health Affairs found that that chargemasters were an average of 4.32 times higher than the true cost of care. For some services, such as CT scans, they were as much as 28.5 times higher. Meaning that for every CT that should cost $100, you get to pay $2,850. There is an utter disregard for transparency.

“A 2016 study by Health Affairs found that that chargemasters were an average of 4.32 times higher than the true cost of care. For some services, such as CT scans, they were as much as 28.5 times higher. Meaning that for every CT that should cost $100, you get to pay $2850.“

Collections are another use for the chargemaster document. The thinking goes, if my patient is uninsured (and 27.6 million people are), I want to collect something from them when they come in and seek care. Consider the markup on CT scans, 28.5 higher than the cost of care. The uninsured patient is charged $2,850 for a $100.00 service. Then if, and when, it goes to collections the debt is often sold to a collections agency for pennies on the dollar. So a $2,850 markup on a CT scan has turned into a $285.00 payment from a debt collection agency and $185.00 profit for the hospital. On the other end, the patient has damaged credit and collection agencies coming after them.

via GIPHY

At this point our healthcare system echos the Great and Powerful of Oz and says “Pay no attention to the man behind the curtain!, all this worry about the chargemaster is just a humbug, the patient never really sees these prices.” However that’s frequently not true. Let’s say you travel to Florida for vacation and your appendix bursts. Suddenly you’re out of network and having a medical emergency. Perhaps you’re like the many Americans who have high deductible plans. In either case munchkin costs end up being billed at ruby slipper rates.

Opacity in healthcare is a blight that’s slowly rotting away healthcare at its core, causing prices to spiral out of control. Finally, let’s review the shareholders of hospitals and insurance companies. There’s a large group of people who see hospitals not as places of healing, but as money-generating enterprises. We have nothing against capitalism. However, by avoiding transparency and embracing closed-door dealings, insurance companies and your healthcare provider aren’t always helping patients.

There’s a famous saying, oft quoted by leaders and visionaries, “Sunlight is the best disinfectant”. When Louis Brandeis first uttered this he wasn’t speaking about medicine, but rather transparency. If opacity is an infection rotting away healthcare, then let’s pull back that curtain, pay attention to the old man and his machinations and embrace transparency as the best disinfectant.