by Brenée Goforth
Communications Associate, John Locke Foundation
This week, syndicated columnist John Hood published an opinion piece in Carolina Journal on transparency in health care. According to Hood:
When State Treasurer Dale Folwell took office in early 2017, he found North Carolina’s State Health Plan to be in even worse shape than he originally thought. Costs were soaring. The terms of the plan’s contracts with medical providers were unclear. And the unfunded liability for retiree health benefits is enormous, in the range of $35 billion.
One of the strategies Folwell and his team developed in response is the Clear Pricing Project(CPP). It requires providers wishing to serve teachers and state employees to accept fixed rates — the latest offer was about double the reimbursements that Medicare pays — as a means both of increasing transparency and reducing cost.
Not everybody was on board with this solution, though. Hood explains:
Hospitals argued that if the State Health Plan paid them no more than double the reimbursement rates for Medicare, they’d end up losing money on some lines of business — and that entire facilities, particularly in rural areas, would become unsustainable. They also argued, more persuasively, that Medicare’s rate structure is convoluted and inequitable, favoring some procedures and specialties over others.
Hood is not, however, convinced by the hospitals’ claims that the state’s offer was too low. Hood writes:
If the dispute were only about reimbursements, however, the hospitals could have counterproposed a higher and more rational rate structure. They didn’t. That’s because hospitals fundamentally reject the model of selling their services based on published rates. They want to keep their prices, discounts, and contracts confidential. They don’t want some payers to see what others are paying. They don’t want their competitors to see, either.
Hood writes that this system simply cannot continue in this way:
This much is true: the way we pay for medical services, especially in hospital settings, is screwy and unsustainable…
The truth is, however, that the system is already unraveling. What comes next? Whatever you think that answer is, it will require a higher level of transparency than we currently get from hospital providers, in particular. As the American Enterprise Institute’s James Capretta put it recently in Health Affairs: “Given the strain high costs are placing on employers, workers, and taxpayers, some disruption is called for to facilitate new strategies and perhaps new policy initiatives to help bring costs under better control.”
A system of transparent pricing, like what the Clear Pricing Project attempted to accomplish could be just the disruption the system calls for.