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Readers Write: Hospital Pricing Data: Another Step Down the Rabbit Hole

May 15, 2013 Readers Write 6 Comments

Another Step Down the Rabbit Hole
By Data Nerd

On Tuesday, May 7 at 9:53 p.m., the Center for Medicare and Medicaid Services released a new open dataset to shed light on hospital pricing variations. The Times and The Washington Post (among others) published lengthy online articles (presumably overnight), complete with data visualizations to assist consumers in understanding the vast differences between what hospitals charge Medicare for their services. CMS released state and national averages a week later after The Washington Post published an article aggregating the data for comparison on the state level.

On the first day of its release, the dataset was downloaded over 100,000 times, displaying the large appetite that the public has for open healthcare pricing data. What is unfortunate is that this data set is fundamentally flawed for the purpose for which it was made public.

In the age of high(er)-tech journalism, I was disappointed to read article after article that overlooked the data documentation and went straight to the numbers and visualizations that could be concocted. Even HHS’s own chief technology officer got it wrong when he referred to the data as, “The actual prices that hospitals charge Medicare for the top 100 procedures across the country.”

The data given are not the top 100 procedures. They are the top 100 DRGs, which means that in any given claim, there could have been anywhere between one and 25 procedures performed (and they do vary, wildly.)

If the goal is to compare hospital’s charge rates, you need a normalized cohort. Or in layman’s terms, you need to compare apples to apples instead of kumquats to grapefruits. People with the same DRG suffer from the same diagnosis and often share similar courses of treatment, but wouldn’t a better analysis look at patients that all had the same procedures?

A DRG is a diagnostic related group, a very broad categorization of the primary diagnosis that the hospital is treating. A claim only has one DRG, but can have anywhere between one and 25 procedure codes. The data as it is currently presented is inherently incapable of pointing to charging discrepancies because a claim could be charging for one procedure or 25.

Personally, I think the move was more of an administrative muscle flex going into the healthcare exchanges set to open in October — fueled by the threat of public perception rather than an attempt to shed (non-refracted) light on the subject. A more accurate approach would have been to isolate claims where only one procedure was performed and provide the average charge or reimbursement data for those. Unfortunately, CMS charges nearly $4,000 for the data in a format that would allow this type of analysis.

This open dataset is another unfortunate example about our exuberance for “big data” giving way to our human propensity to under-analyze and take misinformed baby steps toward a greater goal, however noble it may be. As more and more data is presented for public digestion, its dissemination must be properly documented and cited if it is to be used to drive analytical outcomes.

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Currently there are "6 comments" on this Article:

  1. Your comments are “oh so valid” and another problem was CMS comparing the hospitals’ charges per DRG with the Medicare DRG payment which they tout averages around 80% of cost which is another apples and oranges comparison. This is merely political pressure being brought to bear on hospitals to reduce charges which is actually just “window dressing” because it does not really reduce patients’ out of pocket expense nor reduce the cost of care or improve quality.

  2. Data Nerds right on, and here’s how we got ‘fell’ into that rabbit hole.

    If there was ever a report that was self-indicting this is it. Yes hospital charges are non-sense, all over the map, not based on logic, etc. All true. But how’d that happen. As a former CFO I can tell you it was all done via the Medicare Cost Report, the core basis of Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals. So over the decades any good CFO would make sure that his charges maximized his governmental payments since Medicare and Medicaid usually make up 60% or more of total payments.

    Some fifty thirty years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That’s the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report along with the LCC calculation (Lower of Costs or Charges). One of the most insane ways of ‘identifying’ costs ever cooked up. And it’s still used today!

    Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost report…and here we are 30 years later- with both!

    If you want to know why charges are a mess…just look at the Cost Report, and ask who created that monster?

  3. I don’t quite agree that the data provided by CMS are not useful. If anything, this is more useful than the piecemeal approach of procedure by procedure comparison advocated by the author.

    Lets use restaurant analogy. All other things being equal ( I address this assumption at the end), if one is trying to compare prices between two restaurants, one is going to compare the average check per person for a meal between restaurants and not prices of individual items – appetizer, drinks, entree etc. Why? Because you are going to a restaurant to get dinner or lunch – one restaurant might have really cheap drinks but super expensive entrees and vice versa – making it extremely hard to do a fair comparison using the piecemeal approach.

    So, DRG based comparison is pretty reasonable. The idea is – on an average, how much does a hospital charge to treat a condition classified under that diagnosis grouper. It takes away not only the variability associated in pricing of specific procedures, it also helps to measure efficiency of treatment. An organization might have the cheapest CT scans but if they end up performing many more scans for a specific DRG compared to other organizations, a procedure to procedure comparison is not going to yield any meaningful insight.

    It is obviously unfortunate that some folks did not understand the differences between DRGs and procedures (and they should have) but that does not make the data meaningless.

    So the DRG based comparison gives us a way to compare “efficiency” between organizations.

    Of course, what will make this data much more useful is to couple the pricing information with outcomes to be able to compare “value” delivered. To take the restaurant analogy again – having outcomes data will allow us to make sure that we are not comparing average price of a meal at Applebee’s to the average price of a meal at Ruth Chris Steakhouse – the value being delivered at the two places being quite different (even if Applebee’s might be more “efficient” at the task of filling up your stomach).

  4. Thanks for taking the time to make your point, Joey. I’m a huge fan of analogies, and can see why some people might find the data useful as it is. That still doesn’t excuse the misrepresentation of calling it “procedure data” and it still doesn’t get at what consumers really want, which is an item by item list of potential charges that will be billed on their behalf should they choose Hospital A vs Hospital B. If I see Hospital A charges much less for a CT scan than other hospitals, I don’t care if it’s because the volume is skewed. If I think I need a CT scan, I want to go where it’s cheapest.

    When I go to Yelp, I don’t care if a restaurant has one or five dollar signs next to it, if it doesn’t fit the occasion and/or the palate at the moment, I make the choice not to go. That is usually preceded by a look at their menu to make sure it has what I want at a price I want. A piecemeal approach gives more insight to the consumer. I agree that outcomes would be nice to know, but I still see much more relevant insight in a procedure-by-procedure breakdown of costs/charges. I would like that data served up by DRG, since I’m not a doctor and I need to know which procedures I’m likely to be recommended to have, but I want to see what a hospital charges for each one, not the overall “average” charge for person that has the diagnosis I have.

    This data release was a far cry from a Yelp-like consumer decision support. I like that it was released, and I like that people are interested it in it, but I don’t like the pretense that a consumer could actually act on anything s/he sees in it, because there just isn’t enough data for a well-balanced decision.

  5. For the sake of this conversation, lets set aside the obvious problem that the way healthcare market is structured in the US, a vast majority of consumers are either not empowered or don’t have any incentive to act based on any cost data. Lets assume that their incentives are aligned to want to act on cost data.

    The data is for hospital stays – not outpatient visits or ancillary services. So, it does not make much sense to do a procedure by procedure cost comparison. If I need to get admitted for a broken leg, and I want to find the most cost effective provider, I am unlikely to start by looking at hospitals that have the cheapest X-Rays. In fact, I might not even know what all procedures should be done (or need to be done) in the course of treatment of my broken leg. What am I going to look for? Show me the prices that hospitals charge for this particular condition (that is, DRG) in my zip code and normalize it by any applicable quality measures. In my previous comment, I’ve already mentioned the need for quality data to complement this cost data. But the argument that there is a need for procedure by procedure breakdown for this dataset doesn’t make sense. Now, that information might be useful to explain the variability in costs for a given DRG but not really in the consumer decision making process.

    Now, the procedure cost will be a great thing to know for outpatient visits or ancillary services. The doc wants me to get an MRI. Should I get it at the clinic where I am being see or at this diagnostic center 5 miles away. Hopefully, CMS will come out with that level of details pretty soon as well.

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