Why won’t crowdsourcing hospital pricing data work?

This blog originally appeared in ClinicPriceCheck.

This morning CBS news aired a segment about sharing your medical bills in the series, https://www.cbsnews.com/medical-price-roulette/. Healthcare journalists form a variety of media organizations, including CBS, NPR, Los Angeles times, ProPublica and others have pushed the idea of sharing hospital bills as a way to create hospital price transparency.

While their goal is admirable, the reality is that crowdsourcing or sharing hospital bills is not very fruitful. There are just too many prices. Simple math shows us why crowdsourcing medical pricing through sharing bills will never work in the United States.

Let’s consider a simple thought experiment. In the state of California, there are 350 major hospitals, each hospital has about 15,000 services on average. There are 6 major insurer groups plus self-pay rates, medicare rates and list prices for every procedure or about 9 prices for every service at each hospital. This means there are at least 50 million healthcare prices just in the state of California.

Even if every person in California shares at least one bill (and they were all different) every year, we still would not have enough prices to create a transparent system. This is a tall order. While crowdsourcing this might work for transparency in common services, it will never lead to full transparency. There are just too many prices.

If we can expand this to the entire US, we would have to account for 5,500 hospitals. Again we’ll assume 15,000 services and about 50 (major insurer groups) which is about 500 million prices. Similarly, 500 million prices is greater than the entire United States population. It’s unlikely that every American is going to share their bills more than once (and all those prices will be different) every year. It’s just completely unrealistic.

Then, is hospital price transparency impossible? No, the key to hospital price transparency is not knowing all prices, but knowing the lowest price. What is the lowest price hospitals will accept from a patient for a procedure? The lowest price that some hospitals will accept from cash payers is the Medicare reimbursement rate.

What is the Medicare reimbursement rate? This is the rate at which Medicare reimburses hospitals for the care of Medicare patients. Medicare reimbursement rates are the only prices in the whole system that are in any way related to the costs of providing health services. As a hospital price comparison shopper, the closer you get to the Medicare reimbursement rates, the better the price.

Understanding the Medicare reimbursement rates and integrating them into the process of shopping for healthcare is an important way that we will be able to bring down health costs. If consumers choose to go to hospitals that offer prices closer to the Medicare reimbursement rate, all hospitals will have to lower prices in order to attract customers.

Pro-Tip 1:ClinicPriceCheck (ClinicPriceCheck | Results) includes the Medicare Reimbursement price in the box, “Are you a Medicare Patient?” on the price list page for most procedures.

Note: Please note, that analysis also leaves out the further complexity of numerous plans under each insurer, which creates even more complexity (or more shared bills). I estimate every Californian would have to share at least 4–5 bills a year to see transparency in the state of California.