Medical Cost Transparency

Starting Monday, you can go to HealthGrades ( HGRD) to order reports detailing the average "list prices," health-plan payments and out-of-pocket costs for all expenses related to a variety of common medical procedures, including hospital, physician, drug and laboratory fees. The new service is called HealthGrades HealthGuide.

What's so important about that, you ask?

Well, can you imagine buying a new car without any idea of the price you should pay? Few, if any, buyers pay the "sticker price" on the window. With today's technology and online comparison tools, it's easy to negotiate a better deal for the car you want.

But when it comes to health care and hospitalization, we just accept the bill that is presented to us -- in effect, paying the "sticker" price.

If you need to go to the hospital for treatment or surgery, you probably never ask about the costs. Why should you care? Your health insurance will take care of most of those huge bills, except for your deductible and copayments. And even those copayments have a maximum limit. If you are covered by employer-provided health care, the cost of a hospital stay is usually the last thing on your mind.

The same holds true for seniors, who can rely on Medicare to cover the huge costs of hospitalization, especially if they have purchased a policy that expands on the basic Medicare Part A. And if you qualify for state Medicaid programs by virtue of your low income and assets, you have access to the same high-quality hospitalization treatment. Once again, there's very little incentive to care about costs.

Perhaps our insulation from health care expenses is contributing to the runaway medical costs we read about every day. If consumers aren't searching for the best deals, why should anyone offer them? (Actually, the government does put pricing pressure on the medical system, setting specific levels at which it will reimburse care. And huge insurance companies also negotiate better deals for their members.)

New Plans

This situation is changing, though. In one effort to gain control over health care costs, many companies and individuals are turning to "consumer-driven health care plans." These plans are similar to Health Savings Accounts, but consumers get to keep, and grow, the money they set aside for health care expenses, even if it is not spent during the plan year.

Suddenly, there's great incentive for consumers to shop around for the best prices.

Again, that's where a service like HealthGrades comes in. It offers a suite of tools, for various prices (and some are free!), that can help employers and employees spend their health care dollars more wisely, from physician ratings -- including summaries of their education and training and reports of any disciplinary actions they may have faced -- to reviews of nursing homes.

HealthGrades reports also list the dollar amounts that Medicare pays to reimburse both hospitals and doctors for different procedures (and those reimbursements are typically substantially less than even the negotiated amounts paid by private insurers).

The differences in the amount of those payments can be startling. For example, in the Midwest, having a baby with a normal delivery procedure carries an average cost of $10,249, including physician and hospital bills. If you have a health plan, it likely negotiated a payment of only $5,150, of which the patient will pay about $940. Uninsured patients are often charged the full list price.

Even more startling, if you need a heart bypass in the Boston area, the "list price" is $99,295. But HealthGrades found that the average amount negotiated by health plans against the official hospital charge was $37,315.

In Chicago, the list price for the same surgery averages $101,184 -- but the average health plan negotiated to pay only $45,878. And if Medicare foots the bill at a major Chicago hospital, it drops to $43,579.

Here's another surprise: In Chicago, Medicare reimburses the heart surgeon only $1,667 for the procedure, while private insurers pay an average of $5,791.

Bottom line: HealthGrades shows that almost all hospital and physician-related charges are discounted if you have the clout of an insurer or medical plan. Now, though, you can gain access to that pricing information and make better choices when spending your money on medical care.

Check to see if your company offers access to HealthGrades services, as many employers are beginning to see the wisdom of giving their employees more say in the medical-care arena.

One example of a great way to use HealthGrades: you decide to have that knee surgery your doctor said would get you back into your running shoes. Simply order a report comparing the orthopedic-surgery ratings of three local hospitals, including analysis of their services, fees and expenses.

A small amount of time for a huge amount of knowledge: Now that's a great investment. And that's The Savage Truth.

Terry Savage is an expert on personal finance and also appears as a commentator on national television on issues related to investing and the financial markets. Savage's personal finance column in the Chicago Sun-Times is nationally syndicated, and she released her fourth book, The Savage Number: How Much Money Do You Need? in June 2005. Savage was the first woman trader on the Chicago Board Options Exchange and is a registered investment adviser for stocks and futures. A Phi Beta Kappa graduate of the University of Michigan, Savage currently serves as a director of the Chicago Mercantile Exchange Corp. She also has served on the boards of McDonald's and Pennzoil.

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