Apples to Apple Cores: Healthcare Price Comparisons

Most healthcare price comparisons are kind of wrong, how we are fixing that, and why it matters.


by David Gaines

In healthcare, performing comprehensive apples-to-apples price comparisons is virtually non-existent. At best, people compare apple cores to apple seeds to apple sauce. As a result, the industry has a hard time explaining, let alone managing, costs.

Let me explain: When someone says the cost of a procedure or CPT code is $X vs. $Y under different payers or providers, you should immediately be skeptical and know that it is not always a complete story. 

A single payer will often reimburse different providers, for the same thing, differently. A single provider can be reimbursed differently by each of the payers that they work with. There can also be a varying number of providers involved in a given procedure. All these variations result in different configurations of procedure codes and billing forms.

Let’s take the example of billing for something simple, like an outpatient diagnostic image… it's actually not simple! See Appendix A below for an overview of the many ways in which the image may be billed by Medicare or a commercial payer.

Here's a high-level summary of the range scenarios of what can be involved in the billing for a single type of image (i.e. an MRI with and without contrast):  

Billing variation for a single diagnostic image

That means the "CPT Code" someone is reporting on or showing you can represent the entire bill for an image or only a single component out of a collection of bills. A CPT code is a variably defined fragment of information whose role in isolation is totally unclear. There can be anywhere between 1 and 4 claim lines or CPT codes that make up an image like - interpretation of image, facility fee for image, contrast agent, administration of contrast agent, and intake fees. Some or all of those components can be combined depending who is paying and who is being paid.  

Further, even after you collect all the billing information for a given procedure, understanding how those pieces fit together is extremely complex and requires special knowledge, intuition, and judgement. See Appendix B for details on the many ways in which a collection of billing codes for a given procedure could impact a payer, patient, ACO or researcher.

Why am I telling you this?  

At Careignition, we’ve essentially solved this problem by leveraging AI to create standard units of care out of historical data. We cover virtually all of healthcare spending and do this so that, regardless of how something is billed, it now looks consistent.  

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Not only have we created standard units, but we identify their relationships so we can see the metrics of performance that matter – quality, price, and efficiency. Access to meaningful performance metrics allows self-insured health plans and other payers to make better decisions, ultimately driving better performance for patients and payers.

We are the only comprehensive source for standard units of care in the industry.

Why do we do this work?

To measure is to know. We can't make a dent in US healthcare costs if we can't measure the services provided and how much they cost. Our goal is to deliver a data platform that enables simple apples-to-apples comparisons of healthcare costs and quality.

We aim to demystify medical data for stakeholders, including self-insured health plans and other payers, so they can see clear ways of improving the quality of care while managing costs.

OK, but what does this mean for you?  

Here is a representative a Careignition client, a benefits consultant advising a 1,400 employee health plan. Careignition's platform shows him:  

  • There is a drug being administered at Hospital X that is 5x more expensive than normal and is going to cost his client's plan $500,000 this upcoming year -> Consultant reaches out to the medical management team at her administrator and arranges for the drug to be procured for Walgreens, delivering a $400,000 annual savings.
  • Prices across geographic markets are shockingly variable on an apples-to-apples basis, and there are two markets that are significantly damaging the health plan. However, there are more cost-effective health plans available the provide comparable care -> Consultant selects a new network that provides more efficient healthcare consumption. Verifiably saves $2,000,000 per year.
  • Despite a recent network change, the prices went up dramatically in one region -> He is pursuing a multi-network strategy with that region. Savings opportunity of up to $1,000,000 per year.

In total, the client’s costs are at the same level that they were in 2018, despite cost inflation. This saved her health plan millions of dollars per year and put $1,000+ back in the pocket of each employee per year.

Because we standardize these units these insights can be automated (because we always know what to look for) and actionable (because we can see the full context of each healthcare purchase). With this information we can achieve true "value-based care", finding ways to buy the same or better healthcare for less money.  

Appendix A - Imaging Reimbursement Methodologies  

Medicare Reimbursement methodology

At a Hospital

  • A hospital submits the image's procedure code (CPT), which Medicare runs through an algorithm (called ambulatory payment classification, APC) and reimburses a claim for the care they associate with that image – this may include a facility component, a contrast agent, agent administration charge, etc. Sometimes, they might ignore reimbursing the image in its entirety if there is a procedure that they characterize as superseding it (like an ER visit or Joint Replacement). The payment amounts are based on the Outpatient Prospective Payment System (OPPS). This is a simplified explanation.
  • Medicare pays a radiologist separately under the same CPT code as the hospital image, based off of the Medicare Physician Fee Schedule
  • Medicare may pay for contrast administration separately
  • Number of Bills: 2-4+
  • Number of Claim Lines: 2-4  

At an office or free-standing facility  

Method 1: Radiologist and facility bill separately

  • Medicare Reimburses the facility under a CPT code from the Medicare Physician Fee Schedule
  • Medicare Reimburses the Radiologist separately under a CPT code from the Medicare Physician Fee Schedule
  • Medicare Reimburses under a CPT code for the contrast agent administration (if injected) from the Medicare Physician Fee Schedule
  • Medicare Reimburses the facility under a CPT code for the contrast agent from the Medicare Part B Drug Schedule
  • Number of Bills: 2-4
  • Number of claim Lines: 2-4

Method 2: Radiologist and facility bill together

  • Medicare reimburses the facility under a CPT code for the image in its entirety from the Physician Fee Schedule
  • Medicare Reimburses under the CPT code for the contrast agent administration (if injected) from the Medicare Physician Fee Schedule
  • Medicare Reimburses the facility under a CPT code for the contrast agent from the Medicare Part B Drug Schedule
  • Number of Bills: 1-3
  • Number of Claim Lines: 1-3

Commercial Payment

Commercial payers (from self-insured employers, to fully-insured plans, to Medicare Advantage, to ASO/TPAs):  

  • Can use the methodology used by Medicare
  • Can use a custom grouping methodology the commercial payer created themselves
  • Can use a grouping methodology from a third party
  • Pay exclusively from a chargemaster the provider sets
  • Pay from a custom payment schedule that the carrier provides
  • Almost always reimburses for the contrast agent separately and that can be billed either as a CPT code or off a chargemaster
  • Can also pay for a separate fee for the patient’s intake
  • They can pay via a methodology that is a combination of any of the above

Appendix B - Where does this leave us?  

  • A CPT code requires considerable interpretation. It can mean the facility fee for the image, the interpretation of an image, or both. It can also include different things depending on the reimbursement methodology. It does not include everything that you need to understand the cost of a complete procedure.
  • When you see someone say something about the price of a CPT code or other billing unit, you need to ask if this is a standardized unit of care that accounts for all the exigences of healthcare billing.
  • This process is extremely confusing data and is much more confusing for complex procedures, like surgeries, where there can be anywhere between 1 and 7 entities participating in a procedure.
  • We don’t have reliable and complete signals for prices, even in the world of “price transparency”, especially based on how price transparency publications are currently set up for outpatient hospital billing.
  • Today patients are often getting bad and inconsistent information on prices.
  • Percent of Medicare is not a reliable price signal. The fee schedules vary for the same things so much to the point that 100% of Medicare can be greater than 180% of Medicare for the same clinical service. For example, OPPS reimburses 50%+ more for the same thing as the Medicare Physician Fee Schedule.
  • The most reliable way of getting to price is leveraging historical data that can account for all the contextual adjustments and billing patterns of real-world transactions.

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