Armed with more data, we’re back to recap the past year(ish) of healthcare markets with a little more flair, a little more sass, and just as much class as last time. If you’re new to these, we’re going to traipse across the healthcare landscape together covering everything from rate changes and inflation to price variation and regional market dynamics. Ready?
500 Shoppable Services
This time around the sun, we think it’s high time we dive a little deeper than past stats about the state of price transparency and instead analyze these prices like we would any other market. Today, we’re exploring healthcare costs through the lens of a specific subset of 500 shoppable services*. The Centers for Medicare & Medicaid Services (CMS) considers these 500 services the most “shoppable,” meaning the easiest services for a patient to plan and schedule in advance, compare options, and “shop” for the most advantageous offer. Think of services like labs, common procedures like knee replacements, or even access to common drug therapies.
To understand the price dynamics of these shoppable services, we’re diving into our payer dataset, which contains negotiated rates between payers and providers for all covered services across insurance plans and locations. Here we focus on negotiated rates of CMS’ 500 shoppable services at a subset of four national payers (Blues, UHC, Cigna, Aetna) and large hospitals with at least 500 beds, across 382 provider networks.
In 2023, we observed 14.6 million total price changes across these hospitals. There are a number of expected reasons negotiated rates change throughout the year, including providers and payers going through annual rate renegotiations and auto-escalation clauses within contracts. We plan to measure these price changes over time to understand more about them.
*ICYMI payers are mandated by CMS to post a specific subset of 500 shoppable services. Hospitals are mandated to do the same, except by a different final rule and a different set of 300 shoppable services.
Inflation at the 500 services scale
Using those same 500 shoppable services, let’s see how the negotiated rates (from now on we are going to call those “prices” to make it simple*) of these services changed as the economy itself inflated. To distill this into a single easy-to-understand number, we’ve constructed the TQ Price Index**, an aggregate measure of prices of CMS’ 500 shoppable services.
From Q1 to the end of Q3, we saw an increase of 2.0% across all 500 shoppable services. This is in line with the 1.9% overall US inflation measured by the Personal Consumption Expenditures Price Index (PCE) and below the overall US inflation measured by the Consumer Price Index (CPI-U).
Turning to healthcare specifically, we find that these 500 shoppable services are in line with the 1.9% healthcare services inflation measured by the PCE, and above the -0.5% Medical Care component of CPI. While Medical Care CPI sticks out like a shiny “On Sale” sign, as usual, it’s all in those pesky details. When comparing these numbers, there are important differences to consider in scope, formula, weight, and, most importantly, data.
So what’s the takeaway? Now that we have actual price numbers, the industry can do better than the labor-intensive, error-prone, manual data collection methods that have traditionally been the best available way to gather healthcare market data. We now have access to trillions of publicly available healthcare prices and should use them. We can begin to scrutinize the healthcare market like we would any other market. While the 500 shoppable services are just a small slice of this, they are a useful starting point to begin lifting the curtain on healthcare. This transparency is essential for improved market efficiency, which we’ll need if we ever want to see healthcare prices come down.
*A very quick, non-exhaustive caveat: Payers use “fee schedule” and “negotiated rate” somewhat interchangeably. So for this blog, we’re treating them the same to make it easy. Feel free to join in on this highly controversial debate over on GitHub.
**This index tracks prices across CMS’ 500 shoppable services on a monthly basis for four national payers (Blues, UHC, Cigna, Aetna) at large hospitals with at least 500 beds, across 382 provider networks. We weight each service according to historical utilization when aggregating to calculate the overall index value. For more information, please see the Methodology section below.
Alright, how about service by service
While inflation across these 500 services has been moderate overall, we see a lot of variation when we investigate service by service. We see the largest price increases in areas like Chickenpox and Measles vaccines. On the deflationary side, off-hours medical services, allergy tests, and vaginal delivery of placentas have seen the largest price drops. These services exist in their own local markets within healthcare. Let’s dig into some actual prices to see how those are faring!
One service in particular
Taking the lead from above, let’s focus on the cost of vaginal delivery with post-delivery care (CPT 59410)*. If we take this service alone and think of it like its own micro-economy, what are we seeing here? While some metropolitan areas are more expensive than others, you can see that even within the same metro, prices can be 27x different. Well, that’s a crazy range** of prices! In other markets, price differences can indicate differences in quality and supply/demand dynamics. While that might be happening here, we’re not sure that’s solely responsible for such a big gap. Instead, this is a perfect example of what happens to costs when we don’t scrutinize them. Healthcare never knew its own prices until two years ago. Now that they do, we have a feeling that in the next twelve months, these ranges will begin to shrink as market forces take over.
*The astute shoppers among you may be wondering about professional vs facility fees, inpatient vs outpatient billing, and different reimbursement methods. Here we calculate a simple minimum and maximum for the single shoppable service billing code CPT 59410, across all rates that meet our dataset inclusion criteria. For those who care about the nuances of maternity care billing, we see you. Look forward to a future deep dive in this area.
**When looking at these ranges, remember that this isn’t the cost for the patient. This is the rate the insurer has agreed to reimburse the provider for the service. The patient ultimately pays a slice of this larger cost based on their insurance and cost-sharing rate.
Services are great, but what about medications?
With all the talk about shoppable services, you may not have realized that drug rates* are also included in the required 500. These negotiated drug rates represent the contractual amounts the payer has agreed to reimburse providers for administering a given drug at a hospital.
Drug reimbursement rates are especially interesting when combined with external market drivers such as the competitive environment, sites of care, and payer mix that all contribute to the shifting reimbursement landscape.
A moment for Infliximab
Across all 500 shoppable services, the area where we’ve seen the most activity—measured by the largest volume of negotiated rate changes—is in the drug Infliximab (HCPCS J1745).
Over the year, we saw 144,978 reimbursement rate changes for Infliximab with its nationwide reimbursement rate down by a modest -3.3%. This trend is similarly observed in the drug’s average sales price (ASP) of the brand name version of Infliximab, Remicade (say that 10x fast), over the last few years. While Remicade has been the dominant market leader, the introduction of biosimilars (aka “generic” versions) has put pressure on their rates, leading to a significant decline in ASP. Interestingly, we find that this decline shows a fair amount of regional variation, with prices in West Virginia nearly flat at -0.4% vs states like New Jersey and Massachusetts which saw price drops of over 5%. In this particular healthcare market, market forces are in full force.
*Nitty gritty note: Part B injectable drugs are included in the hospital files. The rates used here are from payer data. Payer-negotiated rates for prescription drugs are required as part of Transparency in Coverage, though no enforcement date has been set as of September 2023. See the “Methodology” section below for more info on how these rates were reported.
*record scratch* It wouldn’t be a Turquoise blog without a little nonsense. Outside of this cozy, narrow slice of 500 services across large hospitals, we have trillions more data points from other hospitals, payers, and services.
Sometimes, they aren’t just medical costs. As you dig into the methodology section below, might we suggest pouring yourself a drink? If you should be so inclined, we’d recommend a cold glass of the delicious seasonal favorite eggnog with a splash of Bourbon. Now, you could go out to your local liquor store and purchase a nice bottle of Bulleit or you could run down to your local hospital and see if they could, perhaps, spare a dram? We did the price shopping for you and the winner is clear. Say you spent $10 at Houston Healthcare,* you’d get over 20 shots of bourbon! Whereas Hammond Surgical will only add less than a third of a shot and take that full $10 bill. You decide who is offering up the most holiday cheer!
Drink in hand? Let’s resume!
*See the Methodology section below to find out how this was calculated.
If we work hard, market forces will play hard
Like this year, this blog must eventually come to an end! Thank you for trekking across payer data with us. While healthcare prices overall have gone up in line with the rest of the economy, if you dig in, you’ll see many ups and downs. Within the broad healthcare markets, there are countless micro-markets ripe for scrutiny. Now with more information at hand, everyone at the table (and we mean providers, payers, patients, regulators, and employers!) has the opportunity to make better decisions. We’re on our way toward a healthcare market with less 27x price spreads. We might not get flying cars in 2024, but we’re determined to get better market efficiency in the cost of care ✌️
TQ Price Index Methodology
- This analysis uses monthly payer data from January through September 2023.
- We focus on negotiated rates of CMS’ 500 shoppable services at four national payers (Blues, UHC, Cigna, Aetna) and large hospitals with at least 500 beds, across 382 provider networks.
- We track each rate type for each billing code and billing code modifier for each network/product for each payer and provider at each place of service over the year. We remove any percentage- and per-diem-based rates, as well as rates with no price changes.
- We calculate the percent change between first observed price and final observed price for each rate and aggregate at the billing code level by taking the median percent change.
- Billing-code aggregate rates are further aggregated to the TQ Price Index by weighting by the relative utilization, calculated using counts from prior-year claims data.
The Very Important Bourbon Calculation
- We searched across all hospital price data for any billing code description that contained ‘bourbon’.
- We focused on prices at a subset of hospitals with billing code descriptions that include a description of units (for example, “BOURBON 80 PROOF 1,750 ML BOTTLE” - yes, they actually sell by the bottle!)
- For each of these rates, we extracted the units in the description and divided the prices by the extracted units to calculate a per-mL price for bourbon.
- We scaled the per-mL price by 30mL (the most commonly occurring unit) to obtain the per-pour price and by 44.4mL to obtain the per-shot price of bourbon.
- We divided our $10 budget by the per-shot price of bourbon to estimate the number of bourbon drinks that can be purchased on a $10 budget.