Price Transparency: A Q&A with HDA Founder Michael Woodrow

Michael Woodrow launched Healthcare Data Analytics last year with the goal of ensuring that the data that hospitals publish to comply with the new Hospital Price Transparency Rule leads to actual price transparency in the healthcare marketplace.

In this Q&A, Michael provides insight into why he is tackling this challenge and what he hopes Healthcare Data Analytics will do for the US healthcare system

Q: You’ve said that Healthcare Data Analytics is a “spinoff” of Aspen Tech Labs, which is a company you own in the recruitment technology space. How did you get from recruitment technology to healthcare pricing?

A: It seems like a leap from the outside. But when you look at it from the perspective of the data we’re dealing with, the connection becomes clear.

In the recruitment tech space, we help our clients ensure that the data they have on their websites matches the data on job boards. It’s a straightforward concept, but because of the scale and state of the data involved, the execution is actually pretty complex.

First of all, it’s common for recruitment platforms to be on the older side. That’s because HR departments are rarely first in line for tech upgrades. So there’s that component: outdated technology on the business side.

Add to that the fact that the job listings from these platforms may be syndicated on dozens of job boards.

Then you have to consider that the data on the company site changes from day to day or even throughout the day. They might update the requirements or the salary range. They may hire someone and take the posting down. For large organizations that have dozens or even hundreds of openings up at any given time, it’s an enormous amount to manage.

And what we’ve done with Aspen Tech Labs is we’ve developed the discipline of gathering the data, normalizing it, posting it, monitoring it, and updating it. And that’s what needs to happen to the pricing data hospitals are now publishing if we want to achieve actual transparency.

Q: You’re referring to the data hospitals are publishing because of the CMS’s Price Transparency Final Rule?

A: Yes. The rule requires that hospitals publish this data – the prices for 70 specific shoppable items and services and then at least an additional 230 codes that hospitals can choose. So prices for 300 codes total. They’re required to publish four prices for each of these 300 items and services:

  • Discounted cash price
  • Payer-specific negotiated charges (for each specific payer / insurance company)
  • De-identified maximum negotiated charge
  • De-identified minimum negotiated charge

And they have to publish this in two formats: one that’s consumer-friendly and one that’s machine-readable.

Q: And if Healthcare Data Analytics didn’t exist, there would be no easy way to actually comparison shop?

A: Yes and no.

Our platform isn’t meant to be consumer-facing, so in that sense, it’s not meant for comparison shopping.
But for companies who are trying to figure out which insurance payer or package to offer their employees, for example, our platform could be invaluable.

We’re providing the crucial step of making sure this pricing data is accurate and exists in a format that’s searchable to people in the industry who know what they’re looking for. We built the platform primarily for hospitals and other industry players: employers, payers, government agencies, financial services firms, etc.

Q: But given that the data exists in this format, isn’t it perfectly positioned to fuel a consumer-facing price-comparison tool?

A: Yes. And we’re hoping that someone will build such a tool. But that’s not where our strengths are. We’re good at the data side of it so we are staying focused there. We want to become the central point for US hospital (and eventually Rx) pricing data.

For now, we’re focused on giving hospitals access to this data so they can, first of all, verify that the data they’ve posted publicly is accurate, and secondly see how the prices they’ve negotiated with payers compare with the prices their competitors have negotiated.

We’re also working with hospitals that haven’t yet published their data to help them do so.

Q: Hasn’t this data been available for a while?

A: No. Prior to January 1, 2021, some states required hospitals to publish their list prices – also sometimes called “chargemaster data” for various items and services. Those prices are typically much higher than what insurance providers actually end up paying (negotiated prices) or the discounted cash prices consumers might pay.

Requiring the publication of these prices makes possible a level of transparency we’ve never had in our healthcare system.

To clarify, each hospital now must disclose the price of each procedure for every payer – such as a colonoscopy procedure at XYZ hospital and price that will be paid to the hospital by Blue Cross, HCA, Aetna, Cigna, etc. So these price transparency files are enormous – thousands of chargecodes and often dozens of payers. Picture a single hospital spreadsheet with thousands of lines of procedure codes, and up to 100 columns. It’s a ton of data.

Q: So the goal is to make healthcare prices more visible to everyone?

A: The CMS’s stated goal is to increase competition and innovation. Their stance is that transparency will benefit everyone in the system: better-informed customers are better customers, and more transparent pricing will make the healthcare market more efficient.

And I agree.

I think back to when I was living in Chicago decades ago and I’d go to pick up my drycleaning, and the guy would be like, “That’s $113” or “That’s $74.” I never knew how much the bill was going to be and I never had a clear sense of why it was so high some weeks.

I hated that. As a consumer, it’s really not unreasonable to expect to know what something costs before you decide whether to buy it. Would you buy a car if you had no idea the cost until after you drove it out of the lot? Of course you wouldn’t. And in most of our economy, that’s how things work. But, for some strange reason, not in healthcare. Not until now.

Q: So why do you think it makes sense for someone from outside this system – i.e., Healthcare Data Analytics – to be the ones facilitating the move toward transparency?

A: A really important question. And we see two key reasons.

First, incentives. The players inside the system right now – hospitals and payers and healthcare tech providers – have a lot invested in the status quo. I mean, that’s how business works. Insurance companies generated record profits in 2020, the year that COVID hit. Payers and hospitals have negotiated prices behind closed doors because that’s how the US healthcare system has worked until now and that’s how participants stay in business.

But because of that, these groups may not think they have a lot to gain by facilitating price transparency.

When every hospital and payer has access to the prices every other participant has negotiated, the game changes significantly. At the very least, it’s likely that most participants will want to renegotiate all their contracts. Knowing the lowest negotiated prices is a powerful bargaining tool – and one that could threaten the industry’s profits.

And of course, fear also comes into play. What happens if you publish your prices and they’re higher than all of your competitors’? There’s fear that you would lose all of your customers.

But really, that’s not going to happen.

One reason we need this transparency is that there’s no rhyme or reason to a lot of these prices. It’s not like restaurants, where you can see three dollar signs by the directory listing and say, “Okay. Meals here will consistently be more expensive than meals over here at the one-dollar-sign place.”

Hospital pricing is all over the map. The hospital with the lowest price for a bag of saline with Payer A might also be the one with the highest price for Payer B. Or it might have the highest price for an ultrasound for Payer A. And during a visit to a hospital, you likely need more than one item or service.

So until this data is made readily available, it’s almost impossible for people to make price-based decisions. And companies choosing an insurance carrier previously had no idea which carrier was negotiating the best rates with the hospitals. Maybe carrier 1 is charging a few dollars less per month per employee, but this same carrier is also passing through hospital charges that are 25%, or even more, higher than their competitors.

The second big reason we think an outsider is perfectly positioned to tackle this challenge is inertia.
This data is really messy. Really messy. CMS has done a good job of outlining the data that is required to be disclosed. But, there are thousands of codes and every hospital has its own tags and modifiers on these codes, which can sometimes make it difficult to compare them apples to apples. And when you’re inside the system and you’ve accepted that reality, the prospect of solving the problem is overwhelming. It’s this giant mountain of a problem.

But we’re not inside the system. And our take is that, yes, this is extremely complex, but what works in most other places probably also works here. So we’re approaching the data with the Pareto principle, assuming that something like 20 percent of the codes are responsible for about 80 percent of revenue and spending. We are focusing on those codes first.

So if we can get apples-to-apples comparisons for that 20 percent of the codes and 80% of the dollars, we’ll have made a huge impact for the parties affected – hospitals, consumers, employers, payers, and even the government, which is the single largest payer of healthcare services and items in the country.

And note that those affected parties – the ones who will see the biggest benefits from price transparency – are all outside the healthcare system. So it makes sense that someone outside the system would be the best suited to solve for transparency.

Q: How does the scope of the country’s hospital pricing data compare with the scope of data you’ve managed via Aspen Tech Labs?

A: That’s actually one reason we thought we could take on this challenge.

In our recruitment tech work, we’re collecting data from more than 25,000 corporate sites daily and then normalizing, posting, monitoring, and updating it. But there are far fewer hospitals in the United States – fewer than 10,000. So the scope of the work seems to be within our abilities.

Q: What’s your vision for how Healthcare Data Analytics will affect the US healthcare industry?

A: I’m a University of Chicago guy. I believe in the efficient-market hypothesis. When buyers have enough information about healthcare items and services to make informed decisions, those prices will normalize.

That is a net good for the US healthcare system.

And we also believe that price transparency will drive the best companies to continue to innovate and deliver value. We’re confident in the ingenuity of US corporate innovation, that companies will make use of this data and that it will make the best companies stronger and then force others to become stronger to compete. The winner will be the US consumer, which is really important to us.

Q: So what can hospitals do if they want to know what they’re competitors are charging?

A: Before we even get there, we encourage hospitals to use our platform to view their own data and make sure that it’s accurate and up to date. We make that free to hospitals. Because prices change and those changes don’t always get reflected on the website right away or someone might make a mistake uploading the information – there are a lot of very similar codes.

But assuming your own data is correct, we’d love to talk with you about what you can do on our platform. And we’re currently offering a free trial as well as a list of compelling data insights we have noticed, so hospitals can understand what kind of value we offer. So if that sounds appealing, get in touch. We’ll get you set up.