Strategy: Chess and Hospital Pricing

“In life, as in chess, forethought wins.”

Charles Buxton

I have enjoyed the game of chess since learning the rules from my father as a young boy. I remember my dad playing the game with me and describing the importance of “looking ahead to subsequent moves.” He would take an eternity considering his moves and the downstream implications of each choice. At least, it seemed like an eternity to me.

My kids have taken up the game. Holger discovered the game in Pre-K classes, where a talented teacher told stories to Holger and his classmates and was able to successfully imbue in their minds a set of attributes to each piece; For example, kings are very timid, which causes them to walk slowly and only on their tippy-toes (resulting in only moving one block at a time) while the knights they discovered are not timid at all! No, they prefer to dance (resulting in a move of “forward-forward-to the side…”) It has been tremendous fun playing with Camilla and Holger, and watching them play, at the board we keep on our dining room table.

Last night we watched a lovely movie: Queen of Katwe. From IMDB, here is a description of this true story:

Living in Katwe, a slum in Kampala, Uganda, is a constant struggle for 10-year-old Phiona, her mother Nakku Harriet and younger members of her family. She and her younger brother help their mother sell maize in the market. She also helps care for her baby brother. Her world changes one day when she meets Robert Katende at a missionary program. Katende coaches soccer and teaches children to play chess at a local center. Curious, Phiona approaches and learns the game. She becomes fascinated with it and soon becomes a top player in the group under Katende's guidance.  -- https://www.imdb.com/title/tt4341582/

The story is quite inspirational. At one point, Coach Katende says to Phiona, as they play chess in the Ugandan slum, “Sometimes the place you are used to is not the place you belong. You belong where you believe you belong. Where is that for you?” Goosebumps. I highly recommend the movie.

Wall Street Journal article about hospital pricing

“I don’t believe in psychology. I believe in good moves.”

Bobby Fischer

The Wall Street Journal posted this article on a topic of interest to me yesterday: decisions made by hospital systems to seemingly create challenges for consumers attempting to find federally mandated price details. Issues about health care cost variation have been widely reported and researched (see an earlier blogpost here which references Zach Cooper’s work in price variation.). From a Wall Street Journal article on 8/21/18 written by Melanie Evans:

For nearly a decade, Gundersen Health System’s hospital in La Crosse, Wis., boosted the price of knee-replacement surgery an average of 3% a year. By 2016, the average list price was more than $50,000, including the surgeon and anesthesiologist.
Yet even as administrators raised the price, they had no real idea what it cost to perform the surgery—the most common for hospitals in the U.S. outside of those related to childbirth. They set a price using a combination of educated guesswork and a canny assessment of market opportunity.
Prompted by rumblings from Medicare and private insurers over potential changes to payments, Gundersen decided to nail down the numbers. During an 18-month review, an efficiency expert trailed doctors and nurses to record every minute of activity and note instruments, resources and medicines used. The hospital tallied the time nurses spent wheeling around VCR carts, a mismatch of available postsurgery beds, unnecessarily costly bone cement and delays dispatching physical therapists to get patients moving.
The actual cost? $10,550 at most, including the physicians. The list price was five times that amount.

Donald Trump signed an executive order on June 24, 2019 to add requirements by hospitals to create improved transparency of hospital services pricing. CMS posted the following on July 29, 2019:

“All Americans have the right to know the price of their healthcare up front,” said CMS Administrator Seema Verma. “Thanks to President Trump, healthcare prices won’t be a mystery and consumers will be able to shop for healthcare just like they do for everything else they buy. This rule will finally expose hospital pricing practices, let hospitals compete on price and is a first step toward ending surprise billing practices.”
In order to ensure hospitals comply with the requirements detailed above, the rule proposes new enforcement tools including monitoring, auditing, corrective action plans, and civil monetary penalties of $300 per day. The agency is also soliciting feedback on the best way to capture information on the quality of hospital inpatient care so that information can be provided to patients in a way that is useful for them when comparing care options.

From the article posted yesterday in WSJ:

UPMC, a 40-hospital system based in Pittsburgh, has placed the price lists on each hospital’s website, which can require seven clicks to reach from UPMC.com. A user navigates through links with labels including “Locations,” “Hospitals,” “Patients & Visitors,” and “Patient Information” to reach them. UPMC, which removed blocking code from price-data websites for two hospitals after the Journal reached out, didn’t include the negotiated commercial rates for insurers in its data. The health system did offer other data points required under the rule, such as sticker prices and cash prices.

So, from this article in the Pittsburgh Business Times on 2/26/21, UPMC has revenue of USD $23bb. Their risk of financial impact per year arising from a failure to comply with the CMS rules is $300 per day, or roughly USD $109,500. This is approximately 0% of revenue.

It seems to me that hospitals like UPMC, in opting to not comply with aspects of the transparency rules, are making rational moves. Bobby Fischer would approve.

Chess is an interesting game; There are two players, rules of engagement, and a need to constantly evaluate the costs and benefits of a move while imagining the implications of your opponents response. Comparably, the business of health care is interesting; There are many players, including hospitals, employers, insurers, regulators, and patients, who have varied and, at times, competing interests, as customers and vendors (and, at times, competitors.) I doubt there are any industry participants that are particularly surprised at the slow rollout of easy-to-use cost comparison tools. I wonder at what point an industry participant with some clout will choose to adopt the Kasparov quote below and accelerate the adoption of useful price transparency…

“I used to attack because it was the only thing I knew. Now I attack because I know it works best.”

Garry Kasparov