Congratulations, you’ve decided to purchase a new car or a new computer and want to make sure you’re getting the best deal. Within seconds, a quick Google search will display dozens of websites detailing fair market prices for your intended purchase, reviews on the product, best businesses to buy from, and more. After taking a few hours to parse through the detailed information, you feel good knowing you’ve made a smart and informed decision on your new purchase.
Now let’s attempt this with a healthcare service, say an M.R.I. Seems impossible, right? Hospitals and physician offices typically don’t post prices and if you have insurance, you’re usually held captive to providers in-network and nobody wants to deal with insurance providers over the phone.
How come we know where to get the best deals on cars and computers, but can’t get the same information on our healthcare services? While price transparency is apparent in nearly all industries, the healthcare industry has a notoriously complicated pricing and payment model that makes transparency more difficult than most realize. Insurers, billing codes, negotiated contracts, and more, create the perfect storm for necessary individual-case-basis (ICB) pricing.
Why is healthcare pricing so complicated? Should we be pushing for price transparency or will the efforts create more harm than good? Let’s break down the pros, cons, and possible solutions for price transparency in health care in our March blog post of 2018.
Early Leaders in Price Transparency
Once thought impossible, price transparency in health care has made significant moves over the past few years. In fact, over half of states have established websites with health care prices or require plans, doctors, and hospitals to disclose them to patients. A recently passed Colorado Senate bill requires healthcare providers like hospitals to post self-pay prices (for those paying without health insurance) on the most common reasons for hospitalizations (diagnosis-related group codes) and most-used procedural technology billing codes. Physicians’ offices and other individual healthcare providers are required to post prices for their 15 most common procedures. While not full transparency, advocates are saying this is a huge step in the right direction for achieving price transparency in the complicated healthcare system, especially for those with little or no insurance.
Another issue regarding price transparency is with the physicians themselves. Physicians often have no idea how much certain tests and procedures will cost for their patients. The Texas Hospital Association announced earlier this year they are working to address this by deploying Smart Ribbon technology to display the costs of proposed tests and procedures for patients atop their electronic health record system. The EHR-agnostic technology taps into HL7 feeds to gather clinical data and can show the real-time cost and risk of medication, labs and radiology procedures to help physicians make strategic decisions about the tests they order and their financial impact on the health system and patients.
Some insurance companies are even joining the price transparency bandwagon by publishing prices it pays for specific procedures to specific healthcare sites. Blue Cross Blue Shield of North Carolina made headlines in 2015 for doing just that. They decided to join CMS in publishing prices it pays certain facilities due to a large demand from their stakeholders. While this is certainly not the industry standard, pressures from competitors may force more and more insurance companies to follow suit.
Some advocates also argue price transparency will actually help build trust in healthcare institutions when the public often believes there’s no rationale behind pricing because it’s so vague and secret. They believe healthcare providers push back against price transparency because they want to keep their pricing models under wraps and outside public scrutiny. But some countries have been successful: Upfront estimates exist in other countries, such as Australia and, for patients facing out-of-pocket expenses, in France. Of course the U.S. health care system is different, but advocates believe these outcomes are achievable through legislation and cooperation between the major players.
Price Transparency: It’s Complicated
Opponents to legislation requiring the posting of uninsured prices cite these requirements may actually confuse patients even more because pricing is so complicated. Why is it so complicated?
- The posted prices are applicable only to people who are paying on their own without the help of public or private insurance, which is typically a small portion of patients.
- Prices for insured individuals will be vastly different from one another because it’s dependent on the specific pricing contract that facility has negotiated with each insurance provider.
- Prices charged to the uninsured are many times discounted by hospitals or healthcare providers depending on their income, commonly known as a sliding fee scale.
Combining all of these variables together provides the perfect concoction for confusion and misinformation. Recent studies have actually shown that providing more information to consumers doesn’t always improve decision making and can actually overwhelm the person leading to poorer choices. Additionally, a report from the Health Policy Institute of Ohio (HPIO) found consumers are more likely to base their decisions on their doctor’s advice, not on cost alone. And only around 10 percent of health care costs are actually “shoppable” expenses, aka procedures that can be scheduled in advanced like an M.R.I. elective surgery, according to the HPIO.
Not only is the pricing model complicated, but prices for the same procedure can vary greatly depending on your market and provider. While everyone knows the U.S. spends more on health care than other countries, many may not realize that tests and procedures do not have “standard” prices across providers and payers. One study analyzing costs in Los Angeles and San Francisco found mammography prices varied by over a factor of five- from $128 to almost $700. Additionally, IUD prices and lower-back M.R.I. prices varied by a factor of three. Some of the reasoning for these inconsistencies is healthcare providers often use certain tests to “supplement” other procedures and orders that end up costing the organization money. It’s a similar philosophy many universities use when men’s football and basketball programs end up paying for the smaller sports programs that aren’t generating revenue.
In an age where rural hospitals are closing at alarming rates, they simply can’t afford to have patients turned away due to confusing price transparency requirements. In fact, some medical groups are pushing back against these legislative efforts, like the Ohio Hospital Association and various Ohio medical groups to a recently passed bill. Their main argument is that the legislative efforts are too broad and forcing providers to create estimates before procedures would severely slow down patient care.
Not Cutting Costs & Low Engagement
Opponents also cite recent studies that show price transparency isn’t producing the cost-cutting outcomes many hoped for. A 2016 study found that price transparency did not reduce outpatient spending, even among patients with higher deductibles or who faced higher health care costs because of illness.
This New York Times article even goes so far to show price transparency and pricing tools have been unpopular when made required/available:
“Study after study has showed the same thing. Health plans report that use of their price transparency tools is limited, with many enrollees unaware they exist. The vast majority of plans now provide pricing information to enrollees, but only 2 percent of them look at it. Aetna offers a price transparency tool to 94 percent of its commercial market enrollees, but only 3.5 percent use it.”
Opponents cite these statistics show that patients care more about other factors when making their healthcare decisions such as quality and safety of the institution.
While most agree that price transparency in theory is a good thing, the challenge lies in how to achieve it without delaying care, confusing patients, or causing unnecessary burdens on already struggling healthcare providers.
- Modern Healthcare: Is the price right? Solving healthcare’s transparency problem
- Healthcare Financial Management Association: Improving Price Transparency
- The American Hospital Association Price Transparency Toolkit
What are your thoughts?
Do you think we need more price transparency needed in the 21st century healthcare industry?
If so, what’s the best solution? Should we force the industry to change through legislation or let the free market move in the direction organically through consumer pressures?
Tell us in the comments below!