The costs of healthcare are now the greatest financial concern for most Americans—more than the costs for housing, food or retirement—and one in two Americans report difficulty paying for out-of-pocket health expenses.
Price transparency initiatives are meant to help patients save money by allowing them to comparison shop for medical services and providers.
The concept has a lot of fans. Patient advocates say it’s only fair to tell patients how much the medical procedures and service they need will cost them. Free-market believers argue that giving patients better price information will unleash the power of competition and drive prices down.
Across the country, state governments have mandated that insurers and health care providers give patients access to information about prices of the services they receive.
The Trump administration and governors and legislators on both sides of the aisle are calling for greater transparency of health care prices.
But like so many other seemingly simple things in health care, price transparency turns out to be surprisingly complicated. In this question and answer blog Ateev Mehrotra, Harvard Medical School associate professor of healthcare policy discuss the promise and reality of price transparency.
Why so much emphasis on improving price transparency from policy makers?
There are three main motivations. First, healthcare is an enormous expense for patients, and it seems only fair that patients should know how much their care is going to cost them. They can then budget for their out-of-pocket share of the expenses. Second, in most markets there are certain hospitals and provider groups that cost a lot more than others, and there’s the hope that once prices become public high-priced providers will be “shamed” into lowering their prices.
The third motivation is that with price transparency, patients can price-shop.
Say you need a wart removed. If you are in a high-deductible health plan, you’re going to have to pay for it out of your own pocket. If you can look on a website or call your health plan to find five places that can perform the procedure but one is a lot cheaper than the others, you might opt for the lower-priced place.
The idea behind price shopping is that if more people will choose cheaper providers, the more expensive providers will lose market share and therefore be pushed to drop their prices.
A number of states and providers and employers have rolled out these tools. How is it working so far?
The efforts to date have not worked. Patients say they really want the information, but in places where price-transparency tools have been introduced, we don’t see a lot of use. Some people are using the tools, but the numbers are pretty teeny.
Why the low numbers?
For one thing, even with the tools, it still can be confusing. I’m a physician and a researcher who studies prices in health care, and when I tried price shopping for procedures for my own family, I found it confusing and frustrating.
Say it’s something a little more complicated than getting a wart removed. Your doctor says you need an MRI for you back. When you go to the website you might need to know a lot of details. For example, do you need imaging of the thoracic spine or a lumbar spine? The answer may not be obvious to someone who is not a doctor.
Medical terminology aside, health care has a complex billing system that includes multiple categories. If you get an MRI, of course there is a payment to the radiologist, but what about the payment to the facility or the hospital? Is that included in the price you are seeing online, or is it separate? To make a tool that will work for patients, all participants in the whole system—the insurance company, the physicians, the hospitals, the imaging labs—need to share information seamlessly in ways that often are not possible with the tools that are currently in place.
And then, assuming you can get good information out of the system, a lot of patients might be reluctant to make a decision based on price, because they think, “My doctor’s telling me go get a back MRI at this place, and I’m assuming he or she had some reasoning for sending me to that place versus some other place. I don’t know if there’s a difference.” Overriding their doctor’s recommendation is obviously difficult.
So what would drive someone to start price shopping?
If we were to have this conversation a decade ago, people would say, well, of course people aren’t going to shop for care, they don’t have any incentive to do so. It doesn’t matter if the price of a MRI is $1,000 or $500; the patient is still only going to pay a $10 co-pay. So, the push has been for patients to pay more out of their own pocket, most often through higher deductibles.
But now that we’ve been at it for a little while, we see that high deductibles are very good at driving down the amount of care that people get. But surprisingly high deductibles do not make it more likely that people will price shop.
So many procedures cost more than even the highest deductible.
If the patient doesn’t benefit from the savings, the patient doesn’t have any incentive to choose the cheaper care, right? In a high-deductible health plan, you’re responsible for the first dollars. You have to pay a certain amount, and then the health plan kicks in and pays out for the rest.
But there are ways to flip that and make the patients responsible for the last dollar.
Say you need a hip or knee replacement, which costs, on average, $25,000 in the market where you live. The insurance company could say, we’ll pay $25,000 for hip or knee replacement. If you want to go to a facility that costs $24,000, awesome, you’re good. No out-of-pocket cost to you if it’s below $25,000. If you go to a facility that costs $27,000, then you have to pay the difference. These programs are called reference pricing, and they are much more effective in encouraging price shopping.
The big picture is that we need a system where a patient can go to their doctor, talk about a procedure they might need, and before they leave the doctor’s office, have a good idea of how much the procedure would cost. There’s enough stress in dealing with health care, it shouldn’t be made worse by making it hard for patients to figure out how much they’re going to have to pay.
If we’ve decided as a society that we want to see what market competition can do to help control the rising costs of health care, we should start changing the way insurance benefits are designed to encourage people to shop for lower-priced care.
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