Health care price transparency should receive bipartisan support

Most Republicans hate Obamacare for what they consider to be government over-reach, most Democrats support it because they believe only a strong policy of government intervention can extend coverage to the millions of uninsured—and there are no signs that their ideological battle will abate anytime soon.   But there may be one sweet spot that both parties could agree on: providing consumers (or patients, if you prefer) information on the prices charged by health care providers.

Free-market conservatives should welcome price transparency, because market competition can’t work without it.  If the best way to lower healthcare costs and improve quality is for consumers to shop around, then they need to know what each provider in their community will charge for a given medical procedure, and armed with this information, seek the best deal available..  But without price transparency, this is impossible.

Liberals should welcome price transparency, because having the government extend coverage to millions will be enormously expensive, unless the United States can also simultaneously use a combination of market competition and government purchasing power to drive down health care prices.  (Higher prices– not excess utilization– is the biggest reason that the U.S. spends more per person on healthcare than any other modern industrialized country).   Plus, liberals are naturally distrustful of for-profit health care.  But without price transparency, the government will be hampered in its ability to use its clout as the single biggest buyer of health care to get the best deal for taxpayers—and to empower consumers to shop around for the best price.

But will physicians and hospitals welcome price transparency—or fight it?  You would think that most physicians would want to know what the local hospital, pharmacy and their physician colleagues are charging before they refer a patient to them.  (Maybe not for hospitals, which seem to mostly benefit from the lack of price transparency).   But what if shining the light on health care prices shows that a physician’s own prices are on the high side?  Or what if you are in a medical specialty that benefits from high pricing?  And, of course, a physician who is identified as having higher charges will likely respond that “my prices are higher” because my patients are sicker and more complicated” or “I am worth more because I am the best” or “prices aren’t the whole story—what about quality?”

A new must-read New York Times article, “The $2.7 trillion Medical Bill: Colonoscopies Explain Why U.S. Leads the World in Health Expenditures,” illustrates the practical and political challenges involved in introducing price transparency into U.S. health care.   Using colonoscopy as a case in point (although the article makes it clear that high prices and lack of price transparency in the U.S. is hardly limited to this one procedure), the article suggests that Americans pay far more for their healthcare than people in other countries do.  The article also shows how much variation there can be within the U.S. on the prices charged for medical procedures.  And it also shows how difficult it is to even understand what the actual price will be before you sign up for the procedure.

Variation in prices:  “Deirdre Yapalater’s recent colonoscopy at a surgical center near her home here on Long Island went smoothly: she was whisked from pre-op to an operating room where a gastroenterologist, assisted by an anesthesiologist and a nurse, performed the routine cancer screening procedure in less than an hour. The test, which found nothing worrisome, racked up what is likely her most expensive medical bill of the year: $6,385.That is fairly typical: in Keene, N.H., Matt Meyer’s colonoscopy was billed at $7,563.56. Maggie Christ of Chappaqua, N.Y., received $9,142.84 in bills for the procedure. In Durham, N.C., the charges for Curtiss Devereux came to $19,438, which included a polyp removal. While their insurers negotiated down the price, the final tab for each test was more than $3,500.”

Higher prices: “In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care.”

No price transparency:  “Consumers, the patients, do not see prices until after a service is provided, if they see them at all. And there is little quality data on hospitals and doctors to help determine good value, aside from surveys conducted by popular Web sites and magazines. Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending. Even doctors often do not know the costs of the tests and procedures they prescribe. When Dr. Michael Collins, an internist in East Hartford, Conn., called the hospital that he is affiliated with to price lab tests and a colonoscopy, he could not get an answer. ‘It’s impossible for me to think about cost,’ he said. ‘If you go to the supermarket and there are no prices, how can you make intelligent decisions?’ Instead, payments are often determined in countless negotiations between a doctor, hospital or pharmacy, and an insurer, with the result often depending on their relative negotiating power. Insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs.”

Confusing prices:  The price of a colonoscopy depends not only on what the gastroenterologist charges for the procedure itself, but where the procedure is done (office or ambulatory surgical center) and whether an anesthesiologist is involved.  “Just as with real estate, location matters in medicine. Although many procedures can be performed in either a doctor’s office or a separate surgery center, prices generally skyrocket at the special centers, as do profits. That is because insurers will pay an additional “facility fee” to ambulatory surgery centers and hospitals that is intended to cover their higher costs. And anesthesia, more monitoring, a wristband and sometimes preoperative testing, along with their extra costs, are more likely to be added on . . .‘If you work as a ‘facility,’ you can charge a lot more for the same procedure, said Dr. Soeren Mattke, a senior scientist at the RAND Corporation. The bills to Ms. Yapalater’s insurer reflected these charges: $1,075 for the gastroenterologist, $2,400 for the anesthesia — and $2,910 for the facility fee.”

No price competition: “If the American health care system were a true market, the increased volume of colonoscopies — numbers rose 50 percent from 2003 to 2009 for those with commercial insurance — might have brought down the costs because of economies of scale and more competition. Instead, it became a new business opportunity.”

Patients insulated from price: “’Could that be right?’ said Ms. Yapalater, stunned by charges on the statement on her dining room table. Although her insurer covered the procedure and she paid nothing, her health care costs still bite: Her premium payments jumped 10 percent last year, and rising co-payments and deductibles are straining the finances of her middle-class family, with its mission-style house in the suburbs and two S.U.V.’s parked outside. “You keep thinking it’s free,” she said. ‘We call it free, but of course it’s not.”

Standards of care leading to higher prices: “Ms. Yapalater’s insurer paid $1,568 of the $2,400 anesthesiologist’s charge for her colonoscopy, but many medical experts question why anesthesiologists are involved at all. Colonoscopies do not require general anesthesia — a deep sleep that suppresses breathing and often requires a breathing tube. Instead, they require only ‘moderate sedation,’ generally with a Valium-like drug or a low dose of propofol, an intravenous medicine that takes effect quickly and wears off within minutes. In other countries, such sedative mixes are administered in offices and hospitals by a wide range of doctors and nurses for countless minor procedures, including colonoscopies. Nonetheless, between 2003 and 2009, the use of an anesthesiologist for colonoscopies in the United States doubled, according to a RAND Corporation study published last year. Payments to anesthesiologists for colonoscopies per patient quadrupled during that period, the researchers found, estimating that ending the practice for healthy patients could save $1.1 billion a year because ‘studies have shown no benefit’ for them, Dr. Mattke said.”

Everyone benefits from higher prices (except the consumer?): “ Hospitals, drug companies, device makers, physicians and other providers can benefit by charging inflated prices, favoring the most costly treatment options and curbing competition that could give patients more, and cheaper, choices. And almost every interaction can be an opportunity to send multiple, often opaque bills with long lists of charges: $100 for the ice pack applied for 10 minutes after a physical therapy session, or $30,000 for the artificial joint implanted in surgery.”

Now, before I get a lot of angry comments from ACP members who are gastroenterologists, let me say that I have quoted extensively from the Times article because it chose to focus on colonoscopy—but the same combination of variation in prices, higher prices,  lack of price transparency,  confusing prices,  no price competition, patients being insulated from prices, standards of care leading to higher prices, and the fact that a lot of people benefit from higher prices, except maybe the consumer, applies to almost all health care services in the U.S.  And there may be  reasons that patients benefit from the pricing structure for a colonoscopy—and I would love to hear from gastroenterologists about them.   There may be good clinical reasons to have anesthesia administered by an anesthesiologist.  There may be benefit to the patient in having it done in an ASC. There is always another side to the story.

Still, it is hard to see how the U.S. will get a handle on health care costs unless it finds a way to make it easy for people to know in advance what they will be charged, to introduce real competition—price, quality, total cost of care—into the system, to allow the federal government to use its purchasing power to get the best price, quality and cost of care provided to persons in government-funded insurance programs, and to give patients some skin in the game on paying some of the cost if they can afford it.

Two former advisors to President Obama, who helped create Obamacare, call for such a “transparency initiative,” in a commentary  published in ACP’s Annals of Internal Medicine:

For meaningful progress on transparency to occur, there must be a change in attitude throughout the system. All payers should be required to make their claims data publically available, with privacy protections, to enable quality measurement. Of importance, to protect privacy, the federal government should substantially increase the penalties for inappropriate patient re-identification. Personalized pricing information should be made available for comparison before patients enter a care process. Both total price and patient price should be transparent to providers in shared-savings payment models to enable cost management. Only patient price should be available to providers in fee-for-service networks to mitigate the risk for price increases. Fortunately, there is much that stakeholders can do. The federal government can relax restrictions on access to Medicare data. Other states should follow the lead of California and Massachusetts and require providers to disclose prices to patients before elective care. Health plans and employers should also support such transparency tools as Castlight.

ACP itself, in a letter sent last week to the Senate Finance Committee, called on Congress to “Direct HHS to explore ways to provide physicians with accurate data on the quality and total cost of care provided by other clinicians and hospitals within their geographic communities to enable them to make informed referral decisions.”   The College also called for Congress to “Eliminate provider-based billing delivered in an outpatient, hospital-system owned practices when the care being provided is not dependent on the hospital facility and its associated technologies. However, elimination of provider-based billing in such circumstances should only be carried out in conjunction with other new and innovative approaches, building on payment and delivery system reform efforts, in order to ensure adequate support of safety-net facilities.”

And recently, Medicare has taken preliminary steps to make comparative pricing data more available, earlier this month for hospital inpatient charges and then this week, for  hospital outpatient department charges  for common procedures.  And, a federal judge recently overturned a 33-year old ban on patients having access to physicians’ claims data.  The NBC News report notes that  “The American Medical Association had fought lifting the ban, arguing that disclosure of the information would violate physicians’ right to privacy. Doctors had successfully made the same argument in 1979, when a judge ruled the release of such information would violate the 1974 Privacy Act.”

So here is my challenge to readers of this blog, especially physicians: if you are a liberal who wants to get the best value for the health care that the government is buying under Medicare, Medicaid, the VA, TriCare, and Obamacare, or a conservative who believes that market competition is the best way to drive down health care costs, will you unite behind efforts to shine a light of health care prices?  Even if shining that light raises difficult questions about what you, your colleagues and your hospitals are charging for your services, your ownership of diagnostic and treatment centers, your standards of care, and your referral patterns?   Or will the medical profession try to keep all of this out of the public eye, even if it means,  “Whether directly from their wallets or through insurance policies, Americans pay more for almost every interaction with the medical system.”

Bob Doherty is senior vice-president, Governmental Affairs and Public Policy, American College of Physicians and blogs at The ACP Advocate Blog.

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  • Anthony D

    Here’s the thing.

    The problem with PPACA (ObamaCare’s real acronym) is that is fails
    completely to understand the real problem or deal with it. The primary
    reason that medical prices have been growing faster than inflation for
    many decades in a row without end is because of Third Party Payment. TPP
    break the market’s natural cost control mechanism…which is prices
    being paid by the consumer.

    In a HEALTHY market, a consumer pays for goods and services and
    therefore has incentive to seek the best total value he can. he
    prioritizes from himself what is important, and what is worthwhile. The
    provider is always under pressure because of this to innvoate, be
    efficient and meet the consumer’s expectations and desires at a price
    point that both can live with.

    But in the medical market in America, the consumer doesn’t pay. About
    90% of all medical dollars are spent by someone OTHER than the patient
    (insurer or government usually). But wait, it’s worse! because not only
    do most people not pay for 90% of their bill themselves, but their
    insurance isn’t even paid for by them directly. Either their employer or
    the taxpayer pays. So you really have 4th party payment MOST OF THE
    TIME.

    The effects of this are a classic Moral Hazard (if you don’t know what
    that is, look it up, it’s an important economics term that every
    American should know). The consumer, because he doesn’t pay for
    anything, is incentivized to overconsume medical services. The provider,
    because the consumer doesn’t worry about costs, is incentivized to
    overprovide.

    Thus unnecessary tests are prescribed, unnecessary procedures, new
    expensive drugs are prescribed when an older cheaper one could solve the
    problem almost as well., etc. This overconsumption is an increase in
    demand. If you know ANYTHING about economics you know that when demand
    rises, prices rise.

    In a normal market, when prices rise, suppliers have incentive to
    increase supply to capture profit which then brings prices down.
    However, medical markets have two problems. One is that training doctors
    is REALLY hard and expensive. Only so many people have the capacity to
    be doctors and it takes more than a decade of schooling and interning to
    make more, not to mention hundreds of thousands in debt. This is a
    naturally inelastic supply (another economics term you should know).

    But in addition to natural inelasticity, our licensing system has turned
    the AMA into a medieval guild that suppresses competition. The AMA
    takes steps to ensure that only a small number of medical colleges
    exist, and that those colleges keep from expanding their production of
    new doctors. The AMA has this power because it writes the licensing
    rules to restrict doctors to having come from AMA approved medical
    schools rather than using skills tests. The result is to give the AMA
    the power to control the supply. And no such group will ever voluntarily
    expand competition so as to lower their own compensation. So we have
    natural and artificial limits on supply.

    These are the challenges. PPACA does NOTHING to reduce them. It does a
    GREAT DEAL to make Third Party Payment worse. Independent industry
    analysts are predicting 33-169% premium rises over the next few years
    after PPACA comes online. These are not conservative interest groups.
    These are group paid by businesses to give them the most accurate
    forecasts they can so that businesses can plan for the future. They have
    every incentive to be as accurate as they can without political bias
    because the degree to which they are right determines if they get their
    next contract.

    PPACA is going to to substantial damage to our health industry. Ten
    years from now, I GUARANTEE, the situation will be SO much worse than
    today, and I also guarantee that no one on the left will admit that
    PPACA made it worse. They will instead call for more solutions that fail
    to recognize the problem.

    I can’t add anymore. Its too long to be posted!

  • kimbriel

    Is there data showing that 3rd and 4th party payment are the major cause of healthcare over-consumption? I have a hard time believing consumers are causing this drive. Heck, pay ME $5K for a colonoscopy, and I still would not choose to have one, unless there were a real medical need. It’s more likely doctors and med mal attorneys are driving over-consumption. Price transparency is a real issue too – how are we supposed to make sound healthcare decisions if we don’t even know what our costs will be until we get the bill?

  • Bob

    Since PPACA IS Socialized Medicine and all other Nations fix the prices of all products and services, we cannot, because we don’t have the providers.

    So get use to it or go elsewhere as only less than 10% pay cash and the rest of the market is split between government pay and commercial insurers with government paying the least, about what the rest of the World pays. So go “Social” and what do you do with all the insurance workers and how do you stimulate specialists or end up like Canada and Europe?