The problem with price transparency

Transparency — including price, quality, and effectiveness of medical services– is a vital component to lowering costs and improving outcomes.  However, it is imperative transparency go hand-in-hand with financial incentives for patients and consumers; otherwise, the quest will be in vain.  The single best way of reducing costs while not worsening health outcomes is to redistribute resources from less cost-effective health services to more cost-effective ones.  Americans are extremely uncomfortable with the idea of making decisions based on cost, but we must become fluent in the language of cost and more comfortable making decisions based on price information for health care expenditures to stabilize.

Legislators in more than 30 states have proposed legislation to promote price transparency, with most efforts focused around publishing average or median prices for hospital services. Some states already have price transparency policies in place. California requires hospitals to give patients cost estimates for the 25 most common outpatient procedures. Texas requires providers to disclose price information to patients upon request. Ohio passed price transparency legislation last year; however a lawsuit filed by the Ohio Hospital Association has delayed implementation.  The cost of a knee replacement is $15,500 at the Surgery Center of Oklahoma, whereas the national average is $49,500.

Trends suggest in the future Americans will be more price-sensitive when seeking care as high-deductible insurance plans become commonplace coupled with greater cost-sharing.  For consumers, paying less out-of-pocket costs could be a powerful motivator.   According to an article in Health Affairs, price transparency has helped reduce costs in the long run.  Another study found consumer-driven health plans led to lower use of name-brand medications, less inpatient care, and lower use of specialists.

Comprehensive transparency is only relevant if packaged in a reliable comparative context.  Information regarding cost, value, and effectiveness should be readily accessible to patients enabling them to make meaningful comparisons across providers and specialists. However, choices must be incentivized properly, so they are not only empowered but also motivated to use the information to make informed choices.

A benign, viral skin infection known as molluscum contagiosum provides a simple case for transparency because there are a vast number of ways to successfully treat these wart-like bumps (called mollusca).  They can occur extensively on the face and genitalia, are contagious, and may cause itching or tenderness, yet are not harmful.  Looking at four different treatment modalities can illustrate where transparency, for cost, value, and efficacy might make a difference.  It illustrates perfectly how health insurance can incentivize incorrectly resulting in higher expenditures with no difference in outcome. Molluscum can be treated by application of topical cantharidin or liquid nitrogen, oral cimetidine, surgical curettage, or no medical intervention.  The efficacy of each is roughly equivalent in that the benign lesions eventually resolve. Lesions can last two weeks to four years — the average being two years without treatment.

On average, children have about 15 to 30 lesions by the time a family seeks treatment.  Liquid nitrogen costs $50 per patient for supplies; Cantharidin, an extraction from blister beetles, is a topical vesicant that costs about $100.  There are two CPT codes for lesion destruction in the physicians’ office:  17110 ($113.75) and 17111 ($134.69).  A follow-up treatment is usually necessary one time after 3-6 weeks at which point lesions resolve. Total expenditure is approximately $500.  Most insurance plans do not cover this procedure, so cost is borne by the patient out-of-pocket.

Oral cimetidine is a controversial treatment, because efficacy is somewhat lower compared to topical or surgical methods, but has held up well enough in studies to remain a viable, painless treatment option.  Time to cure is 2 to 3 months.  Including the physician visit of 9921X x 3 plus the prescription for three months ($16 per month), we are looking at a total cost to resolution of approximately $300 to $450, with a 20 to 25 percent failure rate.  Insurance covers cost of office visit and medication except for applicable co-payments, so out-of-pocket could be as little as $100.  There may be medication side effects, and parents must remember to give their children medication twice per day for three months, increasing the “nuisance factor” (lowering “value” for some).

Some physicians incise and drain each bump individually as the core contains infected cells and if they are surgically removed, the body can “do the rest” to fight the infection.  Lesions often reappear six weeks later (as with topical methods) because they represent areas already infected at the first visit but too small to be seen, so a second round of treatment is necessary.  Cost estimates are in the ballpark of $1,000 to 2,000 per treatment, as cost information was difficult to find.  Total cost to cure is $2,000 to $4,000.  Surgical intervention is partly covered by insurance with out-of-pocket costs in the $500 range, though this is an educated guess.

Finally, no medical intervention is safe, low in cost, and efficacious.  However, watchful waiting can be challenging for parents when there are multiple children at home with one contagious infected child during the two year time period until the lesions completely resolve.  Cost of one physician visit for diagnosis: $125.  Cost for Google to diagnose: $0.

As an insurance company executive, I would incentivize topical therapy for treatment of molluscum resulting in lower expenditures and less need for specialty care.  Most private insurance companies do not cover codes 17110 or 17111, instead kicking the entire balance to the patient.  Unfortunately, they incentivize the less efficacious oral medication or partially subsidize surgical curettage.  In plain, straightforward language: this is utterly stupid.  If patients are not financially incentivized to choose the lowest cost, most effective option then efforts toward transparency are a waste of time as health care expenditures will not decline.

Not every condition can be easily evaluated as I have done above (though many can). Redistributing resources from less cost-effective health services to those that are more cost-effective is a winning strategy for patients, physicians, and insurance.  Individual physicians and hospitals should post prices for general well and sick visits (including applicable facility fees), basic procedures, and other services offered whenever feasible, because it is the right move to empower patients to make informed decisions.  Finally, insurance companies should financially incentivize patients to choose the lower cost, equally efficacious treatment methods if they want transparency of cost, quality, and efficacy to have a large impact on driving down expenditures.

Niran S. Al-Agba is a pediatrician who blogs at MommyDoc.  This article originally appeared in the Health Care Blog.

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