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Medical Price Transparency Could Save the U.S. $36 Billion Annually

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In most markets around the U.S., patients are finding a new wave of cash discounting in prices for health care procedures and services. Cash discounts can be up to 89 percent in some cases as long as you know how to play the discount game.

- If you tell the hospital about your insurance, they have to charge you the higher price and you will have to come out of pocket for your deductible.

- If you don't tell them about your insurance and pay with cash, check or credit card, you get the lower price -- in some cases, MUCH lower -- but the payments don't apply to your deductible.

What if everyone paid the lower price?

I believe there is a wave of health care cost transparency and competition on the way. These cash discounts are just the first ripple of what will become a much bigger wave very soon. A recent study shows the cost savings that are possible.

A white paper from Thomson Reuters reports on their study of what "price transparency" would mean to overall health care expenditures in the U.S. on an annual basis. They come up with an annual savings of more than $36 billion -- and their numbers are very conservative (see below).

The study analyzed the variation in prices in 300 "shoppable" procedures (high-volume procedures that consumers would plan for and schedule in advance) in every U.S. market in their database. Then they looked at the savings if prices lying above the median were simply moved to the median for each procedure. Their finally tally showed a savings of 3.55 percent, which if you multiply by the 108 million Americans under age 65 who are insured by their employer, equals $36 billion.

Those are pretty conservative calculations. As they say, a billion here and a billion there and pretty soon you are talking real money. Why aren't we seeing these savings at street level right now? It comes down to access to information.

How can we get our hands on this discounted price information ?

In most markets, you simply can't. Pricing for health care procedures is a black box.

Try this experiment

Call your doctor or hospital and ask them what it would cost you for a simple procedure like a chest X-ray or EKG if you only wanted the procedure and you would pay cash.

If they can answer your question quickly and easily, congratulations. You might want to request they put those prices up on the Web so you don't have to call next time. However, the more likely scenario is that they will have a great deal of difficulty giving you a quick answer. In some cases you will be told, "No one has ever asked us that... I'm sorry, we will have to call you back." If you can get the information and you call several clinics, the prices are likely to be wildly different. You won't find pricing information on anyone's website.

The Thomson Reuters report calls this a lack of "price transparency." In many cases it is a simple case of price availability. They assume that patients would choose less-expensive procedures if they could get price information easily. Makes sense to me.

Imagine what true health care price transparency might look like.

- Imagine a price list like the one at the drive-through for McDonalds -- except that this one shows the hospital lab and procedure prices and is posted on the wall in the lab reception area.

- Or a page on your hospital website giving you today's cash prices for all their procedures

If that level of transparency ever happens I predict two things would result:

1) You would find the differences between the insured price and cash price vanish overnight. That discrepancy would never stand up to public scrutiny.

2) Price competition would break out between hospitals in the same market. Imagine that!

And the next time you want to pay cash for a colonoscopy because insurance won't cover it... you will be able to find the least expensive service quickly and easily -- most likely at a price well below what is being charged today.


Dike Drummond, M.D. is a family physician, entrepreneur and business coach. He provides burnout prevention and treatment services to physicians and other healthcare professionals through his website, The Happy MD.

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