At long last, the healthcare industry is moving to an era of price transparency. New York State is leading the charge, with its health department posting healthcare pricing data from different hospitals -- data that shows extremely wide ranges in costs, even for similar procedures performed in within a short distance of one another.
The wide range in pricing is shocking. How could the same knee surgery cost $5,000 when performed by one surgeon, and $25,000 by a similarly trained surgeon only a few miles away? More importantly, how does the average medical consumer make sense of this discrepancy? He doesn't.
It doesn't have to be that way.
In other consumer areas, the idea of making purchase decisions without qualitative information is absurd. For example, imagine shopping for a TV on Amazon, but instead of having access to model specifications, such as size, clarity and features, or product reviews, all you see is price -- which can range for under $200 to almost $40,000 (shockingly different on the surface, but with feature data in hand, not so much).
That example sounds ridiculous, but it is exactly how the healthcare market operates today -- a world where prices are (sometimes) known, but where the patient has no mechanism to address whether or not paying more results in getting more. Put simply, do the patients of the more expensive surgeon heal better or faster, and do they go back to work sooner?
So while New York's move to make prices transparent is a first step towards a more transparent healthcare market, without making quality data available, it falls far short of where we need to be.
To fix healthcare, we need a fully functioning Amazon for healthcare, where consumers are armed with price and quality so that value can be assessed.
Quality in the Wake of the Affordable Care Act
Whether for individual patients or insurance companies, for our healthcare system to succeed, we must address all aspects of the healthcare purchase decision -- the cost, the quality of care and the expected outcome. In short, health care must answer the question: Am I paying the right amount for the right care with the right doctor?
The Affordable Care Act recognizes this -- to a degree -- and is pushing for outcome-based payments, tying Medicare reimbursements to statistics like readmissions and infection rates. Though noble, this government-imposed solution introduces challenges, one of which includes relying on doctors to self-report. As a Wall Street Journal op-ed noted in June, one hospital was able to improve its quality score 40 percent just "by getting doctors to change the words they wrote in patients' charts."
A second, perhaps larger, challenge is that "pay for performance" is reactive. Instead of providing patients with the data they need to make the best proactive decision about their care, it only provides payment based on the quality received.
Without Quality Transparency, Healthcare Is Mistaken for a Commodity
As a specific example of where the healthcare industry is moving, consider radiology. As an orthopedic surgeon, I rely on MRIs to help diagnose patients and decide if, when and what type of surgery my patient needs. The difference between one type of surgery and another, or even one surgery and no surgery, can have a drastic impact on recovery time and cost. Suffice it to say, selecting an MRI provider is a critical decision.
Yet, most patients, and even some in the healthcare community, view MRIs simply as commodities; they are just pictures with no discerning difference in quality -- as if they measured something as simple as a patient's temperature. Partially, this is due to the fact that there are no established external benchmarks to validate quality. Without that, every group has the "best" equipment, with the "best" staff and the "the best" results. With each group capable of touting their center as the "best," the only point of differentiation is cost -- a factor that leads to commoditization of this and other important healthcare professions.
This commoditization hurts patient care in two ways. First, patients may not be sent to the right center for evaluation -- they may go to a generalist with a low-strength MRI machine instead of the specialist with the right training and a more powerful machine. Since MRIs are diagnosing tools, the quality of the image and the radiologist's subspecialties have a direct impact on the diagnosis and ultimately the course of treatment, which means a bad diagnosis can potentially result in the wrong procedures and poor outcomes. Poor outcomes translate into increased costs through extended disability and prolonged care.
In addition, the price-first mentality makes it difficult for medical groups to invest in better equipment and talent, each of which will bring better care to patients. Staying with radiology as the example, MRI equipment can range from a few hundred thousand dollars to well into the millions, but if the radiologist receives the same reimbursement regardless of machine, then it is difficult if not impossible for these businesses (and they are businesses) from doing what is ultimately best for patients.
Unfortunately, commoditization's problems will become standard in other areas of medicine as price transparency becomes more widespread. With decisions based on price alone, providers will be faced with competing first and foremost on price and quality may be an afterthought.
Open Communication, Inject Transparency
Part of the reason that quality metrics do not exist in the healthcare system is because identifying and understanding quality is much more challenging than it is in consumer electronics. And in today's medical markets, data for quality is poorly understood.
Again, it doesn't have to be that way.
To circle back to New York, perhaps we in the healthcare industry should look to replicate New York City's restaurant-grading system. Walk into any restaurant in N.Y.C. and patrons can see a clearly displayed "A" through "C" rating system that corresponds with the number of health code violations. Not only do the grades indicate the quality and cleanliness of the establishment, but they also give the consumer an idea of possible outcomes (gastrointestinal distress being but one).
Back in radiology, imagine if instead of simply knowing a practice's prices, a payer or consumer could also know how that practice rated across different procedures. For example, one practice may earn an "A" grade on spinal imaging, another may have a "B" on knee imaging, etc. A patient with minor discomfort in her knee may not need to pay top-dollar for an MRI, so a lower-priced "B" center might suffice; whereas, someone with a significant back injury would prefer to pay more for the "A" group that sub-specializes in the spine.
A grading system that sheds light on quality and outcomes finally gives patients and payers the power they need to make value-based decisions instead of price only ones. Such a system could lead to higher short-term costs. But those short-term costs would more than be offset by better outcomes and substantially lower long-term costs.
Physicians competing on price and quality will be motivated to improve efficiency and reduce the cost of providing care while focusing on improving quality and outcomes, and that is the right prescription for the healthcare industry.
Dr. Raz Winiarsky is a board-certified orthopedic surgeon and the medical director and co-founder of Spreemo, a cloud-based healthcare marketplace that offers cost transparency, quality-based metrics and predictive analytics.
He is an attending orthopedic surgeon at North Shore LIJ, Beth Israel Hospital and Englewood Hospital. Dr. Winiarsky received his M.D. from Albert Einstein College of Medicine, and underwent his orthopedic surgical training at University of Pennsylvania and the Hospital for Special Surgery. He is Assistant Clinical Professor of Orthopedic Surgery at SUNY Downstate Medical Center. Dr. Winiarsky is also the official Orthopedic Sponsor of the Brooklyn Nets.