Price Transparency in Health Care: Is It The Holy Grail?

04/17/2013 02:36 pm 14:36:46 | Updated Jun 17, 2013

Health care is the only product or service we purchase without any idea of the price. Often, you don't even know your portion of the price.

This raises the question, "Why?" Can anyone imagine going into a restaurant and ordering a meal that had no price listed, or signing a contract to buy a car and then being told the price? It would never happen. But in health care, we not only tolerate such behavior, we are often reticent to even ask about prices.

Steven Brill's recent article in Time, "Bitter Pill," focused our attention on these issues and raised specific questions such as: Why are health services and treatments priced as they are? How do health care providers determine prices? And why do different people and organizations get charged vastly different prices? His questions are slowly moving through the collective consciousness of the policy-making community, but answers have yet to be offered.

While Brill did not start the discussion, he helped amplify it and give it greater urgency. There are now more calls for greater price transparency to help lower prices and thus cost. Given this broad agreement and heightened awareness, why hasn't more happened?

According to a recent report by Catalyst for Payment Reform that was featured in the Washington Post, part of the reason we don't know the price of the health care we receive is that many states have laws on the books that "allow hospitals and other providers to keep costs hidden until they send you the bill." Imagine what the public response would be if the same laws applied to plumbing services.

But even if we changed all those laws, there remains a more fundamental question: Would knowing prices up front make any difference in our behavior? Would we search for a good deal as we often do in other sectors?

Former U.S. Secretary of Health and Human Services Mike Leavitt often talks about shopping around for the best price on a colonoscopy. But would most people act like Secretary Leavitt? And what would the critical mass need to be to actually put pressure on prices? And if we did not shop around, or only did to a limited degree, would there be any value to price transparency?

In a piece for The Wonk Blog in the Washington Post, Sarah Kliff looked at the variation in cost for an ankle MRI in the Washington, D.C., region and found a range of $400 to $1861, but no reason for the difference in price. The data she highlighted came from Castlight, a company dedicated to bringing transparency to health care. Castlight's CEO Gio Colella is passionate about the value of cost transparency (and quality transparency) and while he cited one example of how transparency did bring down costs, he also admitted that for some hospitals, price transparency will not move them to reduce costs. He quotes the CEO of the Cleveland Clinic as saying they won't reduce prices due to transparency, but instead will compete on quality (the underlying message is the Cleveland Clinic believes their prices are worth the cost).

In The Atlantic, Peter Ubel raises an interesting and somewhat troubling question -- could price transparency actually increase costs? He examines how, while in the traditional consumer market people do price shop and such shopping has had an impact on lowering prices, in health care the idea of best price may not have the same impact.

First, the two markets do not function the same. As health care consumers, most of us do not pay full price. We pay some share of it as negotiated by our health insurer, so we have little motivation to shop around. Second, cost and quality are not always seen as independent of each other but rather they go hand-in-hand (especially when we know little about actual quality). Sometimes we think an expensive item is by virtue of its price better (i.e. expensive wine, expensive cars). Health care definitely falls into this category. Who wants to go to the "cheapest" hospital or doctor?

Lastly, when it comes to the discounts that health insurers negotiate, they are considered proprietary and closely held by insurers as they believe divulging them would provide operating intelligence to their competitors. If a hospital knew that the prices they negotiated with insurers would be made public, they may not be willing to give better discounts to one versus another since that would cause the company paying more to demand the lowest price.

Ubel concludes, and many others agree (including Colella), that for price transparency to be effective, it must be accompanied by its twin: transparency on quality measures. But this will take some time. Measures must be easily understood by patients and they must be measures patients will care about. Only in this way can we begin to separate price and quality, which if successful, could help lower costs.

There is one other factor to consider regarding price transparency. While most of the conversation has been about how shopping around for the best price/value could help lower prices, the jury is still out on whether it would motivate patients to act. However, there is another potentially powerful tool that might work faster -- media attention. The Brill piece demonstrates this potential. While not penetrating the broad public consciousness, it has stirred a debate in Washington. And Brill put his article together in an environment where the information is generally not easily accessible. Imagine if such price information was truly public. There would be a Brill story in every state and major city. Now that could have an impact.

What all this seems to point to is that transparency of any kind is not a quick or simple fix. Done incorrectly, it could lead to higher prices, or at least, not reduce prices. But done correctly, price (and quality) transparency could be very helpful in taming prices and making all of us better consumers of health care.