Price Transparency

Anaika Hyppolite
Health Policy
Professor Guidi
May 13, 2015
Health Care Cost: Price Transparency
A common question that American consumers don't ask when it comes to their medical care is how much it will cost. In our daily lives, the easiest part of shopping is finding that the prices for future purchases are readily available. However, the American healthcare market is a complex beast where meaningful information on prices is never made available to patients prior to receiving care. Health care cost is one of the greatest hidden expenses and a significant barrier to the access of care. Due to the implementation of the Affordable Care Act, insured Americans will pay more of their health care bills because of higher deductibles. Thus, there will be a greater demand for pricing information as patients cost-sharing responsibilities increase. One solution to bring down overall health care cost is to introduce price transparency to our healthcare markets. Having prices displayed publicly will bring to light the variation in prices when it comes to care and its inefficiencies. Price Transparency will affect health care spending by allowing patients to choose to receive care at facilities with lower cost. Patients will be encouraged to make well-informed decisions about their care by being better informed when shopping for care, understanding how insurances work, and better anticipating the overall costs of medical care.
The cost for medical services and procedures across the United States varies greatly among providers, even for common procedures. According to the Institute of Medicine, "an estimated $105 billion of annual waste in health care spending can be attributed to lack of competition and excessive price variation" (Pacific Business Group on Health, 2013). Price variation occurs when the price of a medical service or procedure varies by provider and/or location. A medical provider will provide the same exact services, but determines a pricing structure based upon their agreement with insurance companies. Due to this, there is a significant price variation for the same service across the U.S region. For example, in the state of New York, the lowest cash price for a common procedure such as lower back MRI goes for $400; the highest price is $1200. In comparison, in California, the lowest cash price for a lower back MRI is $260 and the highest $6221 (Your Source for Finding Health Care Prices, 2015). Knowing that such variation exist will help patients make a more affordable choice. However, these prices are not always made public unless a patient seeks additional information from outside sources.
The main challenge for the public display of health care prices is that those who control the data are hesitant to release it publicly for several reasons. For one "many stakeholders have their perceived concerns about losing competitive advantage" (Pacific Business Group on Health, 2013). Mathews points out "the mystery surrounding health-care pricing stems partly from the fact that hospitals and other providers generally don't publicize how much they're paid for services, which varies depending on whose footing the bill. Insurers, which often contract to receive lower prices for their customers, also have traditionally not revealed these negotiated amounts" (Mathews, 2009). Providers do not reveal these amounts because they are often mandated by a managed care organization to incorporate a "gag clause" into their contract, which forbids disclosure of pricing information with the public. Furthermore, employers generally are unable to get access to their own pricing information to share with employees. Other obstacles to price transparency include "the lack of infrastructure to collect, aggregate, analyze, and report data" (Pacific Business Group on Health, 2013). An All-Payer Claims Databases (APCDs) is a database that is designed to collect health insurance claims and payment and convert such data into market trends. However, lack of funding, and opposition for data sharing, inhibits the use APCDs as a tool for price transparency (Pacific Business Group on Health, 2013). Cost variations also make it difficult to obtain an exact price due to the complexity and lack of uniformity of provider health plan contract. Cost variation requires each health plan and provider to use different pricing methodology. Lastly, the misconception that price correlates with quality limits the initiation of price transparency. When the price of a service is presented without corresponding quality information, consumers will falsely assume the higher the price, the better the quality of service (Pacific Business Group on Health, 2013).
To understand how price transparency will transform the health market, it is important to understand that transparency is a key component in any market. It has been concluded by previous studies that "price transparencies in other markets show that transparency initiatives tend to lead to more consistent, lower prices" (Muir, Alessi, & King , 2013) . In health care, price transparency is a complex task because patient demand for healthcare services does not follow the economic rule stating that as consumer demand changes, price change. However, price transparency can be achievable when it targets not the only the consumer, but employers, and health insurance plans.
On the consumer level, price transparency will create better-informed consumers in regards to their healthcare. Consumers will use the data from out-of-pockets prices, combined with quality information to select a provider at an affordable price that meet their needs. This information is especially significant for those patients who are faced with cost variations because it will help them interpret a fair and true price after taking into account deductibles, co-payments, quality of care, and other factors that impact payment. According to the world Health Fund, "Researchers have begun to determine the most effective way of engaging and educating them about the relationship between cost and quality data" (Health Care Price Transparency: Can It Promote High-Value Care?, 2012). Cost and quality must be reported effectively because put aside the misconception that price is correlated to quality. Lastly, price transparency will help consumers evaluate health insurance plans prior to becoming a customer.
On an employer/purchaser level, price transparency will especially help to alleviate the issues that the Affordable Care Act has placed upon employers. Now that employers are mandated to provide health care insurance for it employees, price transparency initiatives targeting employers will have the potential to reduce healthcare cost. Using price transparency, employers can use the power as purchasers to demand higher value plans, or demand lower prices with a developed network of high-value providers. Also, pricing information will help employers know ahead of time of the total price for individual test and procedures, price of bundled procedures, and the total price of capitated contracts for patients with certain clinical conditions. For instances, when an employer knows the price of managing a patient with diabetes over time, the employer will anticipate and prepare for the employees overall medical expenses, as well as share pricing information with its employees to discuss options and reduce claim cost. This is seen in a research study where researchers wanted to determine whether the use of an employer private price transparency platform was associated with lower claims payments for 3 common medical services. From their findings, the use of price transparency information was associated with lower total claims payment because of patient access to pricing information before obtaining clinical services may have resulted in lower overall payment made for clinical care (Whaley, et al., 2014). More importantly, because employer-sponsored health insurance is the leading source of health insurance in the United States; employers have the bargaining leverage to negotiate health plans with insurance, which make price transparency a key factor when negotiating health plans and a solution to reducing health care cost.
As mentioned, lack of completion is also a factor in rising health care spending. Because healthcare insurance plans are not competing with each other to attract customers by offering lower prices and better incentives, health care cost continue to increase. When prices are publicly revealed, Health plans can target new customers by offering something that other insurances are currently not offering, which is lower prices for high quality providers. Ultimately, Health insurance will promote competition based on their value of care because providers will be rewarded based on high performance and not reputation. With price transparency, health insurances can work together with public sector to identify price outliers and intervene where rates are inappropriately high. Government support and intervention will make medical cost more available by prohibiting gag clauses, requiring the use of APCDs in all insurance market places, and giving employers the right to access and use their claims data.
The future of price transparency as a way to encourage consumers to choose low-cost, high quality providers and to promote completion will reduce America's Health care spending. In fact, the Affordable Care Act has already taken steps to implement price transparencies in certain healthcare facilities. For example, The Affordable Care Act "requires hospitals to make public the hospital's standard charges for items and services provided by the hospital. The regulations would allow hospitals to either make public a list of their charges or their policy for allowing the public to view a list of those charges (Yood, 2014)". Legislators in more than 30 states have proposed or are pursuing legislation to promote price transparency. Massachusetts and New Hampshire are two of the thirty states to have the best efforts in price transparency. Some examples of Massachusetts and New Hampshire efforts in price transparency is New Hampshire website that allows its residents to compare prices from health care providers throughout the state for procedures related to preventative health, emergency visits, radiology, surgery, and maternity. Massachusetts has a similar program which allows residents to log on to MyHealthCareOptions website and compare prices of primary care doctor's practices and hospital based services. Healthcare price transparency is also being used by large employers who have made changes to their benefits designed due to the growing cost of health care. PBGH uses Safeway and Calpers as examples of two companies who developed a pricing design for certain procedures to encourage employees to shop for similar quality at lower price. Both companies reported that price transparency has either saved the company more money or will save them money with future use. (Pacific Business Group on Health, 2013). Other tools have been developed to help consumers with healthcare pricing. Health care cost calculators are now available through insurances such as United Health Care and Aetna. Cost calculators offer estimates of services and procedures within that insurance plan. Other vendors have also adopted the idea of cost calculator by providing them online. Castlight, Compass, And Clear Cost Health are online tools for an estimated out of pocket cost price for medical services and procedures. Each of these initiatives provided meaningful information that helps cut down America's health care spending.
The requirement of price transparency in healthcare market is one of the many effective ways to tackle the rising healthcare prices. In order for price transparency to work, steps should be taken to target consumers, employers, and insurers. By providing consumers and employers meaningful and transparent information both parties can make better healthcare choices. In return, price transparency initiative will reduce the inefficiencies of the healthcare market.







Bibliography

Health Care Price Transparency: Can It Promote High-Value Care? (2012, May). Retrieved May 10, 2015, from The Commonwealth Fund: Health Care Price Transparency: Can It Promote High-Value Care?
2013 Health Care Cost and Utilization Report. (2014, October 28). Retrieved from Health Care Cost Institute : http://www.healthcostinstitute.org/2013-health-care-cost-and-utilization-report
Your Source For Finding Health Care Prices. (2015). Retrieved from Clear Health Cost : http://clearhealthcosts.com/blog/2012/06/lower-back-mri/
Mathews , A. W. (2009, October 28). Lifting the Veil on Pricing for Health Care. Retrieved from The Wall Street Journal.
Muir, M. A., Alessi, S. A., & King , S. J. (2013). Clarifying Costs: Can Increased Price Transparency Reduce Healthcare Spending? William & Mary Policy Review, 320-366. Retrieved from https://www.wm.edu/as/publicpolicy/wm_policy_review/Archives/Volume%204%20Issue%202/MuirAlessiKing_s13f.pdf
Pacific Business Group on Health. (2013, August 1). PBGH Policy Brief: Price Transparency. Retrieved from Robert Wood Johnson Foundation.
Whaley, C., Schneider, J., Pinkard, S., Gabriella, K., Bravata, D., Kocher, R., & Sood, N. (2014). Association Between Availability of Health Service Prices. American Medical Association, 1670-1676. Retrieved from http://www.acr.org/~/media/ACR/Documents/PDF/Membership/RFS/Journal%20Club/Association%20Between%20Availability%20of%20Health%20Service%20Prices%20and%20Payments%20for%20These%20Services.pdf
Yood, K. (2014, May 14). The Push for Greater Transparency in Healthcare Continues. Retrieved from The National Law Review : http://www.natlawreview.com/article/push-greater-transparency-healthcare-continues






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