Healthcare price transparency: A tough pill to swallow
Thursday, December 08, 2016
No matter what side of the political fence you sit on, healthcare price transparency is a factor that most feel is important.
President-elect Donald Trump included a reference to this in his healthcare reform platform, stating that he would "require price transparency from all healthcare providers, especially doctors and healthcare organizations like clinics and hospitals." Similarly, Hilary Clinton acknowledged the importance of this issue, stating on her website that "we must do more to shine a light on healthcare prices."
It would seem both parties recognize the wisdom of the late William O. Douglas, Supreme Court justice, when he said, "Sunlight is the best disinfectant."
The fact is we all intuitively know that when prices are clear and options are available, competition will drive down costs. This isn't rocket science.
For example, we all know — down to the penny — what a gallon of gas will cost us at XYZ gas station. If the price suddenly goes up by a dime, we'll drive another half-mile to get a better price. Why? The price is broadcast for everyone to see.
For some reason, we have allowed healthcare to operate by a different set of rules. In a 2014 Wall Street Journal article, Princeton economist Uwe Reinhardt compared our healthcare system to "shopping in a department store blindfolded and months later being handed a statement that says, 'Pay this amount.'"
Why do we allow this backward approach in healthcare when we wouldn't accept it in almost any other industry?
Maybe it has gone on so long because transparency wouldn't matter for many consumers. For example, patients — including many who are legislators — who have health plans that only require a small co-pay for services (regardless of cost or location) are blinded to the relative costs of the services they use.
And if the cost of a service doesn't meaningfully impact your own out-of-pocket expenses, why shop for a better price? It would be like going to a restaurant where all the entrees cost the same. You will likely pick the most expensive meal, since it won't cost you any more to do so.
This is why transparency alone isn't enough. Consumers must be able to shop for healthcare services as easily as we shop for a car, TV or computer. When my doctor tells me I need lab work done, I should be able to conveniently compare the price at several different labs.
Such shopping should be worth our time. To accomplish this, health plans must be built to allow incremental and meaningful cost tiers depending on the price of the services needed. I can attest personally, as a father of four, that opting to purchase a health plan with a significant deductible has made us much smarter and more careful healthcare consumers than ever before.
Pharmacy formularies that operate on a multiple-tier structure are a reasonably good model for the rest of healthcare to follow. Such plans offer preferred generics at the lowest patient co-pay, followed by a little larger co-pay for nonpreferred generics. Brands are similarly tiered with increasing co-pays for the more expensive brands.
In my experience as a pharmacist, I have seen this approach successfully drive patients to equally effective, but less expensive, prescription alternatives.
Maybe an even better illustration of the power of price transparency is the competition created between generic wholesalers when it comes to purchasing drugs. Prescription wholesalers typically operate with unbelievably small profit margins. The reason, of course, is that it is incredibly easy for clients to compare prices between wholesalers and respond accordingly. If I could compare the price of a medical procedure as easily as I can compare the cost of Lisinopril tablets, healthcare spending would plummet.
Transparency, however, is easier said than done. The Affordable Care Act promised greater price transparency, but few would argue we have made significant progress on this front.
How do you determine what a hospital stay or doctor visit or service costs when everybody pays a different price? Cigna may pay one price, while Aetna pays another. BlueCross can obviously negotiate a better price than a self-pay, uninsured patient can. And this doesn't even take into consideration the unpredictable nature of healthcare delivery where a simple procedure can turn into a prolonged hospitalization due to unexpected complications.
Of course, price isn't the only issue that concerns patients as they make healthcare choices. Transparency, to be effective, must extend to quality measures as well. But surprisingly we have made much better (though imperfect) progress in publishing quality data — such as those indicated by HCAHPS scores — than we have in the area of price.
Yes, price transparency will not be come by easily. But in spite of the difficulty, greater transparency is the best medicine for escalating healthcare costs. It remains, however, a tough pill to swallow.
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