Transparency in 2012 health care

Part of the issues relative to controlling costs in medical expenses is the lack of transparency in health care organizations. When you shop for any other product outside of this category, you can compare prices, whether it is for buying car insurance, homeowners coverage or tires. Why doesn’t health care provide the same opportunity?

One reason consumer health plans haven’t increased in popularity is the lack of available price comparison in medical procedure costs and treatment options. But, for decades, people have paid through the nose for health care because of no transparency or very few options in the market place to view the costs of health care.

A transparent cost network (TCN) makes cost information available to members by provider and procedure along with the members’ resulting cost sharing. Members are able to compare providers directly to see what they will pay in advance of the service being performed, according to MCOL and Milliman. In no other area of our economy do consumers receive services where they do not know the cost in advance and are not able to make comparisons to alternative suppliers. As a result, health care provider costs have remained immune from the economic forces that could control them.

This immunity has contributed to greatly increasing provider costs, a major component in today’s rising health care costs. The lack of price information stems from the confidential nature of negotiations between providers and payors. Providers compete with each other trying to get the highest payment from payors, and payors compete with each other trying to set the lowest payments to providers. In hopes of getting the best deal, both providers and payors want their negotiated rates to be kept confidential. Information is kept from the consumer that is necessary to make the best choices and drive an improved market. A transparent cost network is designed to break down this limitation, giving consumers the price information they need to make informed decisions. Payors that can deliver this valuable product offering to consumers will likely gain market share for this lower-cost product.

However, since consumers are generally ignorant of price differences, publishing price information could both narrow the range and lower the level of prices, in part by permitting consumers to engage in more cost-conscious shopping and select lower-cost providers and in part by stimulating price competition on the supply side, forcing high-priced providers to lower their prices (or accept smaller annual increases) in order to remain competitive. Proponents argue that consumers have price information and compare costs when purchasing just about any other good (imagine buying a car, a house or a computer without knowing its price) and that health care should be no different, according to the New England Journal of Medicine.

Health care does differ from other consumer goods in a few important ways, though, that are likely to affect patients’ responses to price information. First, most patients are insured, so they pay very little of the cost of their medical care, which dramatically weakens or eliminates their incentive to choose a lower-cost provider. Second, patients are concerned about the quality of their care as well as its cost, and it’s much more difficult to assess the quality of medical care than that of other goods. Timely and salient comparative quality information is often unavailable, so patients may rely on cost as a proxy for quality. The belief that higher-cost care must be better is so strongly held that higher price tags have been shown to improve patients’ responses to treatments through the placebo effect.

Moreover, the lack of independent information on the quality of care may reinforce patients’ tendency to rely on physicians for advice about where to receive their care, and patients may be unwilling to go against a clinician’s advice in the interest of saving a few dollars. Finally, determining the cost of medical care is different from determining the cost of other goods because it is often hard to know in advance what exact combination of services a patient will need. For this reason, the average price for a particular procedure or service, which is the most readily available information, doesn’t capture a patient’s actual cost of care and may be a misleading indicator of true cost differences.

On the supply side, there are concerns that providers could respond to transparency initiatives in a way that leads to an increase in prices. If there is weak consumer response to the availability of comparative price information, lower-priced providers in a given market may be inspired to raise their rates to the levels of their higher-priced peers, reducing price variation but raising the overall price level. The extent to which such increases will occur is uncertain, because lower-cost providers may lack the necessary market power to make such demands (which might be why their prices were lower to begin with). It is also unclear whether such an effect could persist over time. In reasonably competitive provider markets, purchasers and health plans should be able to use price information to pressure providers to lower their prices or to improve the efficacy of tiered networks or other similar efforts.

Price-transparency initiatives will have to address several major challenges if they are to have the desired effect. First, it’s not clear which prices to report: although average unit costs (e.g., the price of an MRI of the knee) are the most readily available, personalized, episode-level costs would be more meaningful to patients (e.g., the price that an enrollee in a Blue Cross Blue Shield preferred-provider organization would pay at a particular hospital for a knee replacement, including all related doctor’s visits, tests, facility charges and so forth). Moreover, meaningful information about quality must be delivered alongside prices so that patients can make decisions by comparing care choices on both dimensions.

Finally and most fundamentally, consumers must be engaged in considering price information in their decisions to use medical care. Consumers with health plans requiring them to pay a higher share of their medical expenses (e.g., enrollees in high-deductible plans and those with substantial coinsurance) have more at stake in their utilization decisions and should be more cost-conscious shoppers. Procedures that are elective, for conditions that are not life-threatening, and that can be performed in various settings may also be most appropriate for price comparisons.

There is evidence that consumers will “shop” for prescription drugs, a less complex type of medical care, when they bear significant costs of their care. Targeting transparency initiatives toward these consumers and toward less complex procedures could increase their impact. It may also be necessary to explain to patients the factors that could account for differences in the price per service or episode of care, so that they do not automatically associate higher prices with better care.

There are a few organizations in the health care space that help consumers navigate the murky waters for cost comparison, but typically they serve as a fee based consultative role as part of an insurance program or package of health benefits with employers. Some arrangements between the vendor and the employer are free to the employee if the business picks up the tab for the fee. Yet, this type of medical concierge service helps dramatically reduce the cost of procedures and acts on behalf of  employee or plan members. Compass Professional Health Services, located in Dallas, Texas, as one example, provides cost transparency, quality checks and patient advocacy that unlock the power of healthcare consumerism. They provide healthcare pricing information and patient advocacy services that shift consumer and physician behavior towards lower cost and higher quality care.

Any way you slice it, knowing what procedures cost provides a tremendous advantage to consumers who are looking to reduce their financial exposure to uncovered costs. As well, any organization that is self-funded should be using an advocacy group to keep costs to a minimum. The more money you save in health care, the better off you are. However, it’s also important to realize that sacrificing quality of care to save a few dollars may not be the best route to take on the medical information highway. Do your homework, but make wise choices. It’s your life. Keep it in good shape as long as you can.

By Mark Richards



Fairmount Benefits Company

Two Radnor Corporate Center
Suite 110
Radnor, PA 19087

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