POLICY/INDUSTRY: Posting prices is all we need–yeah, right. Paul Ginsburg on transparency

Paul Ginsburg from HSC doesn’t quite have Uwe’s ability to damn but stay "just this side ofthe line". On the other hand he has a solid base in very sensible research. When they start talking about price transparency someone in Congress had the good sense to drag him in. This was Ginsburg’s testimony about Consumer Price Shopping in Health Care. I’ve abridged it and commented a little:

Unfortunately, much of the recent policy discussion about price
transparency downplays the complexity of decisions about medical care
and the dependence of consumers on physicians for guidance about what
services are appropriate. It also ignores the role of managed care
plans as agents for consumers and purchasers in shopping for lower
prices. Well-intentioned but ill-conceived policies to force extensive
disclosure of contracts between managed care plans and providers may
backfire by leading to higher prices.


ut we need to be realistic about the magnitudes of potential gains from
more effective shopping by consumers. For one thing, a large portion of
medical care may be beyond the reach of patient financial incentives.
Most patients who are hospitalized will not be subject to the financial
incentives of either a consumer-driven health plan or a more
traditional plan with extensive patient cost sharing. They will have
exceeded their annual deductible and often the maximum on out-of-pocket
spending. Recall that in any year, 10 percent of people account for 70
percent of health spending, and most of them will not be subject to
financial incentives to economize.


In addition to those with the largest expenses not being subject to
financial incentives, much care does not lend itself to effective
shopping. Many patients’ health care needs are too urgent to price
shop. Some illnesses are so complex that significant diagnostic
resources are needed before determining treatment alternatives. By this
time, the patient is unlikely to consider shopping for a different


So there is a solution — THCB readers who know that I’m an Enthoven disciple will not be too surprised as to what it is.

Some of these constraints could be addressed by consumers’ committing
themselves, either formally or informally, to providers. Many consumers
have chosen a primary care physician as their initial point of contact
for medical problems that may arise. Patients served by a
multi-specialty group practice informally commit themselves to this
group of specialists-and the hospitals that they practice in-as well.
So shopping has been done in advance and can be applied to new medical
problems that require urgent care. This is a key concept behind the
high-performance networks that are being developed by some large


Even when services are good candidates for shopping by consumers,
comparison of prices is not easy. Much treatment is customized. For
example, an elective rhinoplasty, more commonly known as a nose
reconstruction, is not a commodity, and a plastic surgeon cannot
provide an estimate without examining the patient. Often a medical
treatment involves an uncertain number of services by a number of
separate providers, but few bundled prices are available in the
marketplace today. As mentioned above, limitations in useful
comparative quality data make patients reluctant to choose a provider
based on lower price.


But the Cato guys tell us that LASIK surgery is cheap and got cheaper because of consumer facing price competition. So what about those self-pay markets that we’ve herd so much about? Turns out that’s not quite so clean either.

LASIK has the greatest potential for effective price shopping because
it is elective, non-urgent, and consumers can get somewhat useful price
information over the telephone. Prices have indeed fallen over time.
But consumer protection problems have tarnished this market, with both
the Federal Trade Commission and some state attorneys general
intervening to curb deceptive advertising and poorly communicated
bundling practices. Many of us have seen LASIK advertisements for
prices of $299 per eye, but in fact only a tiny proportion of consumers
seeking the LASIK procedure meet the clinical qualifications for those
prices. Indeed, only 3 percent of LASIK procedures cost less than
$1,000 per eye, and the average price is about $2,000. I can only
wonder about the extent to which policy advocates have themselves been
deceived by these advertisements and inadvertently perceived a sharper
decline in prices than has been the case.

For the other procedures that we studied, we found little evidence
of consumer price shopping. For dental crowns and IVF services, many
consumers are unwilling to shop because they perceive an urgent need
for the procedure, and other consumers are discouraged from shopping by
the time and expense of visiting multiple providers to get estimates.
In cosmetic surgery, a limited amount of shopping does occur,
facilitated by free screening exams offered by some surgeons. However,
quality rather than price is the key concern to most consumers in this
market; in the absence of reliable quality information, most consumers
rely on word-of-mouth recommendation as a proxy for quality, instead of
shopping on price.


So it turns out you need a sponsor

Much of the policy discussion about price transparency has neglected
the important role that insurers play as agents for consumers and
purchasers of health insurance in obtaining favorable prices from
providers. Even though managed care plans have lost some clout in
negotiating with providers in recent years, they still obtain sharply
discounted prices from contracted providers. Indeed, in my experience
as a consumer, I often find that the discounts obtained for the PPO
network for routine physician, laboratory and imaging services are
worth more to me than the payments by the insurer.

Insurers are in a strong position to further support their enrollees
who have significant financial incentives, especially those in
consumer-driven products. Insurers have the ability to analyze complex
data and present it to consumers as simple choices. For example, they
can analyze data on costs and quality of care in a specialty and then
offer their enrollees an incentive to choose providers in the
high-performance network. Insurers also have the potential to innovate
in benefit design to further support effective shopping by consumers,
such as increasing cost sharing for services that are more
discretionary and reducing cost sharing for services that research
shows are highly effective.


Conclusion:  The need for consumers to compare prices of providers and treatment alternatives
  is increasing and has the potential to improve the value equation in health
  care. But we need to be realistic about the magnitude of the potential for improvement from making consumers more effective shoppers for health care. Whatever the  gains from increased shopping activity, rising health care costs will, nevertheless, price more consumers out of the market for health insurance and burden governments 
struggling to pay for health care from a revenue base that is not growing as
  fast as their financing commitment. For those who have health insurance, their health plan will be a key agent in facilitating their obtaining better value. Government needs to take care not to interfere with this relationship and should
  focus instead on the needs of those without insurance

And what he doesn’t say but we all know is that if you regulate the way the plans behave effectively (and heaven knows there’s enough written about this that I don’t have to tell you how) they’ll start competing amongst consumers about the right things…

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9 replies »

  1. alijor.com has doctors posting their prices. Helped me find a physician

  2. Pricing transparency is essential. Efficacy transparency is essential. You need both to compute “value” (aka “cost-effectiveness”) and guide rational buying decision. Both are difficult to measure, especially the latter since we haven’t invested in the processes, policies, and tools to adequately measure outcomes in everyday practice.
    In any case, I’d rather be treated by a provider engaged in a sound, evidence-based, continuous quality improvement program aimed at gaining and implementing scientific knowledge for cost-effective, personalized care/prevention … than one with cheap prices, whose content simply to comply with generic process guidelines. One’s commitment to controlling costs and delivering ever-better care by learning and improving through collaboration, investigation, and decision-support, imo, is what makes for a high-value provider. That’s the kind of information transparency we really need!

  3. Rubish! This argurment that price transparency for health care is too complex and overwhelming for consumers has been recycled for years. The same logic was used when private companies pushed 401(k) and personal IRAs. While I agree that many services do not lend themselves to price shopping or comparison (I have found the 10/70 rule to be more like 5/90) that is still no reason to allow providers and hospitals to mask their charges.
    I find it bewildering when the provider community continues to resist price disclosure on the grounds that it is too confusing. The typical Wal-Mart store has 60,000 products. While some medical services can not be priced on an unbundled basis, many can. Does Mr. Ginsberg suggest that I would be too confused if I call to find out how much a physical will cost? Or how much I would be charged for an MRI? In fact pricing for medical services is a lot easier than say legal and accounting services. Whereas, for legal and accounting work there is no distinct pricing per services only hourly rates, or global rates, the medical community has CPT, DRG and ICD codes. Physician services are analogous to lawyers and accountant in so much that you are essentially paying for the professional’s time and knowledge. While physicians have some additional costs (malpractice, inventory, & equipment) essentially you are paying for his time. Therefore, I find it strange that providers, and some academics resist price transparency.
    If there is any value to HSAs it is that they will place increase pressure on price transparency. Contrary to what Mr. Ginsburg says, insurers do not have many qualms about disclosing contract terms to members. Every PPO member that receives an EOB has access to so-called “privileged” contract information. HSAs insureds are granted access to insured contracted rates while they satisfy their deductible. Anyone, with a deductible or co-insurance plan is privy to an insurers contract rates. The problem is we never know the cost going in, but we sure find out how it costs when we leave.
    The vast majority of utilized services are subject to price comparison. For example, Rx costs typically represent 15-20% of insurance premiums. The whole purpose behind tiered drug benefits was to provide price transparency to consumers. Although, the drug patent system still allows some excess fat in drug trends, the rapid adoption of tiered drug benefits (plus the loss of patent protections) has helped in reducing drug trends from >20% to low single digits today.
    Price transparency leads to lower prices. While Mr. Ginsburg articulates the consumer perils of misleading LASIK advertising, the fact is that the cost for LASIK has been reduced because of price transparency. The same applies to the cosmetic surgery market, where the multibillion dollar market is almost exclusively paid for privately. Price transparency has led to reduced prices. If the concern is consumer protection, there are plenty of laws that provide such protection. Plus, physicians need their license to practice. It does not take much to ensure adequate consumer protection if place a physicians license on the line.
    I am a strong advocate for price transparency along with disclosing quality measures. I believe the transparency will lead to a slowdown in the pace of health care cost increases. I agree with The Medical Blog Network, what is the alternative? Leave individual purchasers (even before HSAs, those with deductible and coinsurance plans were blind) in the dark. Transparency will force a change (or least a serious rethink) in cost structures. But, what’s wrong with that?

  4. Now, as Matthew rightly points out pricing structures could be confusing. But he himself offers “bundling” as solution.
    Yet I question whether a third party is needed to do the bundling. Providers could do it themselves and will appreciate having more control here. Something more granular than insurance premium, but less confusing than charge-master. Then these pricing models can compete on the basis of outcomes, quality, efficiency and yes, even total cost.
    Many other “complex product” industries work exactly this way.

  5. There can be no meaningful reform without transparency.
    Sure, this is not a cure-all for all woes of the system. But in addition to front-office effect (more comparison shopping, whenever feasible) it will force providers to re-examine and optimize their cost structures, tie them closer to actual services and improve patient experience.
    Let’s see what standing against transparency means:
    1) We want to keep individual purchasers in the dark
    2) We want to keep inefficient cost structures
    3) We want to keep the price differential between what individuals and insurers pay
    I would rather support selling American ports to Dubai than argue against giving consumers the info they want! How can anyone defend this to the public?
    Without putting some real sunshine to the system any discussion of the financing reform is moot:
    Open Medicine vs. Single-Payor Healthcare
    Private market has its limitations, but this is the case where it can work wonders.

  6. The Health Affairs edition was a great read. I guess I’ve been assuming that part of the transparency debate has been to bring about the demise of the current pricing system and also that health plans belive that patients demands for coherent pricing will get a better listen than their demands for it will.
    The medical directors I’ve spoken with tell me that elective surgery constitutes about 70-80% of the surgeries paid for by the plans. I’ve taken them at their word and been too lazy to see if there is any other info to contradict, but it seems that at least making price info available on top 20 or 30 surgical migth make some sense.

  7. the next to last Health Affairs had a great review and synopsis of hospital pricing, which effectively blows away the “price transparency” argument – in essence, there is none at the hospital pricing level, most hospital billers create prices as they go, and most managed care programs reduce them (somewhat) arbitrarily. and as Dr. Ginsberg so eloquently points out above, you cannot order diabetes care as if it is a car from Detroit – the base model plus carpeted glovebox and CD player with a 5 speed manual convertible in black with wide tyres (for you Matt).
    So, price transparency fails both on the financial level and on the “operational” level.

  8. I honestly dont believe that price transparency at the unbundled chargemaster level being talked about is workable. If it doesnt work for something as discrete as LASIK, how the hell are you gong to do it for, say, all the treatments needed for diabetes.
    The only way this works is if an intelligent sponsor takes control and prices it out to consumers in a way they understand — basically per memeber per month. And we have that already, it’s called an insurance premium.
    The problem is that the insurance market is screwed and insurers do not compete in controlling how providers behave. THAT should be transparent. But Enthoven said all that in 1982 and still no one’s listening.

  9. Does the idea bother you or the fact that some are suggesting it is a solution to health care woes? Clearly does not solve everything, but do you oppose price transparency?