Can We Tame The Wild West of Health Care Pricing?

Screen Shot 2015-08-27 at 12.22.43 PMHealth care pricing is like the Wild West and it is only a matter of time before it catches up with us. In July, the Centers for Medicare & Medicaid Services (CMS) confirmed what many consumers, employers and health plans already knew: there is no cost and quality standard in the American health care system.

Improving our system starts with driving payers and consumers to high value providers. But first, we must know who is charging what. Price transparency tools offer that important information, enabling people to actually comparison shop for their health care services.

In early July, CMS released a proposed rule aiming to address price variation by starting with joint replacements. According to CMS, there were more than 400,000 Medicare inpatient joint procedures, resulting in more than $7 billion in hospitalization costs in 2013. The average Medicare expenditure for surgery, hospitalization and recovery ranged from $16,500-$33,000 depending on geography, with widely varying rates of infection and implant failure post-surgery.

To address this variation, CMS outlined a new payment model that would make some hospitals accountable for the costs and quality of care from the time of surgery through 90 days after. Based on their performance on cost and quality metrics, participating hospitals would either earn a reward or be required to repay some of the Medicare costs.

This is a step in the right direction, but policies that target only one program, like Medicare, ignore trouble spots in other areas, including the employer and commercial markets.

CMS’ proposed rule on joint replacements, for example, does not address broader issues with price variation that impact our system as a whole. As indicated below in Figure 1, HealthSparq’s data shows that hip replacements are more costly in the commercial market than in Medicare, with costs ranging from $26,000 – $49,000 in 2013. California, Texas and parts of the Northeast are at the upper end of the cost spectrum, while parts of the Midwest and Mountain region are at the lower end.

Figure 1. Cost Variation for Hip Replacements in Commercial Market


In addition to higher overall costs in the commercial market, data shows that hip and knee replacements are increasing exponentially among patients 45 to 64 years old, many of whom receive health insurance coverage from their employer or a commercial plan. When combined with higher costs, the increased service volume among this population suggests that the total costs associated with joint replacements in the commercial market may exceed costs in the Medicare market.

Given the challenges we’ve discussed, consumers are using price transparency data in the commercial market to fend for themselves. Working with over 70 health plans and reaching a total of 72 million beneficiaries, HealthSparq has unique insight into consumer shopping behaviors and the types of information consumers are using for health care decision-making.

Our data on joint replacements shows:

  • Consumers want to know how much their joint replacements will cost. Viewing of cost estimates related to hip/knee replacements are in the top five of more than a thousand different searches viewed by consumers on our cost estimator over the last year.
  • Consumers know that prices may vary across facilities. Approximately 54 percent of the hip/knee replacement cost estimates requested by consumers also included a request for facility-specific information.
  • Consumers are using price data to compare prices at different facilities. Approximately 38 percent of patients requesting a facility-specific estimate did so for more than one facility. This is evidence of shopping behavior.

To tame the Wild West and improve the health care system, payers and consumers must use all of the tools at their disposal, including health care shopping tools. Transparency helps consumers better navigate health care, while allowing plans, providers, and employers to identify and steer patients toward opportunities for savings when medically appropriate. It also helps consumers understand quality, timeline and more.

Let’s use health care shopping tools to put the days of pricing duels and shootouts behind us. Consumers deserve a better health care system.

Torben Nielsen is SVP of Product and Strategy, HealthSparq

4 replies »

  1. @Torben_Stubkjaer_Nielsen, I’m the CEO of Truprice Healthcare, an online healthcare marketplace that is attracting physicians, providers, and ancillary services into a competitive marketplace to sell healthcare services directly to the consumer and self-insured companies. The vast majority of healthcare can be priced in advance and is shoppable, allowing the free market to control costs while simultaneously maintaining private practice autonomy. Our model places competition where it should be: on quality and price, not on market share and leverage at a negotiation table. Greater than 30% of the revenue of a typical practice is wasted on insurance administrative overhead and billing costs, totaling BILLIONS of dollars per year with no consumer benefit. Truprice eliminates these unnecessary costs, which will result in a tremendous savings to the healthcare system and the ultimate payer – the consumer.

  2. @Don, I’ll check out Ralph Weber and his initiative – thx for the suggestion!

    @Peter, I agree the delivery system has been in control for years, but it’s changing with new reimbursement models, tranformative health technology advancements (w/year-over-year record-breaking VC investment levels in digital health), data accessibility and interoperability, and increasing consumer demands by the minute. Old school supply-based models will be significantly challenged by, and I believe, lose to new, value-based models where the consumer is empowered to make smart health decisions by using transparent, integrated and easily-accessible information. A demand-driven and efficient system based on competition, demand, access and quality.

    A few great articles/reports to support this view would be Oliver Wyman’s “The Patient-To-Consumer Revolution” (http://owy.mn/1FUCOIt) and The Brooking Institution’s “Advanced industries drive down prices, making income more valuable” (http://brook.gs/1VqgaOZ). Price and quality transparency play a crucial role in making this consumer revolution happen for the betterment of the entire healthcare system.

  3. This notion that in health care the consumer has the power to shop and lower prices is just not true. It won’t be true until I see ads on 30% sales for treatment or a year end hip replacement clearance. “Hurry now, our devices are going fast.”

    Providers just don’t care about the price conscience consumer. Got a high deductible, tough, pay the price or get a better plan.

    They deal in markets, and they drive those markets. Here in NC Duke and UNC are the major players in the Raleigh/Durham/Chapel Hill market, often the only players. Not only controlling the hospitals but the feeder clinics and physician associated groups.

    Government control will be the only way to ratchet down prices.

  4. Ralph Weber at medibid has a similar service as Priceline for medical services
    Suggest you check him
    Don Levit