An Update on Price / Cost Transparency + A Promising New Service

flying cadeuciiTransparency for consumers on prices and costs is a bipartisan goal in healthcare.  The good news is progress is afoot.  The bad news: that progress is still painfully slow.  This blog presents a quick status update with discussion of and links to some recent reports and events.

The Healthcare Incentives Improvement Institute (HCI3) and Catalyst for Payment Reform (CPR) have tracked state healthcare price transparency laws and their implementation for the past four years.  In a July 2016 report they found the following:  on an A to F scale, three states got As (Colorado, Maine, New Hampshire); one got a B (Oregon); two scored Cs (Virginia and Vermont), one got a D (Arizona), and 43 got Fs.

That’s an improvement over 2015 when only one state—New Hampshire—got an A.

The two groups primarily assessed whether the states’ price transparency web sites presented the information in an understandable and consumer-friendly way.

Despite the poor scores for most states, Francois de Brantes of HCI3 and one of the report’s authors told me:  “We’re actually optimistic.  A lot of states are beginning to pay more serious attention to this…we think a third to half of them could get As or Bs in the next few years… if they take the right steps.”

The report notes that more states are debating laws that would require providers or insurers to disclose prices to patients prior to a procedure or service.  De Brantes believes such laws are a good idea, but that they should not be a substitute for state requirements that mandate the collection and publication of price information.

To quote from the report: “Although the private sector has made great strides in enhancing price transparency, access to price information often is dependent on the employer or insurer a consumer has and, of course, some have neither.  Therefore, there is still an important role for states to play in ensuring that their citizens have access to the information they need to make informed health care choices.”

I agree.  The availability of price/cost information is in the public interest.

At the same time, the interplay of private sector and government efforts is nuanced.   Almost all insurers now offer price data and/or cost calculators to their enrollees, for example, and use of these is increasing.   You wouldn’t want insurers pulling back from those efforts as states mandate more open data.

More broadly, in no way should government-mandated price transparency undermine price competition—by, for example, unintentionally creating a system where price transparency leads to de facto shadow pricing for most medical goods and services.

Unfortunately, that’s what we have in healthcare.  Economists have long agreed that the healthcare marketplace does not operate like the market for other goods and services where price competition can be fierce.  Instead, third party payers (businesses, insurers and government) pay the bulk of the medical bill and as a result there’s negligible price competition at the consumer level and a sort of de facto they’ll-pay- whatever-we-want collusion system in which prices float (and in some cases soar) endlessly upward.

The Case of Prescription Drugs

This has even begun to happen in the arena of generic drugs, which for years was the one area economists could point to and say competition was thriving.  Princeton health economist Uwe Reinhardt explores this in a recent THCB post spurred by the EpiPen controversy. He cites data showing that prices of some generic drugs have been rising sharply even when multiple manufacturers compete for market share.  (See also Uwe’s related blog at Health Affairs.

Indeed, the pricing and payment system for prescription drugs has come to represent a failure of competition and price transparency, and to reflect the particularly aggressive form of capitalism practiced by pharmaceutical industry.  A failure, that is, for consumers.   The companies and their shareholders make money hand over fist.

Pharma companies, PBMs, pharmacies, employers, and insurers have evolved over the last three decades an almost impenetrable prescription drug payment scheme (I use the word purposely) that few lawmakers understand let alone try to regulate.

And it can now be said categorically that that system is not constraining prescription drug price hikes and overall spending to the degree most analysts believe is possible, and most policymakers are beginning to realize will be necessary.   (For an excellent overview, see this Consumer Reports cover story from August 2016.)

Caught in the middle for now: the consumer.

As De Brantes, Suzanne Delbanco of CPR and Judy Hibbard point out in another recent Health Affairs blog, consumers are increasingly vulnerable to the rising cost of care.  One in four insured Americans is now covered in a high deductible plan, with deductibles for family coverage heading towards $3,000 or more.  In the Obamacare exchanges, the average deductible for an individual covered in a silver plan is $3,065 this year.

Researchers at the Urban Institute reported recently that 10 percent of people with exchange coverage who have incomes between $23,500 and $58,500 will spend, on average, 20 percent of their income on premiums and out-of-pocket health costs.

What’s “shoppable”   

Yet, despite agreement that in this environment consumers deserve more than ever to know what things cost, there’s vigorous debate around how much of healthcare spending is really amenable to “shopping” based on price transparency.

Most notably, a recent analysis by the Health Care Cost Institute (HCCI) concluded that less than half (43%) of total healthcare spending in 2011 was on services amenable to shopping—such as non-emergency hip and knee replacements, colonoscopies, flu shots, and blood tests.  And, in the end, the researchers calculated that consumers paid out of pocket only about 7 percent of total health care spending in 2011 for those services.

David Newman, executive director of HCCI and co-author of the study, says giving consumers tools to compare the price and quality of health care services doesn’t deliver much bang for the buck.  Instead, he argues, the onus for reducing costs and improving value through price shopping  (and negotiation) should be on employers, insurers, providers and regulators—not consumers.

Ahhhh, see above; that has failed, or at least not been nearly as successful as we need it to be.

Others also disagree with Newman’s point and cite research showing that price shopping can and has lowered out-of-pocket costs.  For example, Whaley et al reported in JAMA in 2014 [October; 312(16): 1670-1676] that use of a price transparency tool by consumers led to a 14 percent decline in payments for lab and imaging tests.

For an accessible discussion of recent research on price transparency funded by the Robert Wood Johnson Foundation, see this Health Affairs blog, which has links to further resources.

Private sector price transparency websites 

Despite his cautionary views, Newman’s group (HCCI) is among a growing number that have recently launched online price transparency tools.  HCCI sponsors guroo.com, which pools data from four large insurers representing 40 million covered lives.  The site has data on some 70 services and procedures, with an emphasis on those that consumer might shop for.

Other commercial and non-profit sites include healthcarebluebook.com, fairhealthconsumer.org, tandemcare.com and amino.com.  All are evolving and getting better over time.

For my money, Amino appears to be positioning itself best, with development of sophisticated and engaging tools and content.

As of July, consumers vising Amino could get estimates of their out-of-pocket costs for 49 services or procedures, and compare those among individual doctors in their geographic area, all pegged to their personal insurance coverage.

The data reflects care delivered to 188 million people by 550,000 docs and covered by 129 insurance companies, including 19 of the top 20 companies by enrollment and 30 Blues plans. Amino says.

David Vivero, Amino’s co-founder and CEO, told me recently: “With deductibles rising and more and more families spending 10 to 20 percent or more of their incomes on healthcare, we simply have to do this.”

Amino’s business model isn’t entirely clear to me yet.  It has a find-a-doctor function and allows doctors to place profiles on the site that include a link to book an appointment.  Both of those tools are consistent with offerings from other commercial find-and-rate-a-doctor sites, including HealthGrades.  Vivero says Amino’s cost estimator is not in any way influenced by whether a doctor has a profile on the site or not.

Notably, CMS recently certified Amino as the first “Qualified Entity” to use physician-level Medicare price/cost data in its tool.

Three final notes:

(1) The federal government continues to step up its game in the arena of price and cost transparency.  In 2013, Medicare began releasing data on hospital costs, covering some 3,000 hospitals and average fees billed to the government for 100 common inpatient visits and 30 types of outpatient visits.  In 2014, Medicare followed that up by releasing the first batch of data on Medicare payments to physicians.  Several media outlets—including ProPublica and Consumers Checkbook—have used the data to probe treatment and billing patterns.  Both say they’ll have new releases this fall.

(2) The Supreme Court in March dealt a blow to one form of cost transparency—state-based all-payer claims databases.  The Court struck down a Vermont law that required health insurers, providers, and medical facilities to report data on healthcare costs, prices, and quality to the state.

(3) In August, health economist Austin Frakt reported in The New York Times that a reference pricing experiment launched in 2011 by the California Public Employees’ Retirement System (Calpers)—with a maximum contribution for knee and hip replacement surgery, colonoscopies, cataract removal and several other elective procedures—triggered a price drop for the procedures averaging 20 percent from 2012 through 2014.  Total savings for Calpers and its participants: $6 million.

Frakt’s piece was based on a series of studies by Jamie Robinson and Tim Brown at the University of California, Berkeley.  They found that Calpers patients flocked to lower-priced hospitals and outpatient surgical centers, with no apparent reduction in the quality of care.

Excellent news and a boost for the cause of price/cost transparency.

Steven Findlay is an independent healthcare journalist, policy analyst, researcher and consumer advocate.    

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1 reply »

  1. The healthcare services, tests and procedures that best lend themselves to shopping also lend themselves well to reference pricing. Let insurers establish a reference price and provide their members with a list of providers who will do the work for the reference price. Providers who charge more will have to make their price known in advance as the patient will be responsible for paying the difference between the provider’s price and the insurer’s reference price.

    While any patient liability here will not count toward his deductible or out-of-pocket maximum liability, providers would no longer be able to hide behind confidentiality agreements that preclude disclosing a price they are willing to accept to perform the work as opposed to an artificially inflated list price or hospital chargemaster rate that nobody aside from the uninsured are expected to pay..