… There is a far more fundamental issue affecting the overall success of our healthcare system. Doctors and patients need more transparency when it comes to health care costs.
Healthcare is becoming more expensive by the year. In 1960, healthcare costs accounted for 5% of the gross domestic product. In 2015, they made up 17.8 percent. Although the rates of spending growth actually decreased since 2010 when the Affordable Care Act was enacted, a recent study demonstrated that for employees under 65 with employer sponsored health insurance, the proportion of income consumed by health insurance premiums has increased from 6.5% in 2006 to 10.1% in 2015.
Why does this matter? Health care costs, often from an unexpected medical emergency are the #1 cause of personal bankruptcy in the US. There are 1.7 million Americans live in households that declared bankruptcy due to unpaid medical bills. Also, while more subtle, the rising incremental costs of routine medical care are wearing on the financial stability of many families leaving less funds for essentials such as housing and food, let alone other needs and hobbies.
So what can be done? Doctors could help patients understand the costs of their healthcare options. This type of shared-decision making already exists to help patients weigh the potential risks and benefits of various treatment options. However, these discussions do not typically include cost as a factor. They should. The same service can be dramatically more expensive depending on where it is done. Take for instance the differences in surgical costs at an independent direct pay surgery center, the Surgery Center of Oklahoma, which offers common surgeries at a quarter to one fifth the cost of the large hospitals in Oklahoma City. The same is true when choosing between medications. For example, when choosing between blood thinners, generic warfarin runs around $20 for a one month supply, while opting for the identical medication in its brand name version Coumadin ups the price to $90. Newer options such as Xarelto, Eliquis or Pradaxa come with a price tag of over $500.
Unfortunately, cost data is not always easy to come by even for doctors. In truth the answer to “how much is this going to cost the patient?” often is “it depends”. There are some significant barriers to getting a straight answer. The reasons are multiple, complex and interwoven. To begin with, a majority of Americans pay for their healthcare, including routine primary care, lab work and medications through their insurance. The rate paid by the insurance company depends on their negotiated contract discount rate which varies for one insurer to another. Effectively, Medicare pays a different rate than Blue Cross or Aetna for the same service and each may pay different providers in the same area a different rate. Insured individuals benefit from these discounted rates, however, out of pocket costs also depend on deductible and co-insurance in addition to these discounts.
As a result of varied reimbursement rates for one insurer to another, and because for some the discounts are so steep hospitals and healthcare providers struggle to cover basic expenses, billing prices are raised further. For instance, say insurer A gets a 35% discount, then for every $100 billed they (or the patient) pay $65. If that $65 is not enough to cover the hospital’s expenses, the hospital may resort to charging $154 for the same service in order to recoup the $100 of expenses. The result is price inflation and prices that do not reflect value of services provided. This sort of price inflation has been able to continue because, until recently, patients were not footing a significant portion of the bill. A patient with a 20% copay would pay $20 on that $100 discounted rate, a solid 87% savings on the total bill of $154. After paying clearance prices for healthcare for years, shifting to a high deductible plan and being strapped with the full bill feels like a major rip off. And yet here we are.
To make matters worse, the increasing trend of physicians becoming employees rather than owners of independent practices, enlarging health care organizations and billing outsourced to other companies, make the process of anticipating charges all the more challenging. More than 75% of physicians are now employed by larger organizations and employed physicians do not set their own charges or contract directly with billers, these all become centralized decisions. The ties of charges to expenses and to the value of the service provided become murkier with increasing distance and bureaucratic complexity.
Certainly, there are other reasons besides lack of price transparency for health care costs to rise. Factors such as inflated prescription drug prices, ballooning administrative costs, overuse of costly testing and redundancy from fragmented care also need to be addressed. But unlike other causes, increasing transparency can empower health care consumers to take control of their health expenses.
The American Hospital Association has a policy statement in support of pricing transparency and calls for the provision of pricing information that is “easy to access, understand and use”. HealthPartners in Minnesota offers a website and mobile app to help consumers estimate costs of clinic visits, labs and imaging tests upfront. These efforts are steps in the right direction but more can and needs to be done to offer clear, comprehensive, accurate and timely information.
Megan Adamson MD is a primary care physician at Dartmouth-Hitchcock Medical Center.
Nice piece! I completely agree. You might be interested in our health cost transparency news coverage, not only on our home site at ClearHealthCosts.com, but also in our partnerships with media organizations and others.
The newest one, with our partners at NOLA.com I The Times-Picayune and WVUE FOX 8 Live television in New Orleans, is on fire. You can read about it and see our collected coverage here:
We’d be happy to do this up your way! And I’m interested to know what you think!
Where do rural, low income residents get meaningful choices and transparency? Can they get on a plane to Oklahoma, or even go to another county? How about ER, if you have one close enough to save you – where is the choice there?
I love the bankruptcy argument, seems everything except unexpected health costs cause bankruptcy.
The cost shift you discuss: the literature base is replete with a good number of studies debunking that hypothesis. Dollar for dollar cost shifting does not occur and the direction of pricing in the case of Medicare, flows in the opposite direction. That is, Medicare reimbursement drops, and other payers decrease theirs in lock step.
“Health care costs, often from an unexpected medical emergency are the #1 cause of personal bankruptcy in the US. ”
That is not true. You are probably basing this statement on the Himmelstein study whose study might include an over-leveraged multimillionaire who declares personal bankruptcy at the same time he had $1,000 in medical bills. There is a whole slew of craziness just like that in the study. One doesn’t even have to use a survey to determine the truth. All one has to do is go to the courts to look at the bankruptcies and run the numbers. They are open to be viewed, but only if one wants to. I don’t blame you for your statement as Himmelstein was widely reported in the press where the reporters are relatively blind except to sensationalist headlines.
I agree with you wholeheartedly that transparency is needed. One gets transparency with freer market places. Those on the left say transparency doesn’t work and of course it doesn’t work in a controlled environment which is basically what we have today.
The one thing Obamacare did was to make deductibles so high that people are starting to shop. That takes a bit of time to be noticeable, but it is happening. Unfortunately those people have been badly hurt by the ACA and policies of the left that place the working person’s job and income in a secondary position to their collectivist ideology.
People say it has not worked because they have looked at what happens once prices are available to people. It has little influence on their health care choices. Same with physicians. Even when they have prices available to them it doesn’t alter their decision making very much. It is not really a left or right thing, just an observation of people’s real behavior. Also, if you remember how health care dollars are actually spent, it kind of makes sense. So much of our spending goes into chronic care or major acute events (surgery, chemo) that people are going to go through deductibles anyway. (Link below on how transparency does little to affect physician choices.)
Agree on the bankruptcy thing. One of those studies that should just go away.
We haven’t had transparency and we haven’t had a true marketplace. It does a person very little good to save money because that money spent may not benefit them or even reduce their deductible. There are all sorts of things inhibiting shopping for price, quality and access.
What I know from my patients and has been reported in all sectors of the economy is that people are price conscious. I practiced throughout the spectrum even when people didn’t have as much coverage as they do today and they price shopped. Even in more recent years I had patients without insurance or carrying high deductibles. Many would get prices especially on scanning that were below what the insurer paid.
There is so much information on how people react when there is transparency in almost every sector of the economy that I find difficult to believe that suddenly people change their behavior. The only thing that changes might be the threshold in very specific instances.
Another proof that cost and transparency count is those Medicare seniors that choose a less expensive MA plan rather than carrry gap insurance. There is a lot of transparency between the two types of competing plans.
Nope, there isn’t that much inhibiting them if they really want to shop by price, except that it is not that high of a priority. People tend to go where there doc recommends they should go. They go where they have always gone. They go to the closest place. In our area, people won’t drive an extra five miles to go to a facility that is 20%-40% cheaper, with as good or better outcomes. I have been in practice a very long time, and I can count on one hand the number of times I have had people ask about prices. Even the nationally renowned libertarian writer whose wife needed surgery. Not peep about price. As both of the pieces I linked to show, there are multiple studies looking at this issue, and transparency doesn’t matter much.
I suspect that in order to have it matter it will have to be around for a long time. I think it will take a cultural change.
“Nope, there isn’t that much inhibiting them if they really want to shop by price, except that it is not that high of a priority.”
It appears you and I have different experiences since I saw patients that shopped for price and quality. I guess the big difference in our view of patients is you as an anesthesiologist see too many that are asleep or drugged and you see them mostly on a one time basis. I on the other hand follow alive and active people along with their families up to three generations deep. I get to see them year after year both before and after they get billed for care. I really don’t think your contact with patients is sufficient for you to draw the conclusions you do.
The more financial risk a patient has the more transparency works. You didn’t address all the reasons why transparency might not work in specific circumstances. The reason is easy. That would reveal the weakness of your arguments.
Price transparency in healthcare among those at risk is quite high. It was high enough that I knew the xray facilities and laboratories that provided the best rates. I also knew which doctors would rip the patient off and which doctors would just provide a reasonable bill. I was also able to switch from the newer more expensive drugs and replace them with one or two of the less expensive drugs that functioned almost the same.
I think your ideology distorts what you believe to be reality.
Then you are the exception. When studied, docs aren’t that price sensitive, and you ignore those physicians who practice in a way to optimize their income, including referring to their own testing centers. Again, your experience is nice and I never meant to imply that no patients look of prices. What we have are studies that have tried to look at this, and it looks as though most patients are not moved that much by prices.
As I said above, that kind of makes sense. Visits to your PCP for routine care are not the big cost drivers in the system. Those are the 50% of the population incurring 3% of the costs. Chronic care and big ticket expenditures like chemo and surgeries drive the costs. Those patients are going to be pretty price insensitive as they are going to blow through any reasonable deductibles.
“You didn’t address all the reasons why transparency might not work in specific circumstances.”
What reasons are those?
“I think your ideology distorts what you believe to be reality.”
Nope. I think that any one person’s experiences may be biased for any number of reasons, so I look for large scale studies that look at stuff like this. The ones I have found suggest that transparency does not have a big impact. That seems to conform with how health care money is actually spent, so I think those studies are probably correct. If you have some studies not cited, please feel free to link them.
I am far from the exception in my observations, but you are looking at how physicians optimize their incomes but fail to recognize that patients do the same when they are spending their own money. This has been proven over and over again in all sectors of the economy, even in healthcare, for before insurance became so prominent people did shop and the providers responded to their shopping with lower prices. To deny this is to deny an essential truism.
Patients are not moved by prices when the money saved doesn’t benefit them. There are admittedly other factors involved such as perceived quality and accessibility that will alter what a patient is willing to pay. There is also a learning curve.
Show me the study where there is competition among a set of providers and where the patient benefits from price shopping. I will wait for your answer and hope I don’t have to wait for still another thread with you claiming the same thing.
I note a change in topic when you start talking about PCP’s not being the big cost providers of the system. They aren’t. Physicians and associated fields account for only about 20% of total healthcare costs. Place two hospitals of similar quality across the street from one another with the same quality and see which hospitals the patient goes to if one of the hospitals is permitted to add another $5,000 to its bill paid by the patient, not by the insurer. Which hospital do you think the patients will gravitate to.
“What reasons are those?”
The request was for an answer from you.
I stated, “The more financial risk a patient has the more transparency works. You didn’t address all the reasons why transparency might not work in specific circumstances. The reason is easy. That would reveal the weakness of your arguments.”
I await for you to address the above issue.
“ The ones I have found suggest that transparency does not have a big impact. ”
I’ll repeat myself. “Show me the study where there is competition among a set of providers and where the patient benefits from price shopping.”
Your turn. Please cite a study showing how transparency has had a significant effect.
2) “You didn’t address all the reasons why transparency might not work in specific circumstances. ”
Not all medical expenditures are shoppable. Many are urgent or emergent. Geography limits some people, especially in rural areas. Sometimes people have issues with children, elders or pets that keep them from being able to travel places to facilities other than the closest one. There may be only one specialist of a given type in an area. Estimates I have seen, also cited in the above paper, place shoppable care at about 40% of total care.
Many people treat medical care as a kind of Veblen good. Transparency will push them towards higher prices.
A significant percentage of people are going to use all of their deductible each year, so for them transparency won’t matter. I have had problems nailing this percentage down, but OOP spending is increasing. Estimates i have seen come from insurance sites, and I think Beckers also, putting this at 20%-50% of people.
Many people feel an allegiance to their physician. They won’t leave even for a lower price, just like they will also see the doctors their physician refers them to, regardless of price.
3) “Which hospital do you think the patients will gravitate to.”
If by transparency you mean we will place all hospitals next to each other, then ask patients if they want to go to the cheaper or more expensive one, then I have to agree. Assuming quality is not an issue, they will go to the cheaper one. However, I am thinking of transparency meaning that prices are available online. All a patient needs to do is look up the prices to shop for the lowest price, then go. In this case, we know that when this is available, people don’t even use it. As I said, in states with online prices for health care only 2-3% of people are using them. Given the large differential in costs for medical care, and given the increasing prevalence of higher deductible plans, as in Obamacare, it is simply not credible to believe that only 2%-3% of people in a state could benefit in savings by shopping.
4) Markets don’t work the same for every product. We know, for example, that prices of things like cars are relatively elastic. For gasoline, not so much. So, as i have said here before and will say again, there may be a way to make markets, with transparency as pat of that, work of medicine, but no one has found that yet. Feel free to prove me wrong and show me where in the world we have first world care and market based medicine.
1) Your example study did not prove what you thought it proved and the authors themselves tell you the same thing.
Problems with the study admitted by the authors:
This study was based on patients that had third party payer insurance so they weren’t at significant risk. Patients that seldom require healthcare aren’t expected to even remember that a price list exists. The highest cost patients don’t care about cost after the deductible is met. Patients sometimes have strong bands with their providers so they pay more until the band is broken and then they likely will seek less expensive care if available. There are many more problems including the study’s short time span and the use of proxies.
This study doesn’t draw the conclusions you claim and the authors validate my position when they state: “Price transparency could be effective if combined with health plan benefit designs that create a larger incentive to receive care from less expensive clinicians.” They follow that with an example, reference pricing.
You haven’t met your burden, but have validated mine.
You need not even look at studies. Look at Medicare Advantage. Many seniors have switched from traditional Medicare to Medicare Advantage because the financial comparisons of the two (transparency) is such that many find a financial advantage with MA.
2) “Not all medical expenditures are shoppable.” Enough are. Even those admitted to the emergency room with severe problems requiring future surgery can leave the hospital rather than pay a much higher bill. We see that with HMO’s where patients have been discharged from one hospital and go to another to avoid the transparent higher costs should they remain at the first hospital.
Travel costs money and plane fare along with hotel rooms are transparent. Patients that are responsible for the bill take that into account. Peter, who is on this list flew to India, I think, because his total bill was less and he was uninsured.
Again, you have failed to prove your case.
3) Repetition of #1 which proves you to be wrong.
4) Elasticity exists, But money is money and transparency along with adequate patient risk means most of the times the patient’s preference will be to have the dollars in his pocket rather than in yours.
1) Transparency in costs has already been looked at and it doesn’t have that much effect. This was disappointing to me as I have been an advocate. Carroll also has another piece summing up studies looking at what happens when you promote transparency with physicians, also with little effect. (Can give you that link if you can’t find it.)
2) What is with the Oklahoma thing? First, very basic here, you are mostly comparing costs with charges. I hope you know the difference. People are always comparing other hospital’s charges with the Oklahoma costs. Next, the costs at Oklahoma are pretty much in line with what you pay at many other surgicenters, they were just smart enough to advertise theirs. I hope it comes as no surprise that surgicenters cost less. When you don’t do the really sick patients or the really obese ones it costs less. When you can transfer complications to the hospital, it costs less. Just a fact. Finally, you can get essentially the same prices, some a little higher and some a little lower at a hospital, and the hospital will take you even if you are too sick for a surgicenter. Hospitals (some) have been doing the same thing the Oklahoma place has been doing, but they just don’t have the big PR group that the Oklahoma center has.
3) I still think transparency is a good idea. We may be presenting it wrong or maybe it will just take a big cultural change, the kind that takes years, for it to have an effect.
I’ve read Carroll on his blog and like you posted there. I found Carroll to be competent at times and incompetent at others. He has thin skin and even when the top expert advise was posted that demonstrated he was wrong, Carroll always looked for excuses to make himself seem right. I just can’t trust him or his opinions.
Take note even in the article you cite he said “But improved transparency isn’t working as well as hoped.” As well as hoped means it is working to a degree. But the power of the individual is curtailed by the insurance process so transparency alone can’t work if someone is negatively controlling how that transparency benefits the individual. There is also a learning process with regard to transparency.
Then Carroll says this, “Changes to how health insurance works might improve the effectiveness of price transparency. For example, when an enrollee in a plan for California’s retired public-sector employees selects a hip or knee replacement more expensive than a preset price, she pays the entire difference. The shopping that this motivates is credited with reducing hip and knee replacement prices by 20 percent.”
Take note that 20% is a large number and can compund. The conclusion is that transparency alone can’t work, but give the patient the ability to benefit themselves and price transparency works quite well.
Sure. This has been advocated for a while by a number of us. Transparency alone doesn’t work, but if you can provide another incentive, it can work.
Great, now you recognize that in a tightly controlled environment like we see in large parts of healthcare today transparency is prevented from doing its job by making patients better shoppers, but when that control is released transparency works in big ways saving gigantic amounts of money.
Sigh, no. Look at all of those states that now require prices to be listed publicly, yet only 2% or 3% of people even look at them, and we know that prices for procedures like mammograms and MRI can easily vary by a factor of 4. The insurance companies are reporting the same thing. The only thing people need to do is go look at the prices, and they don’t do it. You keep wanting to say this is ideology, when it is just data.
“Look at all of those states that now require prices to be listed publicly, yet only 2% or 3% of people even look at them”
I worry about what you mean by ‘look at them’ and I question your numbers. I’ll restate the text, ‘yet only a few people shop based upon price differentials’. The patient doesn’t care unless they are the one’s paying the bill and that is what you keep leaving out of the equation to protect your ideology.
Let’s assume at your hospital there are 2 anesthesiology groups. One accepts Medicare and the other opts out of Medicare. Which group do you think most of the Medicare patient’s will choose (they won’t be reimbursed by Medicare for the opted out group) Try actually answering the question and then you can add what you wish.
I think I answered this above. If that is what you mean by transparency, then I think we are talking about two different things.
You might think we are talking about two different things and I can understand that misconception. But we are not. We are talking about transparency where the patient has a good degree of control and choice. If there is no choice then transparency will not matter.
Your ideology only provides for little choice and therefore transparency will only matter a little.