The Health Care Quality and Cost Council is putting the finishing touches on its first key deliverable, a website with detailed, comparable information on quality and the actual price providers charge for common medical procedures. The quality data will undoubtedly be helpful to consumers and should spur providers to improve their performance. But a new study questions the value of publicizing cost information, and warns that this may lead to higher, not lower costs.
The goal of the cost transparency initiative is two-fold — both to help consumers understand health costs and choose lower-cost care, and to encourage health care providers to contain costs. Within the Council, Harvard Pilgrim CEO Charlie Baker has been one of the key voices pushing this project. In his blog, he writes that this information will allow patients to “figure out where it makes sense to have a simple procedure.”
Yet even the Council’s own survey found little interest in the price information: “By a 10-to-1 ratio, residents would be more interested in using the website to research information about the quality (49%) of health care than about the out-of-pocket cost (5%) of health care.”
The new study comes from the non-partisan Congressional Budget Office (summary here; full report here). For consumers, the study confirms what the Council’s survey respondents understood. Most decisions about where to get medical services are usually made by doctors and other professionals, not consumers. In any case, most people are insulated from costs by insurance, so the information has little direct impact. Thankfully, because of our HMO tradition and the deductible limits in the “minimum creditable coverage” regulations, sky-high-deductibles are not the norm in Massachusetts. So the price information may have little relevance to consumers.
The CBO study explains how transparency could lead to higher costs. The key variable is the market power of the providers versus the payers. In situations where the providers have market power, knowledge of a competitor’s price may lead to prices going up. “More concentrated markets with fewer sellers are more likely to be conducive to the sort of coordination that would produce higher prices.” When one hospital learns what another is charging, it can ask for similar increases. The study cites a California experiment, where Blue Cross tried to educate its PPO members by issuing a price guide to hospitals, marking low-priced hospitals with a “$,” and high-priced hospitals with “$$$.” The plan was abandoned after the low-priced hospitals raised their rates.
Publishing prices could also facilitate what GIC head Delores Mitchell has called the “Neiman-Marcus effect.” Patients may choose to go a more expensive hospital, reasoning that the care may be better. The perverse result is hospitals increasing their rates in order to bring in more business.
As the Council moves ahead with its price transparency process, it must examine carefully the market impacts of its action. The irony of a board established to control costs contributing to higher costs would not be funny.
Brian Rosman
Suppose insurers tracked utilization by referring doctor and offered incentive payments to those doctors who consistently referred their patients to the most cost-effective (not necessarily the cheapest) specialists, hospitals, imaging centers and labs and prescribed suitable generic drugs when available instead of brand name drugs. I think that could make a positive difference toward controlling costs.
The Neiman Marcus effect works when people can afford to shop there. Walmart clientele wouldn’t preferentially select shopping at NM – unless someone else is paying.
Consumers need to have more skin in the game. Price will rapidly become important when it’s coming directly out of their pockets – no one cares about gas when it is $1/gallon.
Primary care can be insurance-free – my doc’s providing a fee/service structure, and it costs me less than a usual deductible plan. He’s available by email/phone 24-7 and I don’t have to go to his office unnecessarily. Make health insurance “sickness insurance.” I agree with Charlie Baker: transparency is a good thing.
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@Val,
I agree about the impact of out-of-pocket, for most people, and it’s not limited to the consumers themselves – it affects provider attitudes. A couple of anecdotes.
1. Many years ago a physical therapist was billing me for sessions where I was being ignored for long times, left in a room with a hot pack that had long gone cold. I said I didn’t want to be charged for a whole session. The desk looked at me like I was crazy and said “But your insurance is paying for it – it doesn’t affect you, does it?” Arg!
(btw, I was self pay, but that’s not my point.)
2. Ten years ago, still self pay, I had a bladder infection. The local retail health stop sent out for a test, $90 out of my pocket. It came back negative and the doc said they must have screwed up so he was going to disregard it(!). So I asked if I was going to get my money back – and he looked at me like I was crazy. Arg!
It’s pretty clear to me that there’s lots of senseless, avoidable waste and a LOT of people in the system figure the waste doesn’t affect consumers so they don’t need to do anything about it, nor do they hold each other to ordinary standards of commercial competence. (“Hey, this didn’t work – I’m not payin’ for it.”)
And the mechanism that causes this disconnect is the big, thick insulating factor called insurance, which somehow makes people shrug and think that the waste doesn’t increase costs or affect care.
We can change this. All it takes (a big all) is for the people having those “doesn’t matter” conversations to stop accepting that from each other. I have a sense that this is happening at Beth Israel Deaconess, and I certainly hope it’s happening at more and more places.
(This is finally starting to change in, for instance, the issue of paying for consequences of medical errors.)
I keep saying that when my family’s next need arises I want the system to work well. Every single person who works *in* the system should know they have a personal role in moving things in that direction – and they can make a difference.
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