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