Like most Americans, you are probably concerned about the cost of visiting your doctor or the emergency room. Although the high price of medical products and services probably weigh on your mind—especially if you are without health insurance—you may also be frustrated that you just don’t know how much that next visit to the clinic is going to cost you. Unlike most other industries, health care hasn’t traditionally advertised its prices up front; eventually, you will have to pay whatever cost that the provider demands.
That is changing, however. More medical organizations are presenting pricing to potential customers in an effort to attract more clientele and encourage out-of-pocket payments. This growing price transparency is good for patients, insurers and the national economy as it helps pare away unnecessary expenditures.
The lack of price transparency is a major factor in why the United States is the leader in health care expenditure. The U.S. spent almost $3.4 trillion on health care in 2016, and this is expected to grow to $5.5 trillion by 2025. Much of this cost is attributable to providers charging inflated rates in a market that is without any price controls.
For decades, the U.S. health care system has hidden the costs of medical services from patients for many reasons. The primary reason, of course, is that most medical providers charge different rates to different parties. This is the result of third-party insurers negotiating discounted rates that undercut the prices presented to uninsured patients.
This isn’t necessarily a malicious attempt by providers to extort the highest prices from unknowing patients. In most cases, physicians don’t know what they are charging patients because they hire billing companies to manage pricing and payments. These billing companies tend to charge higher prices because most consumers aren’t responsible for the total charges; their insurer pays the majority of the costs, leaving only a fraction to the policyholder.
This lack of visibility for consumers has led to massive inflation in the U.S. health care system. Providers often opt for the priciest treatment or medication both to satisfy patient expectations of top notch care and to reap the greatest financial reward. That is why health care costs are growing at four percent annually—far above the rest of the national economy.
If more consumers have access to the prices that hospitals charge, it is likely that more business would go towards organizations that are cost effective. That concept seems logical, but it doesn’t quite bear out in reality. Americans want a good deal, but most are willing to pay a little more if there is an appreciable bump in care quality. Unfortunately, few providers are reliably rated for quality, so most consumers assume that higher prices are equivalent to better care.
So, that begs the question: How does price transparency help consumers? First of all, price transparency limits variation in costs. Provider organizations are less willing to give a 100 percent markup to uninsured patients if they publish the half price charged to insurers. There would be an enormous public outcry, so most hospitals would limit the markup to the uninsured.
Cost is becoming a more important factor in choosing where to get health care. This is because more people are joining high deductible plans in which they must pay a much larger portion of costs. Furthermore, more people are choosing to pay out of pocket because many providers are offering steep discounts to patients that want to avoid the administrative hassles; these out of pocket payments are often much cheaper for hospitals because they cut out the third party insurer.
Most importantly, greater awareness of costs will translate into better care quality. Most Americans are eager to save money if the savings don’t come at the expense of their health. Therefore new pricing information would have to be offered in conjunction with care quality information. Given a choice between two health care providers with equivalent standards of care, consumers will naturally gravitate towards the one with the lower price point.
Although there are some apparent benefits to increasing price visibility in health care, there are also many obstacles to full implementation. There are many traditional barriers as well as a number of emerging technical roadblocks that could stall adoption across the industry.
First of all, many health care providers are unwilling to publish their prices because there is no real historical imperative. Throughout the history of medicine, patients have typically paid whatever amount the physician set. This trust in the physician was founded on the doctor’s commitment to the health of the patient, making finances a secondary consideration. That trust has eroded somewhat in the age of big business health care, but many providers still maintain that pricing is outside their professional responsibilities.
Another key challenge is that few consumers use pricing information in health care choices. Because of the intermediation of insurers, most consumers rarely factor in price—although that is changing as the burden of payment shifts to policyholders. Consumers also have difficulty deciphering the price information that is available. Most services may be attached to five or ten prices, depending on the payer. This creates enough confusion that many consumers will ignore pricing information even when it is readily available.
There are also some more technical impediments to price transparency. Many providers are contractually obligated to keep rates with partner insurers secret, so publishing them would impose serious legal and financial penalties. Also, there is no central reporting agency to which providers can divulge their prices; instead, physicians and hospitals would need to publish across multiple consumer and government portals.
Finally, there is the enormous challenge of establishing reliable care quality metrics that consumers can use to evaluate providers. Although consumers want to save money on health care, most are not willing to sacrifice the quality of the services they receive. Until the industry adopts accessible standards, pricing information may remain largely irrelevant.