A reason getting a handle on rising health care costs is so hard is that many of the approaches people hope will work to lower costs turn out to be not terribly effective, and those we know from evidence will work usually involve unpopular trade-offs.
Today’s blog will examine several new analyses that call into question the effectiveness of price competition and transparency in lowering health care costs. (Future posts will examine new studies on the impact on costs of health information technology and care coordination.)
The argument for price competition and transparency is straightforward. Markets do better than government in setting a fair and competitive price for health care services. For price competition to work, there needs to be more transparency in the price of health care services, so that patients can anticipate in advance what they would have to pay and can shop around for the best deal. And patients need to have more “skin in the game”—for instance, through high deductible conventional health plans and health savings accounts.
This all sounds great—in theory. Market-based competition works great for cell phones and tablet computers, driving down costs while steadily increasing capabilities and performance, so it should work for health care, right?
But what if health care is different, and price competition and transparency ends up driving up health care costs?
National Journal's Maggie Fox reports on a new Health Affairs study that found that if consumers are given information only on the cost of treatments, they prefer the more costly medical care. The study involved 1,400 workers, who were offered different doctors and care options. “If they were given details on price alone, the volunteers chose the most expensive choice,” presumably because they associated more expensive care with better care. Providing patients with quality and cost information “moderated” their choices—but the U.S. is a long way from developing a reliable “quality score” for patients to use in selecting a physician or hospital.
High deductible plans in theory should counter the bias for more expensive care, because patients would have a more direct economic interest in selecting a less costly source of care.
But a patient’s first-hand account, posted in ABIM’s Medical Professionalism Blog, shows how difficult it is for patients in high deductible plans to get physicians to reveal their prices or find less expensive care options. The patient, Court Nederveld of Florida, writes
“Hypertension was the trigger that forced medical cost awareness to the forefront. My doctor decided that with my rise in blood pressure, it would be prudent to prescribe a blood pressure medication and order a nuclear stress test. With only a catastrophic insurance policy and a $5,000 deductible, it was imperative for my financial health to know the cost of both the drugs and the procedure up front.”
But he found this was much easier said than done.
Mr. Nederveld researched and sought out a less expensive hypertension drug than the Lotrel recommended by his doctor. He encountered resistance when he tried to get his doctor to reveal in advance the cost of a nuclear stress test or to consider a less expensive conventional stress test. Only after Mr. Nederveld’s persistence did his physician agree to a modest discount in the fee for the nuclear stress test, but even then, it was more than he could afford. He continues:
“Feeling much like a cow on a milking machine, I began to test the theory that medical procedures should be available as a commodity. Using the Internet to begin my search, the only specific criteria required was that the location of the facility performing the test be within a short drive from home. It took very little time to find and confirm a company that would provide a nuclear stress test sans consultation, and would willingly and promptly forward the results to my primary care physician. To verify that all was understood, I informed them that I would have a check for the exact amount they quoted and no further remuneration would be forthcoming. All was as stated and the procedure was done. Total cost was $938.11.” [Compared to his own physician’s “discounted” fee of $1,900 for the test plus an initial $250 consultation fee.]
You might say that Mr. Nederveld’s experience shows that high deductible plans and price competition can work in driving down costs, since he was able to get his nuclear stress test for less. But the enormous obstacles he encountered raise doubts in my mind about how realistic it is to expect that most patients, especially the elderly and those facing life-threatening conditions, will have the time, skills, and persistence needed to get a better deal, when the system is skewed against them and time may be of the essence.
Finally, another study has found that the United States spends more on health care than other countries because U.S. residents pay higher prices for common procedures. The Washington Post’s Ezra Klein blogs about a new Health Affairs study, which found that “in 22 of 23 cases, Americans are paying higher prices [for common procedures] than residents of other developed countries . . .Usually, we’re paying quite a bit more.”
And the reason we pay higher prices, Mr. Klein argues, is that in most countries the government controls or negotiates prices with physicians and other providers, whereas in the U.S. “it’s a free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured”—except for Medicare and Medicaid, which regulate the prices charged by physicians and hospitals.
So let’s connect the dots. When patients are given information about the cost of treatments by different doctors, they choose the most expensive ones. When they have more skin in the game because of a high deductible plan, they encounter huge barriers to getting advance information about the cost of care and finding less costly alternatives. And a main reason health care in the United States is more costly than in other countries is that there is less government involvement in setting prices, not too much.
People who argue that getting government out of health care and unleashing the market will lower health care costs start from a good, principled position that seems as American as apple pie. (ACP, for its part, supports greater price and quality transparency, and the option for physicians to privately contract with patients to charge a higher fee than Medicare allows, as long as there are safeguards to protect patients when they have no real choice.) But free-market advocates don’t get to simply ignore evidence that health care is so different from other markets that competition, price transparency and less government regulation might have the opposite effect of driving up prices and costs.
I think that there is a better way of looking at the question of market competition in health care than posing it as an either-or choice of more government or less. Instead, we could acknowledge that government works best when it uses its regulatory authority to make free markets work better (the reason our Founding Fathers gave Congress the constitutional authority to regulate interstate commerce), not to replace free markets.
So, instead of using its regulatory authority to directly set prices, the government could establish the rules of the game: require clinicians to provide accurate pricing, cost and quality data before care is rendered, mandate safeguards to protect patients from being over-charged when they have no real choice of physician, and break up insurance monopsonies that hinder competition. In theory, such regulated competition should work to lower costs, but even so, we can’t rely on theory and blind faith alone. We need solid evidence.
Today’s questions: What is your reaction to the studies that show that price transparency, competition and less government price regulation may increase health care costs? And what does Mr. Nederveld’s experience tell you about the barriers to market competition, even for a patient who knew “it was imperative for my financial health to know the cost of both the drugs and the procedure up front”?
Note: the original post of this blog incorrectly cited the author and source of the article on the study that people prefer more expensive care. This version has the correct reference.