The ACP Advocate Blog

by Bob Doherty

Thursday, June 6, 2013

Can price transparency bridge the ideological divide over health care?

Most Republicans hate Obamacare for what they consider to be government over-reach, most Democrats support it because they believe only a strong policy of government intervention can extend coverage to the millions of uninsured—and there are no signs that their ideological battle will abate anytime soon.   But there may be one sweet spot that both parties could agree on: providing consumers (or patients, if you prefer) information on the prices charged by health care providers.

Free-market conservatives should welcome price transparency, because market competition can’t work without it.  If the best way to lower healthcare costs and improve quality is for consumers to shop around, then they need to know what each provider in their community will charge for a given medical procedure, and armed with this information, seek the best deal available..  But without price transparency, this is impossible.

Liberals should welcome price transparency, because having the government extend coverage to millions will be enormously expensive, unless the United States can also simultaneously use a combination of market competition and government purchasing power to drive down health care prices.  (Higher prices-- not excess utilization-- is the biggest reason that the U.S. spends more per person on healthcare than any other modern industrialized country).   Plus, liberals are naturally distrustful of for-profit health care.  But without price transparency, the government will be hampered in its ability to use its clout as the single biggest buyer of health care to get the best deal for taxpayers—and to empower consumers to shop around for the best price. 

But will physicians and hospitals welcome price transparency—or fight it?  You would think that most physicians would want to know what the local hospital, pharmacy and their physician colleagues are charging before they refer a patient to them.  (Maybe not for hospitals, which seem to mostly benefit from the lack of price transparency).   But what if shining the light on health care prices shows that a physician’s own prices are on the high side?  Or what if you are in a medical specialty that benefits from high pricing?  And, of course, a physician who is identified as having higher charges will likely respond that “my prices are higher” because my patients are sicker and more complicated” or “I am worth more because I am the best” or “prices aren’t the whole story—what about quality?”

A new must-read New York Times article, The $2.7 trillion Medical Bill: Colonoscopies Explain Why U.S. Leads the World in Health Expenditures, illustrates the practical and political challenges involved in introducing price transparency into U.S. health care.   Using colonoscopy as a case in point (although the article makes it clear that high prices and lack of price transparency in the U.S. is hardly limited to this one procedure), the article suggests that Americans pay far more for their healthcare than people in other countries do.  The article also shows how much variation there can be within the U.S. on the prices charged for medical procedures.  And it also shows how difficult it is to even understand what the actual price will be before you sign up for the procedure.

Variation in prices:  “Deirdre Yapalater’s recent colonoscopy at a surgical center near her home here on Long Island went smoothly: she was whisked from pre-op to an operating room where a gastroenterologist, assisted by an anesthesiologist and a nurse, performed the routine cancer screening procedure in less than an hour. The test, which found nothing worrisome, racked up what is likely her most expensive medical bill of the year: $6,385.That is fairly typical: in Keene, N.H., Matt Meyer’s colonoscopy was billed at $7,563.56. Maggie Christ of Chappaqua, N.Y., received $9,142.84 in bills for the procedure. In Durham, N.C., the charges for Curtiss Devereux came to $19,438, which included a polyp removal. While their insurers negotiated down the price, the final tab for each test was more than $3,500.”

Higher prices: “In many other developed countries, a basic colonoscopy costs just a few hundred dollars and certainly well under $1,000. That chasm in price helps explain why the United States is far and away the world leader in medical spending, even though numerous studies have concluded that Americans do not get better care.”

No price transparency:  “Consumers, the patients, do not see prices until after a service is provided, if they see them at all. And there is little quality data on hospitals and doctors to help determine good value, aside from surveys conducted by popular Web sites and magazines. Patients with insurance pay a tiny fraction of the bill, providing scant disincentive for spending. Even doctors often do not know the costs of the tests and procedures they prescribe. When Dr. Michael Collins, an internist in East Hartford, Conn., called the hospital that he is affiliated with to price lab tests and a colonoscopy, he could not get an answer. ‘It’s impossible for me to think about cost,’ he said. ‘If you go to the supermarket and there are no prices, how can you make intelligent decisions?’ Instead, payments are often determined in countless negotiations between a doctor, hospital or pharmacy, and an insurer, with the result often depending on their relative negotiating power. Insurers have limited incentive to bargain forcefully, since they can raise premiums to cover costs.”

Confusing prices:  The price of a colonoscopy depends not only on what the gastroenterologist charges for the procedure itself, but where the procedure is done (office or ambulatory surgical center) and whether an anesthesiologist is involved.  “Just as with real estate, location matters in medicine. Although many procedures can be performed in either a doctor’s office or a separate surgery center, prices generally skyrocket at the special centers, as do profits. That is because insurers will pay an additional “facility fee” to ambulatory surgery centers and hospitals that is intended to cover their higher costs. And anesthesia, more monitoring, a wristband and sometimes preoperative testing, along with their extra costs, are more likely to be added on . . .‘If you work as a ‘facility,’ you can charge a lot more for the same procedure, said Dr. Soeren Mattke, a senior scientist at the RAND Corporation. The bills to Ms. Yapalater’s insurer reflected these charges: $1,075 for the gastroenterologist, $2,400 for the anesthesia — and $2,910 for the facility fee.”

No price competition: “If the American health care system were a true market, the increased volume of colonoscopies — numbers rose 50 percent from 2003 to 2009 for those with commercial insurance — might have brought down the costs because of economies of scale and more competition. Instead, it became a new business opportunity.”

Patients insulated from price: “’Could that be right?’ said Ms. Yapalater, stunned by charges on the statement on her dining room table. Although her insurer covered the procedure and she paid nothing, her health care costs still bite: Her premium payments jumped 10 percent last year, and rising co-payments and deductibles are straining the finances of her middle-class family, with its mission-style house in the suburbs and two S.U.V.’s parked outside. “You keep thinking it’s free,” she said. ‘We call it free, but of course it’s not.”

Standards of care leading to higher prices: “Ms. Yapalater’s insurer paid $1,568 of the $2,400 anesthesiologist’s charge for her colonoscopy, but many medical experts question why anesthesiologists are involved at all. Colonoscopies do not require general anesthesia — a deep sleep that suppresses breathing and often requires a breathing tube. Instead, they require only ‘moderate sedation,’ generally with a Valium-like drug or a low dose of propofol, an intravenous medicine that takes effect quickly and wears off within minutes. In other countries, such sedative mixes are administered in offices and hospitals by a wide range of doctors and nurses for countless minor procedures, including colonoscopies. Nonetheless, between 2003 and 2009, the use of an anesthesiologist for colonoscopies in the United States doubled, according to a RAND Corporation study published last year. Payments to anesthesiologists for colonoscopies per patient quadrupled during that period, the researchers found, estimating that ending the practice for healthy patients could save $1.1 billion a year because ‘studies have shown no benefit’ for them, Dr. Mattke said.”

 Everyone benefits from higher prices (except the consumer?): “ Hospitals, drug companies, device makers, physicians and other providers can benefit by charging inflated prices, favoring the most costly treatment options and curbing competition that could give patients more, and cheaper, choices. And almost every interaction can be an opportunity to send multiple, often opaque bills with long lists of charges: $100 for the ice pack applied for 10 minutes after a physical therapy session, or $30,000 for the artificial joint implanted in surgery.”

Now, before I get a lot of angry comments from ACP members who are gastroenterologists, let me say that I have quoted extensively from the NY Times article because it chose to focus on colonoscopy—but the same combination of variation in prices, higher prices,  lack of price transparency,  confusing prices,  no price competition, patients being insulated from prices, standards of care leading to higher prices, and the fact that a lot of people benefit from higher prices, except maybe the consumer, applies to almost all health care services in the U.S.  And there may be  reasons that patients benefit from the pricing structure for a colonoscopy—and I would love to hear from gastroenterologists about them.   There may be good clinical reasons to have anesthesia administered by an anesthesiologist.  There may be benefit to the patient in having it done in an ASC. There is always another side to the story.

Still, it is hard to see how the U.S. will get a handle on health care costs unless it finds a way to make it easy for people to know in advance what they will be charged, to introduce real competition—price, quality, total cost of care—into the system, to allow the federal government to use its purchasing power to get the best price, quality and cost of care provided to persons in government-funded insurance programs, and to give patients some skin in the game on paying some of the cost if they can afford it.

Two former advisors to President Obama, who helped create Obamacare, call for such a “transparency initiative,” in a commentary  published in ACP’s Annals of Internal Medicine:

“For meaningful progress on transparency to occur, there must be a change in attitude throughout the system. All payers should be required to make their claims data publically available, with privacy protections, to enable quality measurement. Of importance, to protect privacy, the federal government should substantially increase the penalties for inappropriate patient re-identification. Personalized pricing information should be made available for comparison before patients enter a care process. Both total price and patient price should be transparent to providers in shared-savings payment models to enable cost management. Only patient price should be available to providers in fee-for-service networks to mitigate the risk for price increases. Fortunately, there is much that stakeholders can do. The federal government can relax restrictions on access to Medicare data. Other states should follow the lead of California and Massachusetts and require providers to disclose prices to patients before elective care. Health plans and employers should also support such transparency tools as Castlight.”

ACP itself, in a letter sent last week to the Senate Finance Committee, called on Congress to “Direct HHS to explore ways to provide physicians with accurate data on the quality and total cost of care provided by other clinicians and hospitals within their geographic communities to enable them to make informed referral decisions.”   The College also called for Congress to “Eliminate provider-based billing delivered in an outpatient, hospital-system owned practices when the care being provided is not dependent on the hospital facility and its associated technologies. However, elimination of provider-based billing in such circumstances should only be carried out in conjunction with other new and innovative approaches, building on payment and delivery system reform efforts, in order to ensure adequate support of safety-net facilities.”

And recently, Medicare has taken preliminary steps to make comparative pricing data more available, earlier this month for hospital inpatient charges and then this week, for  hospital outpatient department charges  for common procedures.  And, a federal judge recently overturned a 33-year old ban on patients having access to physicians’ claims data.  The NBC News report notes that  “The American Medical Association had fought lifting the ban, arguing that disclosure of the information would violate physicians' right to privacy. Doctors had successfully made the same argument in 1979, when a judge ruled the release of such information would violate the 1974 Privacy Act.”

So here is my challenge to readers of this blog, especially physicians: if you are a liberal who wants to get the best value for the health care that the government is buying under Medicare, Medicaid, the VA, TriCare, and Obamacare, or a conservative who believes that market competition is the best way to drive down health care costs, will you unite behind efforts to shine a light of health care prices?  Even if shining that light raises difficult questions about what you, your colleagues and your hospitals are charging for your services, your ownership of diagnostic and treatment centers, your standards of care, and your referral patterns?   Or will the medical profession try to keep all of this out of the public eye, even if it means,  “Whether directly from their wallets or through insurance policies, Americans pay more for almost every interaction with the medical system.”

Today’s question: Will you support making data readily available to the public, and to physicians, on the price, quality and total cost of care of the services that you, your hospital, and your colleagues provide, before care is delivered (whenever possible)?  If not, why not?

3 Comments :

Blogger Ralph Schmeltz, MD said...

does health care follow usual economic rules?
Might be wise to go back and review the work of Kenneth Arrow (The American Economic Review, Dec 1963, vol 53 #5)"Uncertainty and the Welfare Economics of Medical Care" for which I believe he received the Nobel Prize.

RS

June 7, 2013 at 6:29 AM  
Blogger ryanjo said...

I will have no problems providing my prices to patients; after all, they are almost totally dictated by 3rd party contracts, including Medicare. They commonly comment to me that my office charges are a bargain compared to their dentist, accountant or plumber.

My cost basis would probably surprise most patients -- there is lots of red ink in private primary care practices in the past few years! I don't know that they could wrap their heads around my earned income. I would probably post an hourly rate about $60/hr. The US Bureau of Labor Statistics quotes the average for physicians at $90/hr, but that is based on a 40 hour week (if only!). That places my hourly salary slightly below the pharmacist at my local Walgreens. And a lot less than most attorneys or other small business owners in my community, all of whom have a decade head start on their careers.

Now then "quality", there's a pickle. Defined by the feds or some insurer -- heavily weighted by costs of imposed bureaucracy, influenced by an aging patient base, noncompliant or medically uninformed, obese and economically disadvantaged? More society problems being loaded on the backs of physicians.

And the reason why a colonoscopy costs "well under $1,000" in other developed countries is due to subsidized medical education, lack of insurance and government red tape, minimal liability exposure, and fewer highly compensated medical executives running companies that are allowed to gouge physicians & patients by co-enabling politicians. Physicians in many other countries have associations that both negotiate payments and are involved in policy decisions.

But we have just extended the same broken system to cover more patients, and call it "reform".

June 8, 2013 at 5:24 PM  
Blogger Ashok V. Daftary, MD, FACP. said...

Yes I agree to price transparency for physicians and hospitals, however, to let a free market operate price responsibility for the consumer must also be sought.
Unfortunately, this will never occur because arguments of social unfairness will then be raised.
Care for the truly ill must be subsidized, unnecessary care and the medicalization of every societal ill is not worthy of any subsidy.

June 8, 2013 at 6:29 PM  

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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