Opening Up the Black Box of U.S. Health Care Prices

The Fiscal Times
Why Health Care Is Still a Winning Sector
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Why Health Care Is Still a Winning Sector

What if you could compare hospital and doctor's fees the way you could shop for something online?

For those expenses you pay out of pocket, it would make a huge difference. In theory, providers would compete to offer the highest-quality service at the lowest cost and would likely be "star" rated by consumers the way they are on hundreds of online sites.

That begs a critical question: Will the 2.2 million Americans who signed up for insurance through the Affordable Care Act – including some 1.8 million added just last month – be more demanding consumers?

Given the notorious black box nature of U.S. health care – most patients have no idea what a service costs – such an idea seems unlikely and new tools to pry open medical pricing vaults may seem like a pipe dream of some tech-savvy entrepreneur.

Related: When Will We Finally Know What Our Health Care Really Costs?

There have been some attempts to make the mountain of provider data user friendly, but it's uneven. Healthgrades, for example, rates hospitals and doctors – highlighting doctor backgrounds and hospital safety information – but doesn't provide any pricing guidance. You can easily find specialists, scan their medical training and even see if they've had blots in their professional records. How much do they charge? That's not on the site.

Hospital pricing is available through the Centers for Medicare and Medicaid Services, but it only tells you what institutions are charging the government for Medicare and Medicaid patients. That's not particularly helpful if you are privately insured, covered by a company plan or a policy offered through the new state and federal policies.

What would be ideal is a mobile phone application that allows you to plug in a zip code, scan highly rated doctors, hospitals and clinics and see what they charge for basic services such as office visits, X-rays and other common tests and procedures. You'd have to same ability to shop for medical services the way you would for appliances, computers or gasoline.

For those facing out-of-pocket costs, such a service could save thousands of dollars. 

What Would a Market-Driven System Look Like?
In an ideal world, medical service pricing would resemble what Amazon.com does with outside vendors. They are all rated and compete mightily on cost and service. None of them want a lower star rating or bad consumer reviews, so they bend over backwards to see that you're treated well.

A market-driven system driven by technology would increase transparency and reduce costs.

Displaying costs from various providers also might stem the huge disparity on pricing. It's well known that U.S. health care consumers spend more on medical care than residents of other affluent countries. Part of the reason is the opaque nature of the U.S. system and the fact that providers benefit from the lack of price discovery.

The Commonwealth Fund, a think tank that focuses on "a high-performing" health care system, found that:

The average cost for a day in a U.S. hospital is $4,287; in France, it’s $853. The total price for a normal birth is nearly $10,000 in the U.S.; in the United Kingdom, it’s $2,641. A knee replacement? Over $25,000 here — more than twice the cost in Switzerland. The price discrepancy extends to doctors' bills, too. U.S. physicians receive substantially more for office visits — for example, by Medicare and Medicaid — than their counterparts in other high-income countries. To make matters worse, prices for the same services, such as lab tests or mammograms, vary significantly between providers, even in the same city or county.

Although U.S. health care consumers won't be able to get their local doctors and hospitals to compete with single-payer programs in Europe, a market-driven system would force them to compete more effectively with each other. In one sense, that's already happening, although it's not been widely reported.

Under direct pressure from insurers and indirectly from the introduction of the Affordable Care Act – adding millions of new health insurance customers through private policies – pricing has been under the gun. 

Related: Has the U.S. Found a Cure for Rising Health Costs?

Insurers running health care networks want the best prices and have moved to either exclude high-priced providers or negotiate lower bulk discounts for policyholders. So, absent consumer pressure, hospitals and doctors may already be in the throes of an insurer-driven price battle. Notes Jonathan Cohn in The New Republic

"This market-driven approach could, in an ideal world, create a virtuous cycle that makes health care both cheaper and better. In response to price pressure, hospitals would actually find ways to be more efficient; in response to demands for better care, insurers would learn to construct networks that depend on quality and not just price."

What would jumpstart Cohn's "virtuous cycle?" A combination of newly insured patients demanding more information on services they needed to pay for out of pocket combined with insurers and government teaming together to make the system more efficient.

Those seeking quality health care at a reasonable price would do what they've always done: They shop around. But they can't do that without a means of comparison. 

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