The Perils of Pricing

Posting Prices for Medical Care Provides No Guarantee of Transparency

April 09, 2014 02:50 pm Michael Laff Washington –

Costs for medical services continue to rise at a rate that worries patients, physicians and policymakers, yet firm solutions to reducing those costs remain elusive, according to a panel of experts at a recent workshop on price transparency in health care( here that was hosted by the Federal Trade Commission.

[Medical invoice and stethoscope]

Calls for increased pricing transparency in medicine also are on the rise, but in this case, health experts agree that the notion of simply providing more detailed price information will not lead to lower costs or even help patients make better decisions about their care.

"Price transparency provides support behind other tools," said Paul Ginsburg, Ph.D., Norman Topping Chair in Medicine and Public Policy at the University of Southern California. "Simply publishing pricing data is not an effective transparency strategy. It needs to include information about benefit design and payment reform."

A prime example, according to Ginsburg, is the cost associated with choosing a physician outside of a patient's insurance network. Patients typically know very little about the costs for an out-of-network visit and how much the insurer will pay for the visit. When patients are able to compare the price of any medical care, they could mistakenly believe that because one physician or hospital charges more for a particular service, the quality is better.

Story Highlights
  • Experts at a recent Federal Trade Commission workshop agreed that detailed pricing for medical services does not lead to better choices about treatment.
  • Patients are more conscious of medical costs if they are responsible for some costs.
  • Some medical institutions publish prices for various services but usage remains low.

Insurance companies now rely on high-deductible plans to control their costs and reduce their exposure to paying claims, but Ginsburg said tiered benefit plans are a more effective way to provide medical care while also controlling cost.

Changes in plan benefit design mean that patients are now much more cost-conscious about what a particular service will cost when they enter a doctor's office, especially if their plan requires more than a copayment.

"Physicians are starting to realize the need of providing this information," said James Landman, policy director at the Healthcare Financial Management Association. "A patient with a high deductible would come into their office, and the physician will order some tests. The patient will ask 'How much will this cost?' and the doctor would say, 'I have no idea.'"

Landman said such a response is not acceptable any longer because of restrictions on insurance coverage and high-deductible plans.

Data are available on physician and hospital costs that give a general idea about what a medical procedure costs. But the panelists said turning that data into information patients can use is very difficult.

Many insurance plans offer a pricing tool, but the number of consumers who use such tools is low, according to one study. Ninety percent of insurance companies reported having a pricing tool on their website, but only 2 percent of unique visitors actually used the tool, according to a 2013 report by the Catalyst for Payment Reform. Andrea Caballero, program director for the organization, noted that price indexes on an insurance carrier's site can be difficult to locate.

If the site requires a login, for example, users often become frustrated and leave the site. She noted that research indicates that usage of the payment tools drops off significantly after the first use. In addition, there are other obstacles that influence whether users will devote significant time to researching prices.

"If patients have an HMO with copays and no deductible, the insurance company says they don't need that tool, so it limits them," Caballero said. "For patients with a high-deductible plan, the tool can be useful, but once they reach the deductible, engagement drops off."

One positive development is that the level of transparency is increasing as more medical institutions and insurance companies show a willingness to participate in research efforts and share data. "There's a clear trend toward more transparency," said Aron Boros, executive director for the Massachusetts Center for Health Information and Analysis. "Initially, insurance plans were very nervous about data collection, but now they live with it. Now we're collecting data about prices on a bundled level or a service level, and they are nervous again. These are all positive indicators for a well-functioning marketplace."

In 2008, Spectrum Health in Michigan began publishing a wide range of payment data( that details the cost of a specific service and what Medicare, Medicaid and insurance companies typically pay for the services. The site is regularly expanded to include additional medical services.

For example, a wrist joint replacement is estimated to cost $8,776 for outpatient treatment. The average insurance payment is $6,309. Medicare pays $2,898, and Medicaid pays $1,602. Each link for a specific service includes a detailed explanation about the costs and how they are calculated.

HealthPartners in Minnesota offers a similar calculator for basic medical services( such as an ear or sinus infection (both about $145 without pharmacy costs; $160 with medication costs included). Treatment for a sore throat would cost about $165 without drug costs and $170 including medication.

Although the context differs, the experience with prescription drug prices offers some guidance about how increased transparency of pricing data helped reduce cost for consumers. Medicare recipients have a prescription drug benefit that is designed on a tiered basis whereby some drugs, typically brand-name versions, are more expensive than generic competitors.

Patients will opt for less expensive medications when they are responsible for the payments. As a result, the use of generic drugs has increased, according to Mark McClellan, M.D., Ph.D., a Brookings Institution fellow and former administrator of CMS. "Very few Americans believe a brand-name drug is better than a generic," McClellan said. "They will switch (to generic) when their money is on the table."