Consumers need to know prices to make health care decisions
Americans lead the world in health care spending, yet are largely kept in the dark about health care prices. We might know copays and paycheck deductions, and we probably have some idea of our out-of-pocket maximum, but we likely don’t really know price tags associated with treating an ear infection, a sore throat, a rash or a gash until after we see the doctor.
This makes for a pretty dysfunctional health care market.
In no other industry is it normal to be completely left out of the loop when it comes to prices. Can you imagine going to a mechanic and not knowing what was fixed on your car until after you got the bill? Or booking a flight, going on vacation and then—once you’re back home—discovering the price of that flight? In health care, these analogies aren’t all that far-fetched.
Who sets health care prices? Why are these prices going up?
In a market-driven economy, who sets the prices for health care? There are a number of factors affecting health care prices and excessive out-of-pocket spending:
- Medicare and Medicaid have bumped up the demand for medical services
- A growing (and aging) population
- More people are treated for chronic medical conditions
- Expensive outpatient hospital services
- Administrative waste (coding and billing for employer-based insurance and private insurance or government programs Medicaid and Medicare, as well as tiers of coverage and types of plans with separate rules)
- Rising drug costs
- Costly “just in case” tests are ordered to prevent lawsuits
- Providers can charge what the market will bear
In turn, consumers with health insurance are paying more out of pocket, either through the rising cost of premiums in some health plans, or through high deductible health plans (HDHPs). Common with many employers, HDHPs can present a double-edged sword: because some people can’t pay high out-of-pocket costs meeting a deductible, they skip going to the doctor altogether. This can lead to more serious and more costly health issues.
Health care transparency
Why, though, does this seem like such an American problem? Aren’t there government health care programs in other countries, and populations that are getting older and requiring more care? Why aren’t insurance costs rising around the world?
One of the differences in how Americans spend money on health care and how other countries spend money on health care revolves around price transparency, or the lack of it. Consumers often don’t know the prices of pharmaceuticals or services before choosing doctors, hospitals or other caregivers.
Under standard [health insurance] plan designs, someone probably isn’t going to have price visibility. - Matt Chock, Surest Inventory Lead
Why the mystery?
Shouldn’t patients have the right to know what they'll be charged before committing to a service? Without price transparency tied to consumer value, people can’t do their research, make comparisons or shop around for procedures and treatments. They don’t have the information to make informed decisions. To say that this strategy is frustrating to most consumers is an understatement. And on an even bigger level, this has led to a lack of accountability and competition within the health care supply chain.
Shining a light on prices
It’s not only consumers who are unaware of prices and what things actually cost. As reported in the Journal of the American Osteopathic Association, less than half of emergency room physicians and nurses knew the costs of services used in treating common conditions. It doesn’t stop there. Some doctors choose medical devices for procedures without realizing there could be less costly alternatives. And some hospitals charge employers and insurers wildly different prices, depending on regional differences in price mark-ups.
If health professionals working within health care organizations don’t know prices, how is the average consumer expected to know?
For years, policymakers have tried to shine a light on hidden prices.
In 2015, the Centers for Medicare and Medicaid Services released claims data; and in 2018, the price transparency law required hospitals to publish "chargemaster" standard price lists online—giving patients greater access to hospital price information. (How much do you really pay for one Tylenol? Or a cotton ball? Or an X-ray?) This data can be useful, but requires a fair amount of digging.
Prices can be challenging to find online, tough to navigate once found, published in small print or deliberately confusing to understand. Other sites don’t make it clear what the listed charge includes: Is it the rate paid by private insurance or Medicare? Does it include the full cost of a procedure? Better information should be made available to the consumer.
Breaking the cost curve
Turns out, developing a pricing strategy that could potentially break the cost curve is more complicated than it seems. Other organizations have tried to create estimates of medical costs based on a standard set of services. There are just too many variables, though, for those sites—whether created by insurers, providers or government agencies—to give exact prices, Chock says.
Even if you can look up the cost of a medical test or medical procedure, you still have to figure out the specifics of your insurance plan—your deductible and coinsurance, the setting or location of the service, whether or not the service is in-network. You also need a rough idea of separate charges that could occur as a result of various "what if" scenarios. Just one visit to the doctor could produce a number of bills for separate services.
"A provider might do additional services that the estimator wasn’t expecting," he explains. You could go in for a procedure, predict what you’ll owe, and a certain surgeon might be slower than the estimate "which would affect time-based anesthesia," Chock explains. Or, a complication during a simple procedure could set in motion a domino effect. It doesn’t take much for those estimates to change in pretty drastic ways.
Changing how prices are set
Some insurers, like Surest, are working hard to change the pricing structure. "With the Surest plan, the price a member pays is set ahead of time," Chock explains. Members type in the condition they're searching, they see clear, upfront costs and care options at the time they seek care and they know what they'll pay before going to the doctor.
Setting those prices is a collaboration between the inventory, search and health teams. Chock and his team identify what services are provided by practitioners and locations in each market, establish how those services are priced, then assign a Stock Keeping Unit, or SKU to the services. Those SKUs then give Surest members the opportunity to go out and "leverage their Surest insurance card to access the services within their market," he says.
Often, after some honest conversations and the chance to investigate different treatment options at different price ranges, it’s determined that the issue can be treated through alternative means, cost the member a lot less and produce positive outcomes.
Quality vs. quantity
Knowing the cost of a medical procedure or treatment course is important, but that alone probably isn’t enough to control Americans’ health spending. Consumers also need to change how they think about health care, with reputations of providers tied to how patients do after a procedure or treatment. When these outcomes are collected and made public, providers will likely face pressure to improve how their quality is measured. There is value in improved outcomes, the outcomes that matter most to patients, and those outcomes can translate into lower costs.
When consumers can see the whole picture—not just one piece of it—there’s the potential for real and lasting change as providers compete on cost and quality.
"We’re trying to help people understand their options to make more informed decisions about treatments," Chock says. "We’ve just scratched the surface of what we can do around that."