The price transparency revolution
“The man behind the curtain needs to be exposed” seems to be the sentiment echoed by many critics of today’s hospital pricing strategy. Writing in a recent issue of JAMA, Uwe Reinhardt, PhD, a political economist based at Princeton University, put it more bluntly: “Until recently, healthcare in the United States was delivered behind the secure walls of a fortress that kept information on the prices charged for healthcare and the quality of that care opaque from public view.”
That opaqueness is slowly evaporating. Let’s review some of the recent efforts:
Washington State was recently awarded a $3.4 million federal grant to help it build a data center that gathers information on the cost of healthcare in the state. The goal is to determine the kinds of medical care patients are utilizing most and how much they are paying for those services – a necessary first step in making the cost of individual procedures transparent institution by institution.
Healthcarebluebook.com has taken the next step, creating a search engine specifically designed to help employers, payers, providers and patients determine the cost of care. In his JAMA article, Reinhardt explains that the site provides what it calls “fair prices” by zip code for hospitals, physician services, lab tests and imaging services. The fees are derived by calculating the average price that “most clinicians, hospitals, and healthcare centers in an area will accept from major insurance carriers and can be used by self-insured patients to bargain over fees.”
Like Washington, North Carolina is getting serious about price transparency. It recently enacted a law that requires hospitals to provide public pricing information on 140 procedures and services. Similarly, Maryland now provides the public with an online hospital pricing guide that lists each acute care hospital in the state, along with the average charge per day for 15 common diagnoses.
Maryland and North Carolina join a long list of states that now require varying degrees of transparency, all of which have been tallied by the National Conference of State Legislatures on their websites.
And let’s not forget that the Centers for Medicare & Medicaid Services released pricing data comparing the charges for the 100 most common inpatient services and 30 most common outpatient services for its patient populations.
How will all these private and public initiatives affect the cost of medical care and healthcare providers’ bottom line?
Hospitals will now have to compete on quality and price, said Keith Kantor, CEO of Service Foods, Inc., and chair of a recent blue ribbon panel requested by Congress to help lower the country’s healthcare costs. As out-of-pocket costs increase for patients, they will be looking for providers that offer the best service for the best price, said Kantor.
A growing number of health systems are already starting to cater to consumer demand for transparent pricing so that they can make intelligent choices.
The effects of this consumer demand are already starting to be seen, said John Dugan, a partner in PwC’s Health Industries practice.
“Patients are becoming much more savvy,” he said.
In hospital outpatient clinics, for example, many of his are starting to see an erosion of outpatient revenue, partly due to their pricing practices but also because of the aggressive pricing of free standing providers, such as freestanding MRI facilities and national lab companies.
Taken all together, these effects are making senior managers much more sensitive to the prices they put in place, Dugan said.
