One of the tenets of the Affordable Care Act (ACA) is that a consumer will lower healthcare costs by comparing and contrasting prices for both insurance and medical procedures spurring competition between these respective agencies. Unfortunately the strategy is marred by the fact that the current marketplace only focuses on insurance provider characteristics in a limited capacity (co-pay, out-of-pocket limits, deductibles, etc.) and there is no information on cost relationships between insurance companies and a given hospital. Also there is no meaningful existing marketplace that focuses on medical service providers (MSPs) where a customer can compare the costs of a MRI between hospital A 134 miles away from his home or hospital B 46 miles away from his home. There are numerous independent groups that attempt to produce a meaningful “shopping environment”, but despite these efforts there is limited overall information, there is a lack of universal regionality, and most customers are unaware that these sites even exist with the exception of a random annual story about them on a blog. Without the ability for healthcare consumers to identify the best medical service prices it is difficult to expect them to be intelligent consumers and aid in the reduction of healthcare costs.
One of the biggest obstacles to producing a more transparent medical pricing environment is the arrangements negotiated between various hospitals and insurance companies. These deals create medical service institutions that are “in-network” and “out-of-network”. Insurance companies cover “in-network” providers because they are able to produce a lower controlled product using their economies of scale versus their inability to do so with out-of-network providers. In theory one would think that insurance companies would value a transparent marketplace because it would force MSPs to compete against each other to acquire customers thereby lowering costs for the insurance industry. Clearly it is assumed that the insurance company would have a price ceiling for each type of service, but few MSPs would exceed this limit, if reasonable, because it would lead to a significant number of services rendered without proper financial redress, which would put them out of business. If more medical transparency would theoretically benefit insurance companies, why is there no push from insurance companies to produce such an environment?
Three immediate reasons jump to mind when attempting to explain resistance by both MSPs and insurance companies to more transparent pricing, which is representative of the free-market principles that these groups claim to support:
The first reason for opposing transparency can inherently be viewed as the most plausible where there is a highly complicated and competitive relationship between MSPs and insurance companies in which these agencies work together to ensure proper prices with a sufficient customer base so that both parties profit. In such a relationship if significant transparency is developed it will add a third major component to this relationship, the decisions and tendencies of potential customers. Without understanding the nuances of the negotiation and the economic obligations of both the insurance companies and MSPs the customer pool will make sub-optimal decisions that will result in inefficiencies, which will produce increased costs reducing profits and even possibly endangering certain businesses.
While there is some truth to the level of complexity associated with this relationship, the above philosophy flies in the face of the general tenets of capitalism. Never has any real capitalist argued that a potential customer pool should be divided among a group of businesses without genuine competition. Instead the mindset has always been for businesses to produce advantages in their produces/services that will attract customers and if they are not able to produce enough advantages then that business folds up shop.
Some could argue that because buying health insurance and having access to medical care is more important than buying a hamburger it cannot be judged by the same principles as regular commerce. Unfortunately for its proponents the validity of this idea appears quickly dismissed when recalling the ruthlessness and questionable tactics that insurance companies have engaged in to deny coverage to their customers on technicalities as well as the excessive charges most MSPs levy against their patients that are “negotiated away” by insurance agreements. If MSPs and insurance companies want the above structure of “secret balance” then they should become non-profit organizations, which would at least justify the above argument.
The second reason for opposing transparency would be concern about divulging trade secrets regarding how prices are negotiated. The “trade secrets” argument is old hat for corporations attempting to avoid transparency. In some cases it is actually a legitimate argument; however, in the case against medical transparency it is not valid because the idea of medical service transparency is simply the declaration of a single price for a given service, i.e. standard single knee replacement, along with a general quality rating from an independent auditor. There is no expectation to produce a methodology regarding how a particular price was produced. In addition it is inappropriate for either insurance companies or MSPs to suggest that by simply knowing the price for a given service that competitors receive a negotiating advantage. Even if they could receive an advantage then all parties would have the same advantages in an environment where all service prices are publicly available, thus there is no reason to be concerned about the revelation of trade secrets.
The third reason for opposing transparency is the most obvious and more than likely the correct one in that the insurance industry and MSPs in general are happy with the current system because they are able to make large amounts of profit and are uncertain if a new transparent and more competitive system would decrease or increase that profit. To better understand how this uncertainty arises one must study the potential changes that occur in a more transparent environment.
In a more transparent environment one of two possible scenarios will emerge between the MSPs and insurance companies. In the first scenario insurance companies will maintain their existing relationships with MSPs and simply be competing against other MSPs and their insurance provider relationships. Basically insurance companies will keep their provider “zone(s) of control”, but consumers will be able to better understand the economic benefits from moving between those zones to best meet their needs.
In the second scenario the new competitive environment may cause MSPs to “unbind” themselves from insurance companies eliminating some to most of the provider control and its associated power. Without provider relationships insurance companies would lose their “zone(s) of control” which could lead to a mass exodus of individuals from one insurance company to another. For example open competition between MSPs would disallow any guaranteed business due to these zones of control, thus MSPs would not be beholden to insurance companies, thus insurance companies would have to compete for business without guarantees. Clearly this second scenario is much more dangerous to the profitability of both insurance companies and even MSPs because they would have to compete as well, just on a lesser extent.
On a political level both Republicans and Democrats should accept and support increasing transparency regarding medical procedures. Republicans should support such a measure because the existing lack of transparency is anti-American and anti-capitalistic as it restricts choice and freedom of individual consumers along with increasing distortion in free markets. Democrats should support such a measure because it will lower government costs and could reduce income inequality by reducing individual costs through a reduced price. Medical care is typically a fixed cost, thus it weights more on poor individuals versus rich individuals.
On a public affairs level almost all individuals should support increased transparency of medical procedures. The first obvious reason for this support would be the reduced prices for medical care that would accompany increased competition. The second, less obvious, reason for support would be the ability to better prepare for future medical care. One of the biggest problems with the current system of care is that most of the focus is on elective or chronic procedures versus acute procedures. Basically there is little shopping when someone believes that they are in urgent need for medical care. In this situation a person can become justifiably emotional and scared reducing the ability to behave like a rational actor when it comes to procuring competitive medical services. However, in a transparent environment individuals will be able to plan ahead of time to determine what hospitals to attend if procedure A is needed versus procedure B eliminating the need to decide on the spot.
Unfortunately while increased medical transparency should have significant government support from both major political parties as well as widespread public support, any Federal law demanding significant transparency requirements from these institutions does not appear on the horizon and for reasons discussed above one should not expect insurance companies and MSPs to become significantly more transparent on their own. The small collective of state transparency laws are a positive step, but should not be expected to significantly lower national healthcare costs.
For example when discussing state required transparency, in 2014 Catalyst for Payment Reform and Health Care Incentives Improvement Institute judged that only Colorado, Massachusetts, Maryland, Maine, New Hampshire, Virginia, and Vermont had some form of sufficient law(s) requiring appropriate and useful price reporting in effort to support transparency. However, among these states only Massachusetts and Maine had suitable and consistently operating websites to host pricing information allowing consumers ease of access to the information and the ability to effectively utilize it in order to make informed healthcare decisions.1 Despite this deficiency in overall transparency, there is an important step that insurance companies can take to increase transparency that should not threatened any real profitability and not require state or Federal action, changing the format of how patients are informed of how their medical costs are covered after a procedure.
The breakdown of what medical procedures were performed, their costs and who/what is responsible for what payments are commonly detailed in an “Explanation of Benefits” (EOB) form. The biggest problem with the generic EOB form is ironically a lack of explanation. This lack of explanation is largely because the EOB is basically a form letter to the patient with various numbers and procedure codes thrown on a piece of paper. There is no unique explanation associated with the patient’s personal experience and the procedures executed. Initially it would be unreasonable to expect insurance companies to perform unique detailed explanations and evaluations for all successful claims. However, it is not unreasonable to expect insurance companies to produce a more clear and transparent document.
The core of this lack of transparency in the EOB is that insurance companies and even MSPs force too much onus upon the patient understanding both the intricate elements of his/her insurance policy and having the ability to use that understanding to interpret the EOB. This interpretation is made more difficult due to the lack of qualitative information in the EOB. Insurance companies could make it much easier on patients if they simply tied the insurance policy to the EOB and then used both qualitative and quantitative information to demonstrate step-by-step with words, not just numbers, how the policy was used to pay for and not pay for certain procedures. For example instead of simply stating that “sum x is to be paid by the patient due to the maximum coverage reached due to the condition of the plan for this service” the EOB should document the existing coverage value and how that coverage value was utilized to covered the applied care.
Such a change in strategy should not be difficult because insurance companies already use policy information to create the EOB for individual patients, thus the only real change would be the addition of qualitative information. For those who think such a change would be too difficult, cumbersome or expensive, the problem with this objection is that individualized plans do not really exist, thus there is only a small finite amount that must be addressed. For example if purchasing insurance was likened to purchasing a meal from McDonalds the customer would only have the ability to purchase a certain specific number of pre-assembled meals (i.e. value meals) instead of build their own meal experience from individual items (i.e. a la carte). There are no significant a la carte insurance plans, thus the overall cost increases for making these changes are minimal. In addition to the step-by-step analysis, which would use generic statements relative to co-pay and co-insurance, a more expansive EOB should include a small glossary to explain specific terms.
Some could argue that such a change would inconvenience insurance companies and it is the responsibility of the policyholder to know the extent and limits of his/her policy. In addition the Internet provides resources to “guide” patients through the general meanings of an EOB. On its face this argument is insufficient for multiple reasons. First, despite what some people want to believe not every individual has access to the Internet, thus looking online for assistance is not universally applicable. Second, arguing against the above changes to an EOB is an argument against efficiency and productivity. What makes more sense: insurance companies spending a single capital investment that would be less than 1% of total yearly profit to make their EOBs more useful friendly and easier to understand or millions of people spending two to six hours attempting to understand their EOB in its current form without a guarantee that they will? Suggesting that the latter makes more sense should only be answered with a silent and sad horizontal shaking of the head.
There is a big difference between an individual thinking he knows what his medical insurance covers and actually seeing what it covers. A more detailed and consumer-friendly EOB will help individuals better understand the actual applications of their medical insurance coverage and will increase transparency and consumer choice by producing better-informed consumers. It would be ideal if the Federal government would actually involve itself on this issue by producing legislation that would create a standardized EOB format instead of relying on companies to do it themselves or states producing individualized legislations that may not be uniform. Overall if one of the major goals of legislation like the ACA is to reduce medical costs then transparency is a key element to increasing consumer choice and lowering costs. While a truly transparent system seen in how most consumer goods and services are purchased may still be a while away, producing a more detailed EOB is an easy and straightforward means to producing more informed consumers and possible lowered medical costs.
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1. Delbanco, S, Brantes, F, et, Al. “Report Card on State Price Transparency Laws.” Catalyst for Payment Reform and Health Care Incentives Improvement Institute. Mar 2014.
Showing posts with label Insurance. Show all posts
Showing posts with label Insurance. Show all posts
Wednesday, March 18, 2015
Wednesday, March 26, 2014
Transparency in Medical Care
There is a concern that one of the principle reasons for why healthcare costs are so expensive and why the Affordable Care Act (ACA) will have a limited influence on healthcare costs is that there is little direct information pertaining to prices for given services. This “blind” pricing creates an environment of uninformed consumption where individuals hope that they receive a competitive/fair price rather than know they got a competitive price. Therefore, some individuals believe that if hospitals and other medical institutions list their prices for given services consumers will be able to comparison shop using market forces and competition to lower prices. To this end a number of proponents for this form of transparency hope for the establishment of a procedure marketplace similar in design to existing online booking agents like Expedia, Travelocity, etc.
Note that a number of transparency sites already exist operated by various insurance companies. Some of these insurance companies, like Cigna and United Healthcare, have sites that are fairly effective at demonstrating to consumers differences in price between various hospitals for various procedures whereas others like Healthnet and Kaiser Permenente have sites that fair badly at accomplishing this goal.1 Unfortunately most people do not realize that these sites exist because few people actually use them. It stands to reason that the existence of these individual sites provides support for the creation of a centralized procedure marketplace. However, there are some important issues that must be addressed before this new procedure marketplace (PrMa) could be developed.
First, it is not accurate to compare medical services to consumer goods like pears or toilet paper. The principle distinction between these two categories is that there is a limited supply market for medical services, which involve inherent price modifiers. Basically there are only a limited number of physicians and surgeons that can perform a given examination or procedure. Therefore, even if hospital A offers a lower price on an angioplasty versus hospital B there are only so many angioplasties hospital A can perform, thus the influence of the lower price on business gained for hospital A and business lost for hospital B is conditional and limited; depending on the market size this limit may allow hospital B to avoid lowering their prices even in a transparent and competitive environment and yet retain the same number of patients/customers.
Another problem is that supporters of a PrMa appear to view it in the most simplistic manner possible where all parties pay for medical services out of their own pocket rather than utilize health insurance as a cost modifier. Clearly this presumption is inaccurate, especially after the passage of the ACA placing a mandate on health insurance coverage for all citizens of the United States. Therefore, any transparency in prices will need to include the reduced negotiated rates by given insurance providers as well as co-payments and deductibles for given plans in addition to clear information regarding hospitals that are in a given network. Even if transparency is created for these elements there still exists significant price inelasticity based on the factors tied to the insurance companies.
Extending on this above point is a major reason Expedia and similar sites work is because consumers can select any flight from any participating airline and the price shown is the price paid, there are no second party negotiations creating changes in that price. Airlines participate because there is typically a glut of supply (available seats) and selling a seat at a 20% discount is superior to not selling a seat at all and this sale is more efficient on Expedia and other similar sites. A PrMa site could not produce similar results because there is more complexity. Due to a limited number of surgeons and operating venues there is a supply-based limiting factor that heavily influences the ability to profit due to volume for healthcare providers. Therefore, hospitals are going to charge as much as they can in order to maximize profits. This limiting factor makes it difficult for insurance companies to undercut a competitor to increase customer number; this fact also ignores the ease of switching insurance companies.
This limiting factor creates an environment where health insurance companies do not have ultimate bargaining power with healthcare providers. There is a limit to how much of a “discount” health insurance companies can negotiate based on competing profit potential for both insurance companies and hospitals. Finally based on market segregation of health insurance there is little reason for health insurance companies to participate in such a website. Due to the limiting supply factor it stands to reason that they would be as likely to lose money as make money, thus there is no real reason for any to actually participate in such service unless required by law.
The problem is further complicated in that customers purchasing plane tickets have a greater level of flexibility increasing the value of the transparency. For example suppose a person wants to travel to Miami and one week later wants to travel to Stockholm. The lack of contract between different airlines allows this individual to purchase a ticket from carrier A for price x to travel to Miami and then purchase a ticket from carrier B for price y to travel to Stockholm. In a PrMa the consumer is tied to their insurance company. Person A cannot easily switch insurance companies even if another insurance company has negotiated a lower price on a particular surgery at hospital A. Basically this restriction limits most consumers to only comparing prices between different hospitals not different insurance companies. Even for those shopping for new health insurance policies have difficulties because of a lack of knowledge regarding what procedures they would need in the future.
Worse still there are significant legal questions associated with transparency laws that conflict with gag clauses, most favored nation/provider arguments and possible trade secrets. Gag clauses are the most concerning challenge disallowing the publication of provider-insurer contracts. Arguments on the grounds of trade secrets and most favored providers are usually fairly soft and are cited more for their ability to act as a litigation threat versus their legal viability; however, courts have become more corporation friendly in the past decade and could buy an argument regarding the way a price is negotiated between insurance company and healthcare provider as a form of trade secret as strange as it sound intuitively for revealing a final price would not reveal any negotiation strategy.
Other concerns are that such a pricing tool would only be applicable for preventative or chronic care versus acute/emergency conditions for individuals suffering from a stroke could hardly compare prices on the Internet or telephone on which hospital to be rushed to for lifesaving surgery. Also unlike airlines, prices for medical services are influenced by geographical cost of living because they are not as volume flexible. Therefore, it must be guaranteed that new competitive transparency does not lead to such a great price reduction that it hurts healthcare workers. Clearly due to their earned skill set physicians will have salary security, but nurses, medical technicians and other “more disposable” hospital personnel could be fired or receive a cut in salary in order to maintain hospital profits if prices drop significantly due to increased competition. This salary cut could damage the overall care in the hospital because cost of living for a given region would create an inherent price and salary floor creating staffing shortages.
One concern that may not be imperative to address is the alteration of hospital and insurance billing practices. Some individuals believe that hospital and insurance billing need to be changed to more specific invoice-like documents with less medical and/or technical jargon so consumers can easily identify what goods and services are charged at what prices. However, an itemized breakdown of price may not be necessary because consumers don’t care about what each individual item involved in a medical procedure costs, they only care about the total cost of the procedure. For example patients staying overnight for observation do not need to know how much hospital food, catheters and pain medication cost individually, just the total cost of spending the night.
However, there is an important consideration for multiple pricing in a transparent real-time marketplace. By necessity hospitals outsource certain responsibilities to other medical service providers (radiologists, anesthesiologists, etc.) where some of the large price tag procedures require multiple bills from these multiple service providers. Therefore, diligent maintenance of transparency will be required to track each time a specific provider changes the price for his/her/its services to ensure accuracy in the overall price.
Fortunately one of more easily solvable concerns is that prices need to be intertwined with quality of the service. There is a natural psychology for consumers to equate a lower price with lower quality, especially if the difference in price is hundreds to thousands of dollars. Therefore, safety records for hospitals will need to be referenced in addition to the price for their services otherwise individuals may be reluctant to select lower priced service options defeating the entire point of price transparency.
Another significant concern that is seemingly never considered by PrMa proponents is that these direct price comparison tools may actually increase costs instead of reducing them. The idea of transparency functions on a general principle of capitalism that businesses with a common product will compete against each other because it is generally thought that consumers should migrate to the lower priced good, quality being similar; however, what individuals typically forget about this principle is that a goal of modern capitalism is to maximize profits.
Current gag clauses between hospitals and insurance providers limit the information that insurance providers and hospitals have to maximize profits. For example suppose hospital A charges $1,000 for a service and hospital B charges $2,500 for a service. In the current environment this difference is not readily known even between hospitals. In most versions of the transparent environment desired by proponents this information would be available to all parties. What stops hospital A from raising their price on the particular service from $1,000 to $2,000 instead of hospital B lowering their price from $2,500 to $1,250? This possibility should be a serious concern for transparency proponents.
Currently it appears that a dream of creating an Expedia-like website for comparison of prices and quality of care for various medical procedures will be very difficult, if not impossible to achieve. A better option would be focusing on expanding the transparency procedure comparison websites that some health insurance companies have already set up. Creating state and federal statutes to expand the details, features and accuracy of these websites on an individual basis should effectively deal with large disparities in price between hospitals and other medical providers. The reason this strategy will work is that individuals cannot jump between insurance companies and their respective coverage easily and the ACA demands all individuals have health insurance or face a fine; after a few years this fine will be of sufficient size that almost all individuals will have health insurance. Therefore, if all insurance companies have effective price transparency websites, those run by Cigna and United Healthcare are a suitable start, then consumers who are already “locked-in” to company will have a website that will help them plan for more cost effective medical treatment. Overall transparency procedure proponents should focus on the creation and optimization of these individual websites and phone information tied to specific insurance companies due to their ease of establishment and greater effectiveness versus a broad all-encompassing system.
--
Citations –
1. http://www.pbgh.org/component/content/article/10/199-health-plan-shopping-services-evaluation
Note that a number of transparency sites already exist operated by various insurance companies. Some of these insurance companies, like Cigna and United Healthcare, have sites that are fairly effective at demonstrating to consumers differences in price between various hospitals for various procedures whereas others like Healthnet and Kaiser Permenente have sites that fair badly at accomplishing this goal.1 Unfortunately most people do not realize that these sites exist because few people actually use them. It stands to reason that the existence of these individual sites provides support for the creation of a centralized procedure marketplace. However, there are some important issues that must be addressed before this new procedure marketplace (PrMa) could be developed.
First, it is not accurate to compare medical services to consumer goods like pears or toilet paper. The principle distinction between these two categories is that there is a limited supply market for medical services, which involve inherent price modifiers. Basically there are only a limited number of physicians and surgeons that can perform a given examination or procedure. Therefore, even if hospital A offers a lower price on an angioplasty versus hospital B there are only so many angioplasties hospital A can perform, thus the influence of the lower price on business gained for hospital A and business lost for hospital B is conditional and limited; depending on the market size this limit may allow hospital B to avoid lowering their prices even in a transparent and competitive environment and yet retain the same number of patients/customers.
Another problem is that supporters of a PrMa appear to view it in the most simplistic manner possible where all parties pay for medical services out of their own pocket rather than utilize health insurance as a cost modifier. Clearly this presumption is inaccurate, especially after the passage of the ACA placing a mandate on health insurance coverage for all citizens of the United States. Therefore, any transparency in prices will need to include the reduced negotiated rates by given insurance providers as well as co-payments and deductibles for given plans in addition to clear information regarding hospitals that are in a given network. Even if transparency is created for these elements there still exists significant price inelasticity based on the factors tied to the insurance companies.
Extending on this above point is a major reason Expedia and similar sites work is because consumers can select any flight from any participating airline and the price shown is the price paid, there are no second party negotiations creating changes in that price. Airlines participate because there is typically a glut of supply (available seats) and selling a seat at a 20% discount is superior to not selling a seat at all and this sale is more efficient on Expedia and other similar sites. A PrMa site could not produce similar results because there is more complexity. Due to a limited number of surgeons and operating venues there is a supply-based limiting factor that heavily influences the ability to profit due to volume for healthcare providers. Therefore, hospitals are going to charge as much as they can in order to maximize profits. This limiting factor makes it difficult for insurance companies to undercut a competitor to increase customer number; this fact also ignores the ease of switching insurance companies.
This limiting factor creates an environment where health insurance companies do not have ultimate bargaining power with healthcare providers. There is a limit to how much of a “discount” health insurance companies can negotiate based on competing profit potential for both insurance companies and hospitals. Finally based on market segregation of health insurance there is little reason for health insurance companies to participate in such a website. Due to the limiting supply factor it stands to reason that they would be as likely to lose money as make money, thus there is no real reason for any to actually participate in such service unless required by law.
The problem is further complicated in that customers purchasing plane tickets have a greater level of flexibility increasing the value of the transparency. For example suppose a person wants to travel to Miami and one week later wants to travel to Stockholm. The lack of contract between different airlines allows this individual to purchase a ticket from carrier A for price x to travel to Miami and then purchase a ticket from carrier B for price y to travel to Stockholm. In a PrMa the consumer is tied to their insurance company. Person A cannot easily switch insurance companies even if another insurance company has negotiated a lower price on a particular surgery at hospital A. Basically this restriction limits most consumers to only comparing prices between different hospitals not different insurance companies. Even for those shopping for new health insurance policies have difficulties because of a lack of knowledge regarding what procedures they would need in the future.
Worse still there are significant legal questions associated with transparency laws that conflict with gag clauses, most favored nation/provider arguments and possible trade secrets. Gag clauses are the most concerning challenge disallowing the publication of provider-insurer contracts. Arguments on the grounds of trade secrets and most favored providers are usually fairly soft and are cited more for their ability to act as a litigation threat versus their legal viability; however, courts have become more corporation friendly in the past decade and could buy an argument regarding the way a price is negotiated between insurance company and healthcare provider as a form of trade secret as strange as it sound intuitively for revealing a final price would not reveal any negotiation strategy.
Other concerns are that such a pricing tool would only be applicable for preventative or chronic care versus acute/emergency conditions for individuals suffering from a stroke could hardly compare prices on the Internet or telephone on which hospital to be rushed to for lifesaving surgery. Also unlike airlines, prices for medical services are influenced by geographical cost of living because they are not as volume flexible. Therefore, it must be guaranteed that new competitive transparency does not lead to such a great price reduction that it hurts healthcare workers. Clearly due to their earned skill set physicians will have salary security, but nurses, medical technicians and other “more disposable” hospital personnel could be fired or receive a cut in salary in order to maintain hospital profits if prices drop significantly due to increased competition. This salary cut could damage the overall care in the hospital because cost of living for a given region would create an inherent price and salary floor creating staffing shortages.
One concern that may not be imperative to address is the alteration of hospital and insurance billing practices. Some individuals believe that hospital and insurance billing need to be changed to more specific invoice-like documents with less medical and/or technical jargon so consumers can easily identify what goods and services are charged at what prices. However, an itemized breakdown of price may not be necessary because consumers don’t care about what each individual item involved in a medical procedure costs, they only care about the total cost of the procedure. For example patients staying overnight for observation do not need to know how much hospital food, catheters and pain medication cost individually, just the total cost of spending the night.
However, there is an important consideration for multiple pricing in a transparent real-time marketplace. By necessity hospitals outsource certain responsibilities to other medical service providers (radiologists, anesthesiologists, etc.) where some of the large price tag procedures require multiple bills from these multiple service providers. Therefore, diligent maintenance of transparency will be required to track each time a specific provider changes the price for his/her/its services to ensure accuracy in the overall price.
Fortunately one of more easily solvable concerns is that prices need to be intertwined with quality of the service. There is a natural psychology for consumers to equate a lower price with lower quality, especially if the difference in price is hundreds to thousands of dollars. Therefore, safety records for hospitals will need to be referenced in addition to the price for their services otherwise individuals may be reluctant to select lower priced service options defeating the entire point of price transparency.
Another significant concern that is seemingly never considered by PrMa proponents is that these direct price comparison tools may actually increase costs instead of reducing them. The idea of transparency functions on a general principle of capitalism that businesses with a common product will compete against each other because it is generally thought that consumers should migrate to the lower priced good, quality being similar; however, what individuals typically forget about this principle is that a goal of modern capitalism is to maximize profits.
Current gag clauses between hospitals and insurance providers limit the information that insurance providers and hospitals have to maximize profits. For example suppose hospital A charges $1,000 for a service and hospital B charges $2,500 for a service. In the current environment this difference is not readily known even between hospitals. In most versions of the transparent environment desired by proponents this information would be available to all parties. What stops hospital A from raising their price on the particular service from $1,000 to $2,000 instead of hospital B lowering their price from $2,500 to $1,250? This possibility should be a serious concern for transparency proponents.
Currently it appears that a dream of creating an Expedia-like website for comparison of prices and quality of care for various medical procedures will be very difficult, if not impossible to achieve. A better option would be focusing on expanding the transparency procedure comparison websites that some health insurance companies have already set up. Creating state and federal statutes to expand the details, features and accuracy of these websites on an individual basis should effectively deal with large disparities in price between hospitals and other medical providers. The reason this strategy will work is that individuals cannot jump between insurance companies and their respective coverage easily and the ACA demands all individuals have health insurance or face a fine; after a few years this fine will be of sufficient size that almost all individuals will have health insurance. Therefore, if all insurance companies have effective price transparency websites, those run by Cigna and United Healthcare are a suitable start, then consumers who are already “locked-in” to company will have a website that will help them plan for more cost effective medical treatment. Overall transparency procedure proponents should focus on the creation and optimization of these individual websites and phone information tied to specific insurance companies due to their ease of establishment and greater effectiveness versus a broad all-encompassing system.
--
Citations –
1. http://www.pbgh.org/component/content/article/10/199-health-plan-shopping-services-evaluation
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