Price Transparency and Health Spending

By February 29, 2012 March 2nd, 2012 Commentary

According to Thomson, there is $600-850 billion of waste in health care spending in the United States, the biggest chunk of which is “unwarranted use.”  Most of the supposed waste identified by the company is in the form of utilization.   In a new report, the company also says that about $36 billion in excessive prices are paid because consumers can’t find and compare prices easily.    (Thomson Article)    Thomson said that reducing the above median prices to median ones for “shoppable” services would save $36 billion for employment-based insureds.  It is unquestionably true that at least nominal prices for the same health care service or good vary widely among providers in the same geographic area.  And it is equally true that even for the same provider, different customers pay very different amounts for the same service.  Government programs dictate what they will pay; third-party payers typically get significant “discounts” and self-pay individual consumers usually pay the most, often “list” price.  The location for a service can be a factor in its cost as well, with hospital outpatient centers typically loading up prices for the same service that can be obtained much cheaper in a physician office.   Helping whoever is paying pay less would obviously be a good idea, but it is a little more complicated than that.

Even when they bear a significant portion of the cost, consumers often make care location decisions on factors other than price.  Concerns about the quality of the care are usually foremost on people’s mind and many of the most expensive providers have done a great job of marketing themselves as high quality.  The state of quality measurement doesn’t often permit meaningful comparison.  And consumers often don’t  pay for a large portion of the cost of the health care they receive and have typically been resistive to payer efforts to limit their provider choice.  Regulators have also made steerage difficult.   And basic economics would suggest that if a low-cost provider suddenly sees an upsurge in demand, the rational response is to raise its price.  Low-cost providers too have only so much capacity.  It may be that greater movement toward low-cost providers would force the more expensive ones to lower their prices to avoid losing business, but real-world health care doesn’t seem to have worked like that, and it is not apparent that having a clearer sense of what the price is for a service will really change that or that all consumers, especially the very sickest ones, are capable of being smart health-care shoppers.  The Thomson report contains a number of good steps for improving consumer engagement, but there are significant barriers, not the least of which is the consumer him or herself, to achieving the savings Thomson suggests are possible.

 

 

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