Is health care ready for a full menu of prices?

Physician Executive,  Jan-Feb, 2008  by Diane W. Shannon

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Transparency is happening in all sectors of the economy; there is no reason health care should be different."

"Prices are only useful if services are directly comparable, and quality also comparable. I doubt [price transparency] will ever catch on. It's too complicated."

"Transparency is a growing manifestation of consumerism in medicine. It is being fueled by the mistaken, unproven assumption that price-sensitive health care shoppers will spend their health care dollars more wisely, which in turn will reduce overall health care expenditures. Right or wrong, the expectation for increasing transparency is here to stay, and we will need to adjust to it."

The sentiments of these participants in the recent American College of Physician Executives Survey on Price Transparency in Health Care (see related article on page 10), represent the divergence of opinion among physician executives about the potential effectiveness and consequences of price transparency.

Experts in the field and stakeholders hold divergent opinions on the topic, as well. Most agree, however, that price transparency, as part of the larger movement of health care consumerism, is likely to gather momentum in the coming years.

Types of price information

Three types of prices are most relevant to patients:

* Provider charge--the "list price" for a service from hospital or health care provider, or the amount that a provider would bill a self-pay patient without discounts

* Contracted price--the maximum amount that a network or participating provider will receive for care of patients covered by a particular private health plan or public program

* Maximum allowable payment--the maximum amount that a private health plan or public program will pay for out of network services

Health care consumers who are most interested in price information are those who are uninsured or whose out-of-pocket costs vary based on decisions over which they have control. Patients whose provider co-pay varies depending on a "value" tier set by their health plan, for example, have more incentive to access information on price than patients whose co-pays remain the same no matter which in-network provider they choose.

Similarly, uninsured patients are more likely to find information on inpatient procedure costs to be useful than insured patients. This holds true even for most patients with high-deductible health plans (HDHPs), because most deductibles are met with a single hospital admission. (1)

For these reasons, price information is only somewhat useful for customers in traditional health plans, because patients who stay in-network or who have reached their deductible are often unaffected by price considerations. (1)

Price information is likely to be more useful for the increasing number of patients enrolled in consumer-directed health plans (CDHPs). Patients enrolled in CDHPs, which include HDHPs with health savings accounts (HSA) and employer health plans (which may or may not include high deductibles) with health reimbursement accounts (HRA), carry greater financial responsibility--in the form of higher deductibles and co-pays--than those in traditional health plans.

Although current enrollment in CDHPs makes up a small portion of the 177 million Americans with private health insurance, it is rapidly growing. According to the U.S. Government Accountability Office, enrollment increased from about 3 million workers and dependents in January 2005 to between 5 and 6 million in January 2006. (2) Increasing enrollment in these plans, plus the continued number of uninsured Americans, suggest that interest in price information may increase in the future.

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Currently available price information

In general, the price information currently available to consumers consists of provider charges (hospital but not physician charges) and health plan claims data.

Prompted in part by an August 2006 executive order that required all federally administered or sponsored health care programs to promote quality and price transparency, a number of states gathered and posted crude price information, in the form of hospital charge masters.

However, because charge masters include thousands of line items and are difficult for patients to interpret, they did not provide especially useful or actionable information for consumers. A patient interested in comparing prices on a specific procedure such as elective rhinoplasty would be unable to determine which of the charges would apply to his or her bill.

In a 2007 background paper for the National Quality Forum, Mark W. Legnini, DrPH, of the Healthcare Decisions Group, defined price transparency as "the provision of usable financial information to a specific audience." (3)

Certain types of price information such as charge masters, while posted on publicly accessible Web sites for the purpose of increasing price transparency, do not meet this definition, because they are not truly usable for the intended audience.