Medical Pricing Transparency via Non-Transparent Rule

copyright 2015 Daniel Ginsberg PhotographyHidden in a 700-page draft regulation to improve patient’s access to their electronic medical records is a proposal to require doctors, hospitals, and other healthcare providers to publicly reveal the prices they have negotiated with insurers. This rule, tied to the 21st Century Cures Act, would set the stage for eventually making prices publicly available. Although price transparency may be a good way to help lower medical costs, it’s ironic that there is a lack of transparency when it comes to the proposed rule. I challenge you to read the Title, Summary, or Actions section and realize that it includes such a major change (hint – in the PDF document it’s on page 7513 of the Federal Register under Price Information).

On the face of it, making prices readily available sounds like a no-brainer, but I think it’s more complicated than that, and there may be unforeseen consequences. The rule is long and complex, and I don’t have the few days it would probably take me to really understand it, but let me play devil’s advocate. Some of the comments posted say that medicine is the only industry that hides the cost. To a certain extent that’s true, but this rule could go beyond just saying the price consumers pay. If you go to a restaurant they won’t reveal how much they paid for the the ingredients. If you book through a 3rd party website, they don’t tell you how much, if any, they pay them for the referral. When you buy a car the dealer usually doesn’t tell you if the automobile manufacturer is giving them a rebate. From the point of view of a business, the consumer shouldn’t get to know their internal costs as that’s secret competitive information.

What mitigates that argument is that the price of healthcare has gotten out of control. Despite being better educated about the matter than most, when it comes to getting healthcare for their own family I suspect most physicians struggle to understand their bills just like everyone else.

When it comes to pay, doctors are a commodity. For a given surgical procedure or office visit of a certain complexity, they are paid the same amount as mandated by Medicare or Medicaid, as negotiated with insurance companies, or their list price for the unfortunate cash patient. Just like any profession, some doctors are better than others. If you want to hire a top lawyer or an A list actor, you have to pay top dollar.  But that’s not so with much of healthcare. The price doesn’t necessarily reflect the quality of the care.

Hospital systems mitigate that somewhat. They can negotiate higher prices with insurance companies and with large employers by demonstrating that they provide higher quality care and/or lower cost care, or because patient perceive them as providing superior care and they demand that that can get care from them. What will happen if the rule goes into affect and patients can easily compare prices? I don’t know, but potentially they might choose the lowest cost without regard to quality. That could lead to systems competing on price, cutting corners to do so, and ultimately lowering quality.

The lowest price might actually not be the path to cost savings. Imagine two surgeons. One of them charges $5,000 for a knee replacement, and operates on 60% of the patients seen for knee arthritis, treating the rest successfully with injections and physical therapy, which on average costs $1,000. The other charges $7,000, and operates on 50% of the patients seen and treats the rest successfully with the same conservative measures. Besides the physician fee, the hospital system charges $10,000 for the surgery. In this example, treating 100 patients would cost $940,000 for the first surgeon, and $900,000 for second. So even though the second surgeon charges 40% more than the first, on average the doctor ends up being cheaper when it comes to managing knee arthritis.

I’m inclined to support more transparency in healthcare pricing, but I don’t know how much of an impact it will have, and there may be unintended consequences.

Don’t expect to see published prices anytime soon. Even if the proposal goes forward, following a public comment period that ends May 3, it’s likely to be tied up in legal challenges for quite a while.

About Daniel Ginsberg, MD, FACP

I'm an internal medicine physician and have avidly applied computers to medicine since 1986, when I wrote my first medically oriented computer programs. So yes, that means I'm at least 35-years-old!
This entry was posted in Government, Informatics, Legal, Medical Politics and tagged , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.