Friday, March 11, 2011

Increased Price Transparency in Health Care — Challenges and Potential Effects | Health Policy and Reform

by Anna D. Sinaiko, Ph.D., and Meredith B. Rosenthal, Ph.D

Slowing the growth of health care costs is critical to the long-term fiscal stability of the United States and is the direct or indirect focus of most U.S. health policy initiatives today. One tactic for reducing spending is to increase price transparency in health care — to publish the prices that providers charge or those that a patient would pay for medical care — with the aim of lowering prices overall. More than 30 states are considering or pursuing legislation to increase price transparency (see table). Most initiatives focus on publishing average or median within-hospital prices for individual services, though information on total and out-of-pocket costs for episodes of care across different sites are available in some markets (e.g., New Hampshire). At the federal level, three bills designed to increase transparency were introduced in Congress in 2010 and attracted some early bipartisan support. In addition, several commercial health insurance plans release information to their members about the prices charged by hospitals and physicians for common services and procedures.

At one level, it’s the wide variation in medical prices within U.S. markets that creates an opportunity for transparency to reduce spending. This variation exists even for relatively common procedures. In New Hampshire in 2008, the average payment for arthroscopic knee surgery was $2,406 with a standard deviation of $1,203 in hospital settings and $2,120 with a standard deviation of $1,358 in nonhospital settings.1 In Massachusetts, the median hospital cost in 2006 and 2007 for magnetic resonance imaging (MRI) of the lumbar spine, performed without contrast material, ranged from $450 to $1,675.2

Since consumers are generally ignorant of such price differences, publishing price information could both narrow the range and lower the level of prices, in part by permitting consumers to engage in more cost-conscious shopping and select lower-cost providers and in part by stimulating price competition on the supply side, forcing high-priced providers to lower their prices (or accept smaller annual increases) in order to remain competitive. Proponents argue that consumers have price information and compare costs when purchasing just about any other good (imagine buying a car, a house, or a computer without knowing its price) and that health care should be no different.

Health care does differ from other consumer goods in a few important ways, however, that are likely to affect patients’ responses to price information.

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