It’s Still the Prices, Stupid

The late, great economist Uwe Reinhardt and colleagues published a seminal 2003 paper titled, “It’s the Prices, Stupid,” to explain why U.S. health care spending was so different from that of other industrialized nations.

The answer: higher prices, not higher utilization of services. The authors found that the U.S. spends more on health care than any other country and “the difference in spending is caused mostly by higher prices for health care goods and services in the United States.”

If prices are the main driver of high health care spending, it’s even more astonishing that prices have long been shrouded in secrecy. Historically, it’s been almost impossible to know ahead of time what you can expect to pay for a health care procedure or service. This remains true even as consumers are increasingly on the hook for larger shares of the bill. I hope you have a lot of time and patience if you decide to take a trip through the twilight zone of health care costs.

About two years ago, I wrote about a baby step toward greater price transparency. Back then, a then-new federal rule took effect requiring that all hospitals post online the prices of surgery, procedures, and medications. It was better than nothing, but it was seriously deficient. Hospitals were then required to post their so-called “chargemasters.” The numbers included in chargemasters often bear no relation to what patients can expect to pay, so the information is not especially useful or actionable. Still, it sent a strong signal about the growing expectation for transparency in health care and it opened the door to progress. And others agreed; colleagues at the Commonwealth Fund wrote that “there’s no question that the tectonic plates of public policy are shifting on the issue of price transparency.”

Fast forward to now, and that shift is obvious. In January of this year, another federal rule took effect on price transparency that goes beyond the fantasyland of chargemasters. Hospitals must now disclose the real, negotiated prices with insurers on an easily accessible public website. Plus, there must be a consumer-friendly display of at least 300 shoppable services that consumers can schedule in advance.

It’s progress for sure, but we are far from the end game. Compliance with the rule has been uneven. And even when there is technical compliance with the rule, very few have embraced the spirit of the rule. That’s not surprising; the American Hospital Association and others unsuccessfully sued to try to block the rule from ever taking effect. An analysis by The Wall Street Journal earlier this year found that many hospitals had used special coding to block their price information from web searches. And a recent New York Times article, called “How to Look Up Prices at Your Hospital, if They Exist,” shows just how difficult it remains to find pricing information easily.

Why so much secrecy? Because the rule is further revealing just how irrational health care prices can be. Last month, The New York Times published some of the findings from an analysis in partnership with researchers at the University of Maryland-Baltimore County. They examined prices at 60 major hospitals; the findings range from head-scratching to jaw-dropping to blood-boiling. Consider these examples:

• At one hospital in Philadelphia, they found that a pregnancy test may cost $10 (without health insurance), $18 (for Blue Cross patients who live in Pennsylvania), $58 (for Blue Cross HMO patients who cross the bridge from New Jersey), or $93 (for Blue Cross PPO patients from New Jersey). Same test, same facility—and a ninefold difference in the price, depending on where you live and what insurance you have.
• At a Florida hospital, the cost of an MRI ranged from $262 with a Medicare plan to nearly 10 times as much—$2,455—with a Blue Cross plan.
• And at a Milwaukee facility, the price for an MRI is $1,093 with a United HMO plan, compared with $4,029 for patients in a United PPO plan.

The examples are endless, but you get the point: prices are all over the place, they’re arbitrary, and it’s no wonder so many places don’t want us to see what they are. And by the way, these dynamics occur in every part of the health care system. Prescription drug prices may be even less transparent and make even less sense. Weird but true: it’s sometimes cheaper to pay cash and not use your insurance for medications. And until very recently, pharmacists were bound by “gag clauses” that prevented them from telling you that.

I’ve said it before and I’m sure I’ll say it again: health care transparency alone isn’t going to bring down health care costs or fix a broken system. It isn’t a magic bullet and there are serious limitations: a lot of care isn’t shoppable, the ways that prices are presented to consumers aren’t comprehensible, high prices might be used by some as an inaccurate proxy for quality, information has to be paired with financial incentives, and some people are in insurance arrangements that make them immune to the need for price information.

But information is power, and we should continue to demand more and better transparency in health care. Secrecy has been monetized—to the detriment of the consumer. Dr. Reinhardt’s words still hold true today: focusing on prices is key to controlling spending and maximizing value from our health care dollars.