Consumerism and Price Transparency in Healthcare – Real World and Theoretical Challenges

September 24, 2019

In July we ran a story related to President Trumps’ push for price transparency in healthcare,  concluding that “any price transparency proposals should be pulled from the theoretical world of DC and discussed with folks on the front lines of healthcare … before being trotted out to the public.”  Building on that theme, we review two new articles offering additional insight into the challenges alluded to previously.

The first article which appears in Health Data Management addresses the foundational business differences between healthcare and a “typical” business.  Using the purchase of a Diet Coke as a “typical” consumer decision (involving a 2 AM emergency need for a Diet Coke), author Irv Lichtenwald opines that as a consumer purchasing that product “I have alternatives. I basically understand underlying pricing structure, am willing to pay extra for convenience, and I have ready access to numerous outlets competing for my business.”  In the scenario where he needs an emergency appendectomy at 2 AM, in the healthcare market, his perspective is “I can’t shop, don’t know what I will pay, have no concept of valuation and am operating in an information vacuum. Almost nothing about this healthcare situation defines me as a consumer.”

The article goes on to state that while price transparency is always important in any purchasing decision, the problem with healthcare pricing is that no one knows what the prices mean.  Secret insurer discounts, complex coding, the potential for complications changing pricing and inconsistent definitions are all cited as confounding variables in clear consumer pricing for health services.  The point is that healthcare is unique and complex, the stakes for individual patients are high and patients are not “consumers” of a typical product (like a Diet Coke). Mr Lichtenwald concludes that “Healthcare requires creative solutions that borrow from different philosophies and proven successes elsewhere, and it requires a market with a conscience. Pretending that healthcare is any old consumer product does a disservice to patients, physicians and our shared values.”

Article two, a real-world healthcare pricing story, is from Kaiser Health News (KHN).  Wolfgang Balzer, an engineer, needed a hernia repair. Being true to his profession and therefore detail oriented, he patiently waited to meet his deductible to schedule the procedure and sought quotes from his hospital, surgeon and anesthesia provider.  The quotes, taking into account his Cigna discount, put his overall out-of-pocket co-pay at just under $1,500 for the hospital and surgeon. Interestingly, the anesthesia provider never got back to Mr. Balzer prior to the procedure despite a reported four inquiries.   

Mr. Balzer had an uneventful and successful procedure…until the bills came in.  Both the hospital and surgeon bills were about 50% higher than in the estimates, therefore the out-of-pocket requested was about $800 higher than quoted.  There were reportedly no complications and an uneventful perioperative course. While complications can understandably affect a patient bill, a straightforward, uncomplicated procedure for a discrete CPT code should have an accurate allowable for a specific insurer.  Yet in this case, the hospital quote ballooned 50% in the actual Cigna contract rate. Same logic applies to the surgeon. 

In this case, the hospital responded that they use averages because more complicated cases may use more supplies or services.  Ultimately, when the issue of the billing discrepancy came to light through a press inquiry, Balzars’ bill was reduced 100% to $0!  A good outcome for him perhaps, but not so much for the hospital.

The article concludes by advising patients to get an “all-in” estimate prior to services – including surgeon, hospital and anesthesia costs, recognizing that actual costs may vary dramatically from the quote. Rules requiring some degree of accuracy in medical estimates would be helpful, KHN notes that many other countries require accurate quotes to patients paying out-of-pocket.  A quote from Mr. Balzar’s wife concludes “There’s no other consumer industry where this would be tolerated.”

EHC NOTE: Together, these two articles offer an interesting snapshot of the strange crossroads of the business of healthcare in the US.  Are we striving to be a true free market which allows consumers to make informed choices or are we going to continue to protect opacity and inconsistent pricing?  Our guess is that as deductibles increase and patients realize they are liable for a meaningful portion of the cost of care, the market will force us in the direction of transparency, or some sort of universal solution. 

What does this mean for the business of surgery?  As an industry we need to be able to offer an accurate price quote for an easily definable, uncomplicated procedure such as the hernia repair described.  It is fair and reasonable for a patient to be able to receive an all-in price as suggested in the KHN article. It should not be up to the patient to cobble together three or more quotes from various providers.  Surgical directors should begin to create this capability in conjunction with their surgeons, anesthesia providers etc. however, the base case should be clear and accurate. As Mr. Lichtenwald says, healthcare pricing is unique and complex, so pricing disclaimers related to issues such as complications, unplanned admissions and unforeseeable events should certainly de delineated.  Bottom line is that our patients deserve and will increasingly demand transparency.

Ultimately, if our system is to migrate to a true free market, facilities which are able to offer transparency will have an advantage.  Online screening tools to easily identify patient responsibility and to display quality measures for the care required will likely become more accurate, robust and widely utilized.  As we’ve seen in numerous other markets, such tools have the ability to drive market share. Facilities which get ahead of the curve and are able to create coherent surgical pricing should be able to enjoy first mover advantage relative to their local competitors.