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The Scandal of Price Opacity in Health Care


The lack of  price transparency in the health care system is one of those things that most people would agree is a problem if they think about it for a second. Nevertheless, given the tone of the mainstream debate on healthcare, most people seem to not think about it very much.

If you end up in the emergency room, for example, you may well notice some very large numbers on your bill as you leave. If you’re fortunate enough to have insurance, those inflated numbers quickly lose your attention when you see that your costs will be limited to whatever your copay is. And if you don’t have insurance, the stress of dealing with such a massive bill in its entirety might obscure the outrageous individual markups.

In both cases, the question is formulated as “who will pay this bill”, and not around “why is this bill so darned high in the first place?” We hope stories like this one in the Times last week helps change that attitude. The subject: the outrageous cost of bags of saline used in IV drips. A must-read:

It is no secret that medical care in the United States is overpriced. But as the tale of the humble IV bag shows all too clearly, it is secrecy that helps keep prices high: hidden in the underbrush of transactions among multiple buyers and sellers, and in the hieroglyphics of hospital bills.

At every step from manufacturer to patient, there are confidential deals among the major players, including drug companies, purchasing organizations and distributors, and insurers. These deals so obscure prices and profits that even participants cannot say what the simplest component of care actually costs, let alone what it should cost.

At every step of the way, the reporter’s attempt to figure out how and where the costs get so high, she was stonewalled by representatives of hospitals, pharmaceutical companies, and other actors. Even a request for the government to release information hasn’t yet been been fully met.

Price transparency is a must if we ever hope to make any progress on real healthcare reform. Luckily, some groups are moving forward with this, and last week North Carolina’s governor signed a law requiring the state’s hospitals to release the negotiated prices of the 140 most common procedures. It’s a start. We hope many more states take note and follow suit.

[Photo of stethoscope and money courtesy of Shutterstock.]

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  • jeburke

    As I’ve noted before, what we badly need in this discussion is an answer to the question, where does the money go. It’s all well and good to have greater transparency about actual and nominal pricing but what remains opaque is who profits. Without knowing, folks fill in whatever segment of the system they don’t like for other reasons: insurers, drug companies, drug retailers, device makers, trial lawyers, even occasionally doctors! But how can one know whether collectively or individually we get our money’s worth unless we know who gets paid how much out of that $50,000 hospital bill?

    Memo to Steve Brill or someone: follow the money!

    • Kevin

      I disagree about profit. What matters is total price, not profit. Whether that price is composed of profits, waste and inefficiency, or the efficient cost of production does not matter. Further untangling profit at a systemic level is virtually impossible as it can always be hidden as a cost of a subcontractor. (This is why cost plus procurement leads to massive cost overruns – if the producer does not compete on price but only on profit they have no incentive to control price and a strong incentive to hide profits in costs.). Consumers need to know the price and be encouraged to choose, at least in part, based on price. This will encourage producers to find ways to lower cost as they seek to maximize profits. Competition is based on low prices, not low profits.

      • jeburke

        You’re right. I shouldn’t have said who profits because I mean literally where does the money go, not personal or corporate earnings. Most hospitals are not-for-profits highly dependent on government reimbursements but they mostly shroud their finances in a lot of fog.

    • NCMountainGirl

      As in education, in recent years hospital and clinic staffs have exploded with people who do not provide any patient care.

    • Corlyss

      Gosh. That sounds just like any political discussion of the last 40 years.

  • Jim__L

    Is the web of suppliers to build an automobile in America any more complicated than this? Isn’t modern business supposed to be fantastic at managing supply chains?

    Medicine just needs to catch up.

    • Corlyss

      Did you ever see The Hospital, with George C. Scott and Diana Rigg? It’s a black comedy send-up of the world of insurance-driven hospital behaviors and the revenge one lone nut job (played exquisitely by Barnard Hughes) takes on doctors by rendering them victims of the system created by the policies. Richard Dysart plays a venal doctor who gets his comeuppance eventually. In an early scene, he describes how he fought medicare as socialized medicine until he realized he could walk thru a ward in 15 min. and charge an examination fee for all the patients without ever laying a hand on them or speaking with them. I can’t imagine that sort of thing doesn’t still go on. A system that relies solely on the honesty and good will of all the players is just asking to be fleeced.

      • f1b0nacc1

        Such a wonderful film! For me the best part was Scott’s performance as a tortured administrator desparately trying to fix a system that was designed to be broken…

  • Jacksonian_Libertarian

    Knowing the price of common procedures will not help get prices down, if health insurance continues to pay everything beyond a co-pay. The consumer has to be forced to shop for the best price, and that means much of the money must come directly from the consumer, as with high deductible ($2k-$5k per year) catastrophic health insurance which Obamacare is trying to kill.

  • Boritz

    This is a classic cost accounting problem. Often Fortune 500 companies don’t know the costs of the various components of a product line, only the aggregate cost of the entire product line. If you want to increase profits 10% do you make more of A and less of B or vice versa? Without detailed cost information there is no way to know. Step one is to gather the raw data and it sounds like that isn’t going to happen.

    • Corlyss

      “Fortune 500 companies don’t know the costs of the various components of a product line”

      This seems hard to believe with the relentless computerizing of so much input-output info.

      Back in the day, DoD forced contractors to apportion overhead costs to every item equally, which resulted in the attractively notorious but the highly misrepresenting $500 toilet seats and the $75 hammers. If you mean it in that sense, i.e., deliberately skewed costs whose total reflects some legal- or policy-imposed fiction (of course the hammer didn’t cost $75 in the real world, only in the bizarre forced accounting world of Government contracts), I understand it. But if you mean they really have no idea of the component costs, I’m back to disbelief.

  • NCMountainGirl

    I’ve went through this in May. First it took several hours on the internet to decipher all the abbreviations. What I learned was most informative. There were several double charges and charges for medications never received. Then there was the $16 for one dose of an over the counter laxative after I told the nurse who asked that I hadn’t had a bowel movement that day. That’s the minor issue. The major one was how, even though I was admitted on a cardiac issue the hospital staff ordered a $160 abdominal x-ray. just to be sure I didn’t have a bowl obstruction.

    Individual doctors don’t get sued nearly as often as hospital do. Because of this once one steps foot inside a hospital the defensive medicine protocols kick in and the bills mount.

  • Anthony

    The selling of health care; a very timely and necessary policy discussion.

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