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Prices Prices Prices
Newsflash: Price Transparency Works, Really

The problem posed by rising health care prices can seem agonizingly complex, but one part of the solution may actually be quite simple: telling people how much services cost. Vox profiles the results of an experiment conducted by Blue Cross Blue Shield over the last two years. Researchers looked at MRI scans, a basic procedure. They gave consumers in some cities advance data about how much an MRI cost at different area health care providers, while withholding that information from consumers in other cities. Here’s what happened:

Just providing the data proved to be powerful: in the course of two years, the average price per MRI fell by $95, according to data published in the journal Health Affairs. Prices at hospitals that didn’t post charges rose by $124 […]

This was mostly the product of consumers shifting their business to the less expensive MRI options, rather than the prices falling.

The transparency did, however, reduce variation in prices. Hospitals, for example, typically charge more for MRI scans than imaging that happens in a doctor’s office or free-standing center. But in the intervention cities, they started lowering their prices to be more similar to the doctor office MRIs — while doctor offices inched their prices upwards a bit towards the hospital rates. All together, price variation fell by 30 percent in the intervention cities.

This experiment highlights a fundamental point: Markets that empower consumers eventually bring down costs. Not always, not perfectly, but they tend to work in this direction. People may not always be rational, but if they are given access to price information they can compare different care providers and choose the less expensive one. As the NYT story on the experiment points out, copays pushed some of the people in the study to choose cheaper options (if the copay is fixed at 20 percent of the overall cost, most people will look for the cheaper option); others chose better value on principle. And most importantly, a similar study conducted several years ago gave the same information to doctors without seeing any meaningful downward shift in prices. When it comes to managing expense, patients tend to be better at it than doctors.

One of the very first goals of any meaningful health reform has to be getting that information to consumers, and removing any barriers that make providers unresponsive to consumer demand. The more we do to bring down costs in the near term, the easier any subsequent, long-term reform becomes.

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  • FriendlyGoat

    Yes, yes, yes, yes, yes!!!! Perhaps the biggest key to reducing health care cost is unrelenting publicity of the eye-popping prices. The retail prices, AND the secret prices agreed between providers and networks/insurers. The drug prices. The surgery prices. The hospital “charge master” prices for an aspirin or a saline IV bag. ALL of the prices 24/7/365.

    But before the conservatives and libertarians imagine that a “free market” will accomplish this, consider that we’ve been waiting DECADES for this to happen with almost NO progress. We have had a “free market” in the seventies, and eighties and nineties, and the first decade of this century—-all with the secrecy culture firmly entrenched

    Here’s the deal. Only the demands from a very, very, very liberal government will ever get the prices into really clear view. No one else can marshal the authority to force disclosures of this “proprietary trade secret” information—–and you can bet that everyone in the medical businesses will be telling you all the reasons it can’t be done FOREVER AND EVER. Too hard. Impractical. Unconstitutional. Against the principles of “freedom”. Violates “privacy”.
    You name it, they’ll throw it at you (us).

    We’ll double-pay in America until we get it done.

    • Breif2

      “Yes, yes, yes, yes, yes!!!!”

      I thought you’d like it. 🙂

      While I’m often in disagreement with your economic views, I fully agree with you on this. It’s difficult to think of a more justified intrusion in the free market. It’s a pity (to put it mildly) that price transparency was not passed by the Dems instead of / along with the ACA, and I’m disappointed that the GOP is not loudly banging this drum.

      • FriendlyGoat

        You know, given how much of our national medical costs have been paid by the incorporated business community through the group plans for employees all these years, it’s surprising to me that the larger non-medical business community has not been able to better control the medical business community. But they haven’t.

        Years ago, I spent a couple of decades helping to manage a medical plan for hundreds of employees and their families at a private-sector employer. For the first ten years we bought insurance and then we went self-funded with a third-party claims administrator. It was during those days that I developed the view that a single-payer plan could have been the best-possible boost to small businesses everywhere. Republicans never agreed, and, to this day, I don’t know why not. A single-payer plan would have absolutely vaporized the price secrecy a long time ago—-which is the key to lowering costs.

        • Andrew Allison

          “It was during those days that I developed the view that a single-payer plan could have been the best-possible boost to small businesses everywhere.” is the first truly rational thing I’ve seen you write. Public health insurance (not delivery) is the only possible way that we can afford to deliver basic heathcare to all. It is absolutely asinine that we are giving private insurance companies 25% or more of the premium dollar for a function which Medicare delivers for about one-fifth of the cost. ACA, written by the healthcare industry and passed by bought-and-paid-for Democrats should be renamed the Health Insurance Benefit Act, as evidenced by this year’s rush to the ACA trough and the stock prices of the beneficiaries.

          • FriendlyGoat

            So why are the conservatives and libertarians famously “somewhere else” on this? Does anyone think Nancy Pelosi and Harry Reid would have said “NO” if the Republicans had walked into Congress in 2009 and said, “Hey, we want to work with you on something like Medicare For All—-for the sake of YOUR “people” and OUR “businesses”?”

      • Andrew Allison

        You confuse the small impact of the responsible few with that of the irresponsible majority who don’t understand that at the end of the day they pay the extra costs via deductibles, co-pays and premia.

    • Andrew Allison

      More knee-jerk nonsense from the left wingbat. What would really reduce costs is not telling the insured (who don’t pay them) relative costs, but requiring them to pay the difference between the preferred and the least costly provider.

      • FriendlyGoat

        Did you just say below that the taxpayer is on the hook for 97% of your costs while you post inconsistent rants and insults?

        • Andrew Allison

          A bit rich coming from somebody who does (almost) nothing but post incoherent rants and insults. You obviously have a reading and comprehension deficiency, probably resulting from the dark blue glasses through which you view the world. Your response is completely irrelevant to my comment, and the other comment to which you refer states my opinion that the ACA subsidies are crazy.

  • Andrew Allison

    Price transparency has a rather small effect unless/until the consumer actually has to pay for the service, which doesn’t happen for the insured.

    • rheddles

      One step at a time. For some this was a revelation.

    • Boritz

      Not to mention people who gravitate to the highest priced solution because they are convinced it must be the best and if insurance is paying for it, well…

      • Andrew Allison

        Argument for high deductibles, and co-pays based on the cost of the service rather than a fixed amount?

  • Jacksonian_Libertarian

    “This experiment highlights a fundamental point: Markets that empower consumers eventually bring down costs. Not always, not perfectly, but they tend to work in this direction.”

    “Not always, not perfectly” What a blatantly untrue statement without a shred of evidence to back it up. In even the limited exposure to prices in the example, prices dropped, and I guarantee it wasn’t just because people went to the cheaper services, the overpriced services were forced to lower their prices as well to hang on to some business. Socialism will never be competitive with free markets, because free markets have the “Feedback of Competition” which forces continuous improvements in Quality, Service, and Price.

  • stevewfromford

    And, of course, the Obama health policies go in exactly the opposite direction of more transparency as the left opts for more and more mandated free stuff.
    What a shocker,eh? One need only look to what the policy position of Obama and the Democrats is to know exactly what should NOT be done in nearly every occasion.

  • Fat_Man

    I think I was part of this experiment. About 4 years ago I was having a skeletal pain problem that was very difficult to treat. My doctor asked me to have an MRI, but I resisted because they were very expensive, about $1200 for the one she ordered, and I had a very high deductible policy from Anthem. Finally, I caved on the MRI because the pain was bad and treatment didn’t help.

    Anthem called me and told me about a clinic where I could get an MRI for $400. So, I went there. It was fine. The place was brand new. It was very clean and the staff was very pleasant. Not only that, but it was a block from one of my favorite restaurants. So i had a good lunch afterwards. My doctor changed my diagnosis and successfully treated my pain. Happy ending:-)

    The lesson for the system is that we need a lot more competition and price transparency.

    • Andrew Allison

      That’s really interesting. Would you be so kind as to share a bit more detail, i.e., how did you discover the cost of the MRI ordered and how/why did Anthem get involved? Another lesson from your story is that doctors apparently, and understandably, don’t care about the cost of the procedures ordered. I wonder whether the ACA high-deductibles will incent people to shop around for none-urgent procedures?

      • rheddles

        Why should the doctor care about the cost of procedures? They aren’t paying for them. That’s why patient’s don’t care, either. Only the insurers care, and they have the least at stake. Return to the indemnification insurance system and make the patient pay.

        • Andrew Allison

          As I wrote, there’s no reason for the doctor to care about cost. Having the patient, rather than the service provider, pay for (routine) service and deal with the insurance company would not only bring home to the patients the cost, but relieve the service provider of the expense of the insurance processing overhead, rumored to represent as much as 25% of small-practice costs. There would need to be a maximum direct payment amount (aka deductible) to protect against catastrophic expenses.

      • Fat_Man

        “how did you discover the cost of the MRI ordered”

        I knew from previous experience how much MRIs cost in local hospitals. But Anthem called me and gave me the information. Apparently, I was part of the experiment described above. I was thrilled to save $800.

        “that doctors … don’t care about the cost of the procedures ordered.”

        Actually, I have found them to be concerned, but not to be well informed about what their clinic is charging.

        “I wonder whether the ACA high-deductibles will incent people to shop around for none-urgent procedures?”

        I think we need more price transparency for shopping to occur. I think that Insurance companies are a logical source of this information, but I am sure that their hands are tied by their contracts with the hospitals. The government should make contractual restrictions on price disclosure invalid.

        • Andrew Allison

          Thank you. I’m still curious about what instigated the call from Anthem, i.e., how did they know you needed an MRI? Did they require pre-clearance even though the cost of the procedure was, presumably, less than your deductible? Requiring pre-screening for non-emergency, non-routine treatment would certainly be one way to increase transparency.

          • Fat_Man

            Anthem, and I think most other insurance companies requires pre certification for non-emergency imaging.

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