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Prices Prices Prices
Time to Stop Studying Price Transparency—and Start Implementing It

How many studies does it take to confirm that price transparency is good for consumers and good for the health care system as a whole? Apparently, at least one more. Yesterday the Upshot highlighted a study in the Annals of Surgery on price transparency and appendectomies. There are two different kinds of surgeries that doctors use to remove a child’s appendix. One is cheaper, but in general the outcome is the same for both. (The reason one costs more is because it is less invasive and leaves a smaller scar—but it is not more medically effective). The study found that when parents were given the choice between the two, and informed of the price differential, they went for the less expensive option:

The study offers a compelling case for price transparency combined with medical consumerism as one strategy that could help reel in the nation’s $2.8 trillion health care bill. […]

Dr. [Eric] Scaife [who was on the study] said one lesson for him is that doctors should tell patients the price of procedures, and hospitals should inform doctors of the amount they are charging for their services, which are often billed separately. He said the information from the hospital could be surprisingly hard for even surgeons to obtain because hospitals consider their price lists proprietary.

“Imagine I’m in clinic and I tell a parent I’m going to fix a child’s hernia, and they ask, ‘How much is it going to cost?’ And I have to say, ‘I don’t know,’ ” Dr. Scaife said. “That’s very strange, isn’t it?”

Yes, that is very strange—almost as strange as the fact that we are still in the process of learning this lesson. Some liberal paternalists want us to believe that consumers cannot think rationally about health care, given that it can often involve emergency conditions that overwhelm a person’s ability to bargain. That consumers respond to price signals is, however, common sense—and study after study has supported it. That most U.S. states nevertheless get “F”s in price transparency is a scandal.

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  • Boritz

    Ask a random car dealer “How much?” for a car on his lot and count the hours it takes to get a firm answer. The deal can be complicated massively by a trade in which is why a car salesperon’s countenance will fall dramatically when they receive a negative response to the question “You have a trade-in”? They want the transaction to be complex.

    When buying high-end servers from the people who sell them it can take hours or days for their price-analyst to determine how much will be charged. Among the factors they consider are what have you bought from us in the past and what kind of repeat business are we anticipating in the future. The actual hardware being purchased is merely one factor in the pricing model.

    There is no literal price tag affixed to things that are complex because complexity works in favor of the seller and they aren’t going to give away their hand by making it easy and cheap for the consumer. If they are forced to list a price expect it to be high.

  • Andrew Allison

    Whilst agreeing wholeheartedly with the thrust of the post, the simple fact is that a surgeon can’t know what a procedure will cost. He or she should be able to provide an estimate for a routine procedure, with the caveat that it assumes that the procedure is routine. However, I had a minor surgical procedure earlier this year for which the ancillary (facility) costs were three times those of the surgeon and anesthesiologist combined, and which the surgeon had no way of knowing. Only the entity issuing the invoices has that information. It will come as no surprise, incidentally, that the facility accepted Medicare reimbursement of about a third of the amount billed as payment in full.

    • Boritz

      Right. Medicine is not the discipline that ascertains costs. That is the job of accounting and cost accounting in particular. I don’t want an accountant to perform surgery so the doc is excused from expert accounting duties. But look at the Wikipedia definition of cost accounting and it belies a secretive and, for the organization, a self-interested mission not necessarily in the best interest of the consumer.

      Cost Accounting is an internal reporting system for an organization’s own
      management for decision making. -Wikipedia

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