Market forces cannot work in health care without price transparency

Today's guest blogger applauds Medicare's release of hospital fees but maintains the health care industry still has a long way to go to reach full price transparency. Let me know if you agree by sharing your thoughts in the comments. —Andrea Davis, Managing Editor

The variation in hospital charges uncovered in the data released by Medicare earlier this month is significant in its insignificance. As anyone who has worked in health care knows, pricing in the health care market is opaque and unmanageable. Hospital prices in particular, serving primarily as a tool for negotiations with insurers, have long been known to vary widely. Steven Brill described the nature of the hospital chargemaster in great detail in his Time magazine article a few months ago, including the fact that the only people that are asked to pay list price are the uninsured.

Back in the 1970s, Jack Wennberg began researching and documenting unexplainable variation in health care, including utilization and pricing. Now, the release of Medicare charge data has symbolic significance as a highly visible move that demonstrates CMS’ support for continuing the transition to more effective price transparency.

A few years ago, we started working with customers who wanted to provide members and employees with clear-cut information to support their decisions about which providers to see, even about what benefit plans to choose. Employees and members have responded favorably to using better information to help them choose the health plan that will best meet their needs — in fact, we are offering these same tools to health insurance exchanges, where consumers will soon be grappling with an array of plan options.

But choosing the ‘right’ health plan is just the beginning. For individuals to be informed consumers, they need to be able to compare prices for similar health care services. You can do this when you buy a car, or a house, or a pair of socks, but until recently it’s been almost impossible to compare prices for health care services. This is changing, gradually, as several states have enacted legislation to require price disclosure and some health plans have started sharing pricing information with members. This step is essential because consumers need some basic information before they can evaluate pricing for similar services from different providers, as well as their likely out-of-pocket contribution. 

When consumers’ own dollars are in play — and as rich benefit plans are becoming a thing of the past, consumers are shouldering an increasing share of health care costs — they pay attention to prices, and they use the information they can access. Absent effective price transparency, market forces cannot work in health care. We are chipping away at the barriers, and the Medicare data release is a positive step. We expect the momentum will become even stronger later this year, as more consumers begin to engage in their own health care decisions through the exchanges. But until we have complete, nationwide transparency on cost, including price data from health care providers and private insurance plans, it will be impossible to cure the U.S. healthcare system of its current ills.

Michael Taylor, MD, michael.taylormd@truvenhealth.com, is chief medical officer at Truven Health Analytics.

Do you agree? How are you tackling the issue of price transparency? Share your thoughts in the comments.