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The Price is Right

How greater transparency can help fix our health care system.

Fifteen years ago, when I was a relatively young freelance writer with no health insurance (one of “the immortals,” as this group is sardonically referred to by medical professionals), I was being bothered by an ankle injury I’d suffered several years earlier. I made an appointment with a local orthopedist specializing in foot and ankle problems, hoping for some simple advice on how to make it hurt less. After filling out a form indicating I had no insurance, I handed it to the receptionist and asked her what the visit would cost. She said she didn’t know.

I saw the doctor anyway. He immediately wanted to take x-rays, which he did right there in his office, and, after reviewing them on the spot, told me I’d need surgery to remove bone deposits if I ever hoped to feel better. On my way out, the receptionist presented me with a bill for nearly $800--enough to set me back for months. 

I never did get the surgery, and am doing fine today. But this is more than a story about medical excess. I relate this story because the lack of upfront information that I received regarding the cost of my doctor’s visit is fairly representative of the way medicine is dispensed throughout the United States. A recent survey sponsored by America’s Health Insurance Plans (an umbrella group representing U.S. health insurance companies) found, among other things, that U.S. health consumers typically have little idea in advance what any given out-of-network medical service is going to cost. “It’s the wild, wild West when it comes to prices of anything in the U.S. health care system,” Dartmouth health economist Jonathan Skinner told The New York Times in an article about the survey.

One of the reasons people pay so much for health care is that average people are not told what their fees will be at the time of service. And even if a patient takes it upon himself to ask, getting the full answer is far from easy: He can usually find out the basic charge for an office visit--but what about a scan or a lab test? And how about the cost of those prescription medications being swiftly scribbled down? Most likely, the doctor or his or her staff will tell the inquisitive patient he has to wait for his insurance statement--or worse, the bill--to arrive in the mail.

In 2007, the United States spent a total of $2.2 trillion--16.2 percent of our GDP, or about $7,400 per resident--on health care, more than three times what we spent in 1990. Of that, some 12 percent is paid directly by consumers--almost $900 per year for every man, woman, and child living in America. And still we do the equivalent of ordering a meal or driving a new car off the lot with no idea of the price. Why, in a nation where people scour the Internet and sales outlets for the best deals on everything from underwear to stereo equipment, are Americans consistently willing to purchase one of the costliest items on our national shopping list without ever asking how much it will set them back?

While the national debate over health care reform boils and bubbles, I have a simple proposal that I believe can help contain rising health care costs without requiring any changes in the way health care is delivered and paid for: Require our nation’s medical care providers to publish a complete price list for all their services, procedures, medications, and tests. This price list would be required of all doctors, hospitals and emergency departments, consulting specialists, freestanding radiology labs, visiting nurse services, physical therapists, and any other institution involved in providing health care services.

Such a list would ideally include the base fees charged to consumers for services that aren’t fully covered by insurance, including in-house care and the costs of all tests that are outsourced to testing laboratories, as well as the discounted fees for these same services that have been negotiated with various insurers (including Medicare and Medicaid). And since insurance companies typically reimburse out-of-network fees only up to 70-80 percent of what the company calculates is the “reasonable and customary” charge for a service, insurance companies would also have to disclose these limits to their policyholders. (Some insurers already make this information easily available.) Armed with these two numbers--the cost of service and the limits of the insurance reimbursement--the patient could calculate his out-of-pocket expenses before incurring them. Patients and consumer groups could also evaluate the fairness of “reasonable and customary” limits, which insurance companies have often been accused of setting too low.

Emergencies are more complicated, of course, but in cases where a posted price isn’t readily available--such as when a specialist is called into an emergency department, or a doctor makes an on-the-spot decision to prescribe a certain medication--there should also be a requirement to verbally inform any potential patient, in advance, of what a certain procedure or medication will cost. This would help avoid the sort of situation described in the Times article, in which a plastic surgeon ambushed a family with a bill for $6,000 after putting three stitches inside a young boy’s mouth during an emergency-room visit.

What we’re talking about here, in short, is complete transparency in health care pricing--the same transparency you get with any department store catalogue or online vendor. It would mean that, prior to getting a CT scan of that aching hip, your physician would give you a handout explaining the charge for the scan, along with a summary of the research data on the scan’s effectiveness in cases like yours--then give you the option of proceeding with it or not. And it would mean that as you prepare to enter the hospital for a three-day stay, you would get an e-mail with a detailed breakdown of what you could expect to be charged for medical supplies, specialists’ fees, medications, daily room and board, and so on--followed by another e-mail from your insurance company outlining how much of this would be covered and what your out-of-pocket costs would be.

This approach would accomplish several things. First, price transparency would avoid the “sticker shock” that’s a common feature in stories about people who have been impoverished by health care expenses. Knowing the detailed cost breakdown of an impending medical procedure--including exactly what your own out-of-pocket costs will be--might or might not cause you to rethink the types of services you avail yourself of. But at the very least, it would allow you to begin planning in advance how you would handle the financial impact.

Second, some advocates of greater price transparency hope that these effects would help lower overall health care costs by making consumers more “price sensitive” and turning them into more careful shoppers, which might, in turn, pressure health care providers to price their products more competitively (though, since only 12 percent of U.S. health care expenditures come directly out of consumers’ pockets, the cost containment benefits would be somewhat limited).

I think the biggest benefit of transparency, though, would involve something more subtle and more pervasive: By making the full details of the U.S. health care cost structure available to public scrutiny, it would, at last, create a truly open marketplace for health care, in which the pricing policies of medical institutions and the reimbursement policies of insurers would be laid bare for the entire community to sift through, analyze, and debate. The vaunted “free market” would finally be visible to all--something that should appeal to public-option and free-market types alike. (Health care free-marketer John Mackey, CEO of Whole Foods, recently published a widely quoted op-ed in the Wall Street Journal outlining his alternative to ObamaCare. His fifth recommendation was “Make costs transparent.”)

In the short term, full and advance price disclosure probably won’t change the fact that a week in an ICU costs a small fortune, and it may not make your child’s trip to the emergency room any cheaper. But it will allow everyone--consumers, academics, corporate HR departments, and health care providers themselves, not to mention the army of bloggers, pundits, and other interested individuals--full access to information on our nation’s health care costs at its most granular level. And this is a necessary starting point if we really want to have a full and honest national debate on how to contain health care costs.

Royce Flippin is a freelance journalist who specializes in health, politics, and social policy. He is the series editor of the annual anthology Best American Political Writing, published by PublicAffairs Books.