In late 2020, CMS announced their new Price Transparency Initiative (PTI), which, according to their press release, aims to “[help] ensure every American knows how much their healthcare will cost in advance and allowing them to make fully informed and value-conscious decisions.” Okay. It sounds good enough: more information, better decisions, and eventually lower costs. Over the next four years, hospitals are supposed to make prices more transparent (2021), insurers are supposed to provide standardized files that include prices (2022), then provide online shopping tools (2023), and finally expand them to include all services (2024).
A few weeks ago, on Wednesday evening, I began experiencing moderate abdominal pain. It persisted through the night. I hoped it would resolve, but suspected appendicitis (my wife, bless her, was worried it was Covid). The following morning, the pain increased –suddenly, and a lot!– enough for me to go to the ER. In the next 30 hours I was diagnosed with appendicitis, admitted, had an appendectomy, ate especially bad hospital food, and was discharged. The cost of this unplanned long weekend was just over $46,000.
With that experience fresh in mind, and extrapolating from one data point, here’s why I wonder just how much the PTI will actually accomplish:
Who has time to shop?
When your abdominal pain goes from a 5 to an 8, you go to the nearest hospital. You don’t Google the hospitals in a 15 mile radius and start comparison shopping. In economic terms, this is price inelasticity, and it underlines the difficulties in using a market-based approach to tackle the price of healthcare. The supply of qualified surgeons and the price of procedures has no impact on my demand to have an unruptured appendix.
Pricing is a horror show
My curiosity got the better of me and I looked at the prices for two local hospitals. One only offered a CSV file, and that didn’t even include appendectomy. The other (the hospital I went to) required a name, birthdate, and insurance information to get a price. There should be some improvement, as the PTI legislation contains requirements for increased standardization and CMS has the authority to issue fines or withhold payments to hospitals that fail to comply. But without universal specifications or requirements, there will be variations and fragmentation.
Who even knows what they’re looking for?
The appendectomy accounted for about a third of my bill. Anesthesia, an inpatient bed, and a $5,000 CT scan made up most of the rest. But they don’t tell you that before you go in. How are people supposed to comparison shop the things they don’t know they’ll be charged for? Even if you could, the bundling of services limits the practical value of price shopping. And none of this considers what a patient’s insurance will pay for.
We do what we’re told
After discharge, I had a couple follow-up appointments scheduled for me. I went. Like most of us, I’ve had healthcare needs that involved referrals to other providers. I generally don’t question them, even though I’ve been in the industry long enough to know that shenanigans can occur. But among the general public –where the healthcare system is something of a black box and providers are given at least the benefit of the doubt, and often trusted implicitly– how many people can we really expect to push back as informed healthcare consumers?
Where the PTI could matter
One area where the PTI might have a sizable impact? Referral behavior. A recent study published in the Journal of Health Economics looked at physician referrals for MRIs. The patients in the study had an average of 16 options for MRIs, and on average, patients had 6 lower-priced options that were missed. Price comparison tools were available to patients, but less than 1% took advantage of them, which would seem to reinforce the idea that patients rely on their physicians to tell them what to do.
It’s unlikely that the physicians in this study were intentionally sending patients to get higher-priced scans (i.e. shenanigans), but if price transparency and especially comparison tools start to gain traction, what will that mean for the providers who are referring and those being referred to? Will patients expect their doctor to price shop for them? Or question the motivation behind the referral if the cost stands out? Likewise, will the providers being referred to find themselves focusing on price over quality of care or other attributes?
None of this is to say the PTI is bad. Increased transparency and availability of information is almost always a good thing and consumers should be empowered to make better informed decisions. The problem is in looking at this as a market problem; an efficiency that needs correcting. Lack of pricing information is not what is keeping patients from comparison shopping for their health care like they would for a car or a hotel stay.