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Will Price Transparency be Enough to Change Behavior?

Robert L. Wambolt, MBA
RLW Consulting, East Providence, RI

Industry studies often show statistics stating that having access to healthcare prices could significantly reduce healthcare spending across the United States. However, there are also studies which show that in states where hospitals were required to publish charges; there was relatively little change in consumer behavior. Take the many studies and projections that continue to be published, and then consider an ever-changing payer and insurance marketplace and it becomes anyone's guess as to what price transparency will or won't do.

A COMPLEX SYSTEM

Unfortunately, purchasing healthcare services is not like buying a new car—or buying just about anything else for that matter—where it is relatively easy to obtain understandable, useable data and information to make an informed decision about purchases. If you were to pick up the Consumer Reports New Car Buying Guide, you would have a lot more practical information about purchasing a new car than you would ever find to make an informed decision about where to purchase healthcare services. With healthcare, consumers are primarily concerned with cost, quality and outcomes. Let's start with the "chargemaster” (full-retail price), then the contractual adjustments, then co-pays, deductibles, etc. We may also have both facility charges and professional fees to add to the mix. If charges originate from multiple providers, more complexity is thrown into the scenario. Let's not forget about different reimbursement methodologies based on insurance plans (discounted fee-for-service, case rates bundled payments, etc.).

PRICE AND QUALITY CARE

Consumer-driven marketplaces tend to assume that higher prices equate to higher value. For example, in the same marketplace, a house valued at $800,000 will tend to have a higher value than a house valued at $400,000, a car valued at $50,000 tends to be nicer than a $20,000 car, etc.; but you can't make that assumption with healthcare services! In other words, a $40,000 hip replacement will not necessarily provide more value that a $15,000 one. In fact, the $15,000 hip replacement could actually have better outcome for a lower price. Consumers have been accustomed to higher cost equating to higher value, so understanding how the healthcare marketplace works involves a steep learning curve.

DATA AND MORE DATA

Statistics and data analysis can provide consumers with useful information, however, it needs to be easy to obtain and understand, much like picking up a copy of Consumer Reports prior to buying a new car. The problem with a lot of the statistics available is that data can be made to say pretty much anything the source wants it to by just leaving important information out, or only telling half of the story. College ratings come to mind where one publication has a college rated in the top 10 percent category and another publication has that same college ranked as number 64? There is also a problem on how various providers classify data. Uniform standards of measure are needed so that data is not subject to each provider’s interpretations. For example, when we file our income tax returns, the categories are well-defined. There should be no discrepancies between what I classify as earned income verses what someone else classifies as earned income. Earned income is well-defined. In healthcare, when trying to compare something as simple as, say, the cost to collect a claim between two facilities, you often get an apple-to-orange comparison, since one facility may include a percentage of fixed costs as part of their calculation while another doesn't, etc. Then we also have to look at who is providing the data. Is it coming from an already overworked staff accountant that may not be so concerned with accurate reporting?

Healthcare reform was designed to look at costs verses outcomes, and to drive out inefficiencies, but can the data available clearly show which organizations are doing the best job?

WHO IS PAYING ANYWAY?

If we want price transparency to change the behavior of consumers, we need to look at who is paying the bill. This is where I see a big stumbling block with relying on price transparency to lower healthcare costs. If it wasn't for consumer-driven healthcare (costs being shifted to patients via high-deductible plans), price transparency would be irrelevant since consumers are only concerned with what they have to pay. Do we really think that if the consumer only has to worry about paying a $10.00 co-pay and a small yearly deductible that he or she is going to care what provider is the most-cost efficient? Under this scenario, convenience and referrals usually drive consumer behavior. The fact is that the majority of healthcare costs are still being paid by insurers or government payers. Even with high-deductible plans, it is usually the provider that ends up taking the hit with unpaid co-pays and deductibles.

Providers do not want the negative publicity associated with chasing the patients for what they owe. Also, many consumers believe that if they have insurance, that is all they need, and they should not have to pay additional costs. Industry professionals realize that all insurance plans are not the same, and many employers are switching to higher deductible plans to save money, but their employees may not be well-informed or may not understand the impetus for that change. It is much easier for an employer to choose this route than to tell employees that the company can't afford a 50 percent premium increase so they will need to pass that cost along to them to keep the plan that has a low deductible and co-pay.

OUTCOMES

Consumers will spend hours searching to save a relatively small amount of money on the purchase of a big screen television or a piece of furniture. For those purchases, consumers are paying 100 percent of the bill. Also it’s very easy to analyze this type of purchase. For example, a Sony XYZ model is $1,200 at one store and $999 at another store. The savings are obvious.

Just like in retail, consumer demand is forcing healthcare providers to be more open to sharing pricing for the care they provide to patients. 

When healthcare providers make pricing more readily available to consumers, will consumers be willing to select one physician to perform a procedure over another because of pricing? Pricing transparency may be a catalyst to drive new patients to different physicians and facilities, however, providers will still grapple with savvy consumers who end up unable to pay their bill and eventually having it written off to bad debt. Under those circumstances, transparency of pricing will not have the impact that healthcare pundits have projected.


Robert L. Wambolt, MBA, is an independent consultant with over 20 years of healthcare financial management experience. Mr. Wambolt's clients include organizations facing rapid change, limited resources and a lack of in-house expertise to address challenges. Mr. Wambolt also provides interim leadership and financial expertise at a fraction of the cost of internal resources. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..


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