Important: Uwe Reinhardt on health care price transparency and economic theory

JAMA
October 22/29, 2014
Health Care Price Transparency and Economic Theory
By Uwe E. Reinhardt, PhD

Citizens in most economically developed nations have health insurance
coverage that results in only modest cost sharing at the time health
care is used. Furthermore, physicians, hospitals, and other clinicians
and entities that provide health care within most systems outside the
United States are paid on common fee schedules uniformly applied to all
clinicians, health care organizations, and insurers. That approach
spares the insured the need to seek out lower-priced health care and
obviates the need for transparency on the prices charged by individual
clinicians and organizations that provide health care.

Not so in the United States, where every private health insurer
negotiates prices with every health care practitioner and organization,
where large public health insurance systems such as Medicaid and
Medicare pay fees that do not cover the full cost of treating patients
covered by these programs, and where uninsured, self-paying patients can
often be asked to pay whatever can be extracted from their household
budgets, sometimes with the help of debt collectors and the judiciary.
Economists call the approach price discrimination, which means the
identical service is sold to different buyers are different prices.

This approach to pricing health care has led in the United States to a
system in which, at one end of the spectrum, hospitals and physicians
are expected by society to treat low-income patients free of charge, on
a charitable basis, or for modest fees that do not cover the cost of
those treatments and then to finance that informal catastrophic health
insurance system for the poor out of the other part of their enterprises
that they can operate as profit-maximizing business firms. This is true
even in some of the large segment of institutions referred to as
not-for-profit. The harsh excesses that this quest for profits in health
care can unleash—even among not-for-profit hospitals—have been well
reported in various articles in the popular press.

Private employers in the United States have played a pivotal role in the
evolution of this system. They hired as their agents in health care the
private insurers who helped put that system into place, and they
supported it. To gain better control over the growth of their health
spending, employers have of recent resorted to a technique long
recommended to them by the market devotees among health economists,
namely, putting the patient's "skin in the game," as the jargon goes. It
is done with health insurance policies imposing on the insured very high
annual deductibles before insurance coverage even begins, followed by
significant coinsurance, perhaps requiring patients to pay 10% to 20% of
every medical bill, up to a maximum total annual out-of-pocket
expenditure that can potentially exceed $10 000 for a family.

This approach of shifting more of the cost of employment-based health
insurance visibly and directly into the household budgets of employees
amounts to rationing parts of US health care by price and ability to pay
and delegates the bulk of the hoped-for belt-tightening to low-income
families. Because the word rationing is anathema in the US debate on
health policy, the strategy has been marketed instead under the
felicitous label of consumer-directed health care, presumably designed
to empower consumers in the health care market to take control of their
own health care. However, this strategy, based mainly on economic
theory, so far has put the cart before the horse.

In virtually all other areas of commerce, consumers know the price and
much about the quality of what they intend to buy ahead of the purchase.
This information makes comparison shopping relatively easy and is the
sine qua non of properly functioning markets. By contrast,
consumer-directed health care so far has led the newly minted consumers
of US health care (formerly patients) blindfolded into the bewildering
US health care marketplace, without accurate information on the prices
likely to be charged by competing organizations or individuals that
provide health care or on the quality of these services. Consequently,
the much ballyhooed consumer-directed health care strategy so far has
been more a cruel hoax than a smart and ethically defensible health policy.

http://jama.jamanetwork.com/article.aspx?articleid=1917413

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JAMA
October 22/29, 2014
Association Between Availability of Health Service Prices and Payments
for These Services
By Christopher Whaley, BA; Jennifer Schneider Chafen, MD, MS; Sophie
Pinkard, MBA; Gabriella Kellerman, MD; Dena Bravata, MD, MS; Robert
Kocher, MD; Neeraj Sood, PhD

Conclusions

Use of price transparency information was associated with lower total
claims payments for common medical services. The magnitude of the
difference was largest for advanced imaging services and smallest for
clinician office visits.

http://jama.jamanetwork.com/article.aspx?articleid=1917438

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Comment by Don McCanne

In a JAMA editorial commenting on an article about price transparency
and health care spending, Uwe Reinhardt first describes the ridiculous
system we currently have, concluding, "the much ballyhooed
consumer-directed health care strategy so far has been more a cruel hoax
than a smart and ethically defensible health policy."

He then discusses the article by Christopher Whaley and his colleagues
in which they describe price savings resulting from health care price
shopping: an average of a mere $1.18 for clinician office visits, $3.45
for laboratory tests, and a more impressive average savings of $124.74
for advanced imaging services.

Imaging aside, think about that one dollar saved by shopping office
visit prices. Does that one dollar really pay for the labor involved in
price shopping, much less the additional transportation costs and other
inconveniences of going to a different doctor, not to mention the
disruption in care provided by a primary care medical home? Not exactly
a shopper's paradise.

Even the more significant savings in advanced imaging can have drawbacks
if it results in non-coordinated care outside of a system functioning as
an integrated unit, whether or not it is technically a single integrated
health care entity.

But what is really important here lies in Uwe Reinhardt's comments. As
he states, "other clinicians and entities that provide health care
within most systems outside the United States are paid on common fee
schedules uniformly applied to all clinicians, health care
organizations, and insurers. That approach spares the insured the need
to seek out lower-priced health care and obviates the need for
transparency on the prices charged by individual clinicians and
organizations that provide health care."

Other nations pay the right amount to sustain he system, without the
waste of overpaying some nor the threat of inequitable access caused by
underpaying others. No matter how much price transparency we have in the
United States, our highly dysfunctional, fragmented system of financing
health care will never get pricing right.

Yes, we need a single payer national health program. Under such a system
the pricing would be transparent to our public administrators, and who
better could determine whether or not the price is right? We surely can't.