When I was growing up in Lexington, Ky., in the late 1970s, we used to go to an all-you-can-eat buffet called Duff’s. It was the cheapest restaurant in town. My father and mother ate for $2 apiece, my brother and I were charged $1, and my little sister, who was 3, ate free. After my father paid the cashier, we’d sprint over to the smorgasbord and fill our plates. We’d fill them again and again. If the fried chicken got cold, my father would tell us to throw it out and get more. We gorged; we took advantage; we were wasteful — because we perceived it as free. We’d eat so much that one of us would invariably get sick on the way home.
In many ways, Duff’s is like our health care system. Someone else appears to be paying for it, so who cares how much it costs?
To fight this, insurers continue to raise co-payments and deductibles, making us pay more in an attempt to reduce inefficient spending. But health care costs continue to rise. Recently, the agency that runs Medicare said that health spending would increase by 5.6 percent in 2014, 2 percentage points more than last year. Health care prices in the United States dwarf those of all other industrialized countries.
Some have advocated price controls. A better strategy is price transparency. Patients may be shouldering more of the burden of health expenditures, but they still don’t know what they are paying for. Requiring patients to have more “skin in the game” without giving them adequate price information is like making Duff’s customers pay à la carte but not telling them what the steak costs compared to the chicken. Without this information, they are bound to make bad choices.
Forcing consumers to shop blindly while requiring them to share costs is also fundamentally unfair. Cost sharing redistributes the burden of health care costs, particularly to low-income earners who often have high-deductible insurance plans, but does little to lower spending.
Price transparency, on the other hand, can remedy this. For example, in a study published last month in JAMA, patients in a health insurance plan were given access to a pricing website that calculated out-of-pocket costs for various medical procedures. The authors found that patients who used the website (searchers) spent 14 percent less for laboratory tests and 13 percent less for CT and M.R.I. scans than those who did not (nonsearchers). Notably, searchers in the study had spent more than nonsearchers before the website went up, indicating that they were no more frugal at baseline. Price transparency appeared to be the factor that drove the decrease in spending.
In another recent study in the journal Health Affairs, patients in five cities (mostly in the Midwest) were given information about how much an M.R.I. cost at different clinics, but were not penalized if they chose a more expensive option. Meanwhile, patients in nine other cities were given no such data. After two years, the average cost of an M.R.I. fell by $95 in those places where prices were provided but increased by $124 where they were not because of competition among different centers and more cost-conscious shopping.
Doctors, too, lack basic information about what health care tests and procedures cost. When I was a resident in New York City, we used to order patients’ weekend labs on Friday afternoons. Every patient on our ward would routinely get a complete blood count and an electrolyte panel (and additional blood tests as needed). With 60 patients, this added up to hundreds of assays every weekend. None of us knew that an electrolyte panel costs about $100, and no one ever thought to ask. But most patients don’t need an electrolyte panel or complete blood count every day. With a few drizzles of ink, we would spend thousands of dollars with hardly a second thought. Knowing the lab prices might have dissuaded our profligacy, but the hospital never shared this information with us.
Today, several states are demanding greater health care price transparency to protect patients. In California, for example, hospitals are required to advertise their charges for the 25 most common outpatient procedures. A similar law applying to health insurers was enacted in Massachusetts last month. Corporations are also pushing for more openness. The Safeway grocery chain, for instance, has provided prices for screening colonoscopies to its employees since 2009, resulting in a drop in the average price of the procedure by nearly 20 percent because employees, responsible for any excess charges, are shopping around.
Of course, price data has to be paired with quality figures so patients don’t make the mistake of equating more expensive care with better care. (In medicine, there is usually very little correlation.) We also have to guard against cost shifting, in which providers cut prices on services for which rates are available but charge more for services whose rates are not.
We are lucky to live in an era in which consumers enjoy great power and choice. Unfortunately, the health care industry remains a major exception. As doctors, we strive to provide information to our patients to help them make informed medical decisions. In today’s cost-cutting environment, it is only fair that we provide them the data to make informed financial decisions, too.