“An Educated Consumer is Our Best Customer:” Four Things to Know About Transparency In Health Care Prices, Costs and Quality

Nov 26, 2013, 10:14 AM, Posted by

Watch our December 6, 2013, FirstFriday Google+ Hangout archive on transparency in health care.

Panic about high health insurance premiums. Fears about high-cost health-care providers being cut out of health plan networks. Worries that the health plans now available through health insurance exchanges won’t cover the care that patients need.

Welcome to the rollout of Obamacare....right?

Actually, with the exception of the new health insurance exchanges, all of the phenomena described above have a long history. Similar concerns were voiced loudly in the late 1980s and 1990s, when “managed care” in health insurance became a dominant force on the health care and health insurance landscape.

What’s amazing to people who lived through both of these eras—then and now—is how little has changed.  

Health insurance premiums are relatively high now, as then, in large part because the prices and costs in U.S. health care are extraordinarily high.

Some health-care providers are being cut out of health plan networks because they are even pricier than others--with little if any data to back up their claims that they are providing care of superior quality to their lower-cost peers.

Consumers, meanwhile, are confused. Although some are embracing the lower-cost "narrow networks" offered by health plans, others worry that lower-cost providers won't provide the highest quality. The same consumers who might buy designer duds at outlet malls somehow feel jittery about discount health care.

Helping all of us understand what's driving high health care costs--and making the best choices about health insurance and health care as a result--is why we need more transparency in the prices, costs and quality of health care. Here are four things to know about the issue.

  1. "Transparency" means clear and accurate information, and having it is the key to an effectively functioning market. If there is information "asymmetry" in a given market--for example, if the seller knows more about the quality of a good or service than a buyer--the buyer may end up paying more for a product than is optimal (think about buying a used car as an example). The situation would be even worse if the buyer didn't know what the price was and only found it later, when the bill arrived. Yet that's the way much of the U.S. health care market works now--and as a result, patients or consumers and purchasers, such as health plans and large employers, often end up paying very high prices for health care of uncertain quality.
  2. U.S. prices for health care are far higher than prices in all other countries. "Prices are--when you look at the real numbers--the overwhelming difference between us and them," writes George Halvorson, the chairman and former CEO of Kaiser Permanente, in a forthcoming book, Don't Let Healthcare Bankrupt America: Strategies for Financial Survival.  Consider a simple appendectomy, for which many Europeans pay about $3,000, versus more than double that in the U.S.; even more startling, some U.S. hospitals and health systems charge nine times as much (see graphic below). What's more, it can be next to impossible for consumers to find out about prices ahead of time, with a few notable exceptions. In California, for example, hospitals by law now have to disclose prices for the 25 most common outpatient services or procedures.
  3. Despite what many U.S. consumers appear to believe--that higher cost institutions offer higher quality--there is no automatic correlation between the two. One study showed that hospitals that charged the most for sepsis care actually had the highest sepsis death rates (T. Lagu et al, Archives of Internal Medicine, 2011). Higher-cost institutions that imply that they must charge more than others often lack the quality data to back up their claims.  A recent Washington Post story noted that Seattle Children's Hospital was omitted from health plans competing in the Washington state health insurance exchange in large part because of its higher costs for providing care that could be purchased less expensively elsewhere. The story pointed out that a pediatric appendectomy at Children's costs $23,000, versus $14,100 at a nearby community hospital.
  4. When consumers are given clear information about costs and quality, they can make better choices about their health care. Judith Hibbard of the University of Oregon and colleagues have shown that presenting cost data alongside easy-to-interpret quality information--and highlighting high-value options--improved the likelihood that consumers would choose those options. And thanks to advances in quality reporting spurred in part by the Robert Wood Johnson Foundation's Aligning Forces for Quality initiative, consumers no longer need to make many health care purchasing decisions in a quality vacuum. For example, the Foundation's Comparing Health Care Quality: A National Directory, is an interactive tool listing 208 national, state and local public reports that can help consumers find reliable health care in their communities.                      

As Sy Syms, a pioneering New York discount retailer who died in 2009, used to say in television commercials for his chain of stores, "An educated consumer is our best customer." Transparency can help make all of us the kind of savvy health care shoppers of whom Syms--and maybe his doctor--would have been proud.

Appendectomy chart