What To Do With Transparent Pricing In Healthcare

By Dan Munro

The snowball started with Steve Brill’s epic Time cover story, “Bitter Pill” (subscription required). In some ways, it’s been an avalanche ever since, and the whole topic of pricing transparency in healthcare has become front-and-center to the much larger healthcare debate. In many ways, I think we’ve made more progress on healthcare pricing transparency this year than the preceding 10 or maybe even 20 years.

Until recently, we’ve all been held captive to a system that had no real obligations and refused to openly share the cost of any service or procedure with us as patients. Walk into any of America’s 5,000+ hospitals and ask the cost for a full knee replacement. At best, you’ll get a quizzical stare. At worst, you’ll be asked, “How much you got?”

According to this 2013 study from Brigham and Women’s Hospital, there are about four million Americans living with a total knee replacement, and we average more than 600,000 full knee replacements per year. How can anyone, anywhere –with any remote credulity– say that we either don’t know or can’t tell you the cost of this high-volume procedure? The corollary would be like saying that McDonalds hasn’t the foggiest idea of their cost for a potato, bun or meat patty, and that we’re not allowed to know the price of a hamburger until after it’s served. It is laughably absurd, except that it’s all so tragic and represents (in aggregate) about 18% of our GDP.

Until fairly recently, the U.S. healthcare system has been perfectly content to revolve around the employer as benefits provider and the innocuous and relatively small patient co-pay. Even after full implementation of the Affordable Care Act, the bulk of Americans (about 48%) will continue to get their health coverage through their employer. Another 27% will continue to get their health coverage through Medicaid or Medicare. Those two groups alone represent about 75% of the U.S. population (~ 321 million in 2016).

Dan Munro will moderate a live, online Great Challenge discussion about transparency in health care pricing on Thursday, October 10 at 2PM ET.  Find out more here.
Dan Munro will moderate a live, online Great Challenge discussion about transparency in health care pricing on Thursday, October 10 at 2PM ET. Find out more here.

Brill’s article definitely sent shock waves through the $3.5 trillion healthcare industry, but it was anecdotal evidence. It wasn’t really indicative of a systemic problem. Like Mayor Vaughn in the movie Jaws, we found it too easy to say “a few bathers were injured” and that the small beach community of Amity was not infested with a man-eating shark. “Amity, as you know, means friendship.”

All of this lurched another big step forward earlier this summer when the Government released payment history for 100 procedures at more than 3,000 hospitals around the country [Government Drops Big Data Bombshell On Hospital Industry].  The Washington Post included a revealing chart of charges at two hospitals in Florida that are literally fewer than 2,000 feet apart.

The evidence was clear, and now voluminous, accumulated over several years from about 60% of the hospitals in the U.S. There was simply no discernible logic to acute care pricing. It wasn’t state, regional or even local; it wasn’t an inpatient versus outpatient facility and it wasn’t a different procedure. In other words, there was no reason for such a wide variation in cost.As a contributing factor, something else also kept happening year after year. The cost of insurance for access into the healthcare system kept escalating. Then the actual benefits started to be less generous. Deductibles kept increasing. Services like dental, vision and mental health were completely stripped out and companies were still choking on their annual commitment to employee health benefits. This scene – as described by one CEO – played out faithfully for many employers – each and every year.

“When an employer sits down with his health care providers – the broker, the health plan, the physician, the hospital, the drug and device firms – everyone in the room wants it to cost more – and they’re all positioned to make that happen.” Lynn Jennings – CEO of WeCare TLC – Top Ten Healthcare Quotes for 2012

Even big, bellwether companies like Microsoft began to buckle under the toll. For the first time in its storied history, the global software giant could no longer simply extend rich healthcare benefits without an employee contribution. At a surprise “town-hall” style meeting in 2010, Microsoft informed its sizable employee base and then released this statement.

We can confirm that Microsoft has begun to evolve its employee health care benefit. There will be no changes for the next two years, but in 2013, employees will contribute to their health care.”

That’s the backdrop. But the scenario is changing rapidly. Today, there are a host of new companies like Castlight Health, PokitDoc, and Clear Health Costs that have jumped in to fill the void of healthcare pricing. Castlight Health, founded in 2008, is arguably the oldest and could easily be one of healthcare’s next IPOs. In the course of about five years it has raised over $180 million in venture funding. Castlight isn’t really a B2C solution as much as a B2B (employer/employee) one, but there are others targeted directly at all of us as patients.

The questions and challenges, however, cascade quickly from there.

  • What is the larger objective? For healthcare to mirror a consumer-centric, retail model?
  • What value does pricing alone have when it’s untethered from either quality or affordability?
  • As a consumer I’m definitely motivated to find the best healthcare I can, but what if it’s way beyond my reach financially?
  • Will this spawn a kind of healthcare lending industry like education and mortgages?
  • What real difference, if any, can pricing make in an emergency situation? NB: Hospital admissions through the ER represent about 50% of all hospital admissions (here)
  • In healthcare, demand will always exceed supply. Are we, in fact, building unrealistic expectations around the capacity of transparency alone to lower pricing?

A few things are becoming crystal clear. As evidenced by this banner headline in the Wall Street Journal last month, “Walgreen to Shift Health Plan for 160,000 Workers,” our healthcare system is moving away from a defined benefit model of healthcare coverage to a defined contribution model. In that model, more choices will become available, and served with consumer convenience, including price. That price may be untethered from quality (or personal affordability), but it will be transparent. The last remaining question could well be: What do we do with it?

Dan Munro is a freelance writer and Contributor at Forbes. He writes regularly about the intersection of healthcare IT, policy and innovation at Forbes.com. Read more from him here, and follow him @danmunro.

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