Health care prices vary tremendously from one hospital to another, and from one region to another. While it is not uncommon for prices to vary in consumer markets, there is usually a reason. For instance, a cold beverage from a convenience store by the highway is more expensive for a reason – namely convenience – compared to the same beverage on a shelf at room temperature at the local grocery store. In addition, the difference in price is probably not a multiple of one versus the other. Not so with medical care, as USA Today reports:
Want a total knee replacement? It can cost as little as $12,870 or as much $101,527. An ankle replacement? An Austin, Texas, hospital charges $22,011 while a New Jersey hospital billed more than $197,000 for the same operation. These wide price swings can leave insured consumers with big bills, loans and medical debt.
One study by Johns Hopkins University found prices of X-rays and CT scans varied more than 10-fold nationwide. The study found prices for the same scan in the same hospital nearly tripled based on different plans from the same insurance company, said Ge Bai, a Johns Hopkins University professor of accounting and health policy and management.
Rice University’s Baker Institute compared prices of three Houston hospitals and found large price differences negotiated by three health insurers: Blue Cross Blue Shield of Texas, United Health and Humana. The biggest price gap: an overnight stay covered by a Humana PPO plan ranged from an average of $17,628 to $57,898 at different Houston-area hospitals.
Wide variation in prices is indicative of a lack of competition. People often ask me why the U.S. health care system is so expensive. My answer (increasingly) is, “because we put up with it.” Consumers, employers, insurers, third party administrators and Congress have not aggressively required stakeholders to post prices nor provide incentives for patients to compare prices. It makes an enormous difference when patients have both the tools and the incentives to shop around. For example, years ago CalPERS, the health plan for the California Public Employee Retirement System, conducted an experiment where it paid a fixed sum of money ($30,000) for joint replacement. Patients and providers all knew individuals would be on the hook for spending in excess of the reference price. Patients were also provided with a list of high-quality hospitals that would provide joint replacement for the reference price. Within a year or two hospitals that previously charged more than the reference price for joint replacement agreed to meet the price and more enrollees were seeking out hospitals with a lower price. More from USA Today:
Another study of Massachusetts health plans that examined the use of tiered pricing that charged consumers higher copays if they chose more expensive hospitals. Consumers could choose copays of $250, $500 or $750, with the higher copays linked to more expensive hospitals.
After three years, overall spending dropped by more than 8%, an indication consumers were willing to choose lower-cost copays and hospitals.
Ho said the tiered copay approach is easier for consumers to understand health prices − and what steps they can take to lower their costs.
Hospitals do their best to avoid disclosing prices in a way that could allow patients to compare prices and go elsewhere. Hospitals have been allowed to consolidate into regional cartels with unreasonable prices. Insurers have too, as have pharmacy benefit managers. Even more strange is that insurers and health plans do not create incentives and provide tools to assist patients’ decision making even though that would benefit both patients and payes. For their part, patients are not taught to compare prices or incentivized with reference pricing strategies like CalPERS. Again, that is why I say prices are high because we tolerate it.
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