The Need for Price Transparency

The debate over health-care reform has largely focused on the public option. Unfortunately, this has shifted the spotlight away from areas where true bipartisan reform could be reached. Royce Flippin details one such area in this New Republic article. He relates a personal anecdote from the time when he lacked health insurance and was suffering from ankle problems. Flippin made an appointment with an orthopedist. Before seeing the doctor he inquired about the cost of the visit, but the staff did not know. After the visit, much to his dismay, the receptionist handed him a bill for $800. 

 

Flippin notes that most Americans are unaware of the costs when purchasing health-care services. “Why,” he asks, “in a nation where people scour the Internet and sales outlets for the best deals on everything from underwear to stereo equipment, are Americans consistently willing to purchase one of the costliest items on our national shopping list without ever asking how much it will set them back?” 

 

The answer is simple: Most patients don’t pay for health care at the time of its purchase. Today only 15 percent of per-capita health-care spending is out of pocket. After the initial insurance premium has been paid, actual services require only a token co-payment. This nominal fee does not reflect the actual cost of the service. Patients pay an artificially depressed cost, which leads to increased demand and soaring health-care costs. Most Americans are simply unaware of and unconcerned about costs when purchasing health-care services. Those costs are perceived as someone else’s expense. But of course, patients ultimately do encounter the increased costs in the form of rising insurance premiums or lost wages. 

 

While Flippin correctly diagnoses the lack of price transparency in the health-care system, he prescribes the wrong therapy. He proposes that we “[r]equire our nation’s medical care providers to publish a complete price list for all their services, procedures, medications, and tests. This price list would be required of all doctors, hospitals and emergency departments, consulting specialists, freestanding radiology labs, visiting nurse services, physical therapists, and any other institution involved in providing health care services.” 

 

Doctors don’t need to be mandated to publish a price list. Lasik, for example, is one medical specialty where price transparency already exists. This did not occur magically. It did not require government fiat. To the contrary, patients largely pay out of pocket for Lasik, so providers must compete and advertise reasonable prices to attract consumers. In most of the health-care sector, however, patients do not pay the price, so they do not demand to know it. As the saying goes, “If you build it, they will come.” Create the market — create the need for those prices — and as seen with Lasik, prices will appear faster than you can say “Ezekiel Emanuel.” A real market for health-care services will inevitably lead to competition, price transparency, and reduced costs. It should be noted that while other medical prices have soared, the price of Lasik surgery has declined dramatically. 

 

Americans drive from outlet to outlet to get the best deal on Fruit of the Loom underwear. They won’t be similarly cost-conscious about their health-care spending until they have more skin in the game. 

 

Jason D. Fodeman, M.D., is a recent graduate of Albert Einstein College of Medicine.

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