Price Transparency

The need for price transparency is the hottest conversation right now in the world of consumer directed health care.


Insurance companies are starting to respond by listing some of their negotiated prices. Humana recently announced, for example, that it will make information available to subscribers in Milwaukee so they can compare prices for 30 inpatient and six outpatient operations and tests.

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The need for price transparency is the hottest conversation right now in the world of consumer directed health care. I hear pleas for more information in my radio interviews, from people writing us through our website, and in talks around the country, most recently yesterday in Milwaukee.

Coincidentally, the Milwaukee Journal Sentinel carries an article today about Humana getting into the pricing act, allowing subscribers to compare estimated prices for 30 inpatient and six outpatient operations and tests.

“The health plan’s Web site, for instance, shows that prices for a colonoscopy can range from $940 to $1,150 at Milwaukee Endoscopy Center to as much as $2,500 to $3,050 at Froedtert Memorial Lutheran Hospital and $2,890 to $3,530 at Columbia St. Mary’s, Ozaukee Campus,” the Sentinel reports.

“It also shows that the price for a hip replacement can range from $20,600 to $41,800, depending on the hospital.”

Aetna was the first major insurer to disclose its negotiated prices to consumers, beginning in Cincinnati last August. These Aetna members can go online to find out the negotiated rates for hundreds of office visits, diagnostic tests and minor procedures “provided by 5,000 individual physicians and physician groups in Cincinnati, Dayton and Springfield, OH, Northern Kentucky and Southeast Indiana.”

For instance, an internist in the University of Cincinnati area charges Aetna or its members $161.32 for a visit from a new patient with moderate to severe problems, while another physician a few blocks away charges $132.23 for the same office visit. The first doctor also charges $41.89 for a chest X-ray taken from two angles, while the latter’s price is $34.34.

The next phase in price transparency must come directly from physicians, who voluntarily post their prices so consumers can know directly and up front the full cost of a visit or procedure, and from hospitals. Hospitals will be forced to figure out what their costs actually are so they can give price-conscious patients an estimated price range for procedures.

One of the forces driving this will be insurance policies that pay a fixed fee for procedures, giving policyholders an incentive to find the best doctors and the best value. (And people will be smart enough not to go to the cheapest provider if his track record is bad and they wind up back in the hospital with complications.)

Competition will surely drive this movement: Hospitals in particularly competitive cities are beginning to see the opportunities to offer package pricing for surgeries to patients from other cities and states and to pick up the price of a hotel room for a family member to stay during the hospitalization.

And this is old news, but hospitals should not discount the emerging competitive threat of medical tourism from sophisticated modern hospitals in Thailand, India, and even the Carribean, as 60 Minutes reported last year.

President Bush clearly sees the pricing issue as the linchpin to the success of Health Savings Accounts, hosting a public forum on the issue and follow up meeting last week at the White House with the CEOs of the major insurance companies.

He had “a little visit with people in the insurance industry and the healthcare industry and the business industry to encourage transparency.” Aka the bully pulpit.

The president has asked HHS Secretary Mike Leavitt to develop a voluntary program that would publicize the prices healthcare providers charge for their services. But if health care providers don’t cooperate voluntarily, there’s always the threat of legislation.

“I know members of Congress are working on a bill. It would be better this be done with people saying, ‘Oh, we understand it’s important to be transparent.’ There’s always a bill out there in case volunteerism is not quite as strong as it should be,” Mr. Bush said.

We do hope we don’t have to go there.


And finally Health Policy Matters will skip next week as I will be taking a few days off, but then we’ll back for the March health care madness.

Grace-Marie Turner


  • Big health-care ideas
  • In South Africa, insurer gives points for healthy living
  • Health spending projections through 2015: Changes on the horizon
  • Medicare: Sponsors’ management of the prescription drug discount card and transitional assistance benefit
  • HSA State Implementation Report

Source: The Wall Street Journal, 02/21/06

A commentary in The Wall Street Journal praises President Bush’s “ambitious and mutually reinforcing set of health reforms,” which focus on Health Savings Accounts (HSAs), the tax treatment of health insurance, and increased transparency of health care costs. “The more we look at the fine print in the health-care reforms President Bush is now stumping for, the more we see the potential for the most sweeping and beneficial changes in half a century,” writes the Journal. Supercharging HSAs — by making the accounts portable, allowing HSA premiums to be paid from the tax-free savings account, and increasing the allowable contribution limits — could have a profound impact on the economy as “employees are ultimately less dependent on their bosses’ coverage and can ultimately buy the kind of insurance that makes better sense for them,” concludes the Journal.
Full text (subscription required):

Author: Ron Lieber
Source: The Wall Street Journal, 02/21/06

In a page one article, The Wall Street Journal reports on the success of Discovery Health’s consumer-driven health plan, which combines a spending account, high-deductible insurance, and an incentives program for healthy living. The South African-based company covers about 1.9 million people there, and 70% of its eligible members join the company’s “Vitality” incentives program. Members can collect points for things like quitting smoking, getting a flu shot, or exercising, and they can redeem the points to get discounts on travel, movie tickets, and electronics. The company found that members “age 50 to 54 who were actively chasing wellness points saw their health spending decrease even as they aged,” and “people under 60 with chronic conditions achieved elite status in the points program at a slightly higher rate than those who are healthy.” Discovery’s U.S. subsidiary, Destiny Health, mirrors the South African experience in the success of its Vitality rewards program in the states.
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Authors: Christine Borger, Sheila Smith, Christopher Truffer, Sean Keehan, Andrea Sisko, John Poisal, and M. Kent Clemens
Source: Health Affairs Web Exclusive, 02/22/06

Health care spending will consistently grow over the next decade to consume 20% of the gross domestic product by 2015, write authors Borger et al, economists and actuaries from the Centers for Medicare and Medicaid Services. National health spending is expected to slow to 7.4% in 2005, marking the third consecutive year of slowing growth since 2002. The report discusses the effects of the new Medicare prescription drug benefit and finds that “Part D coverage in 2006 produces a dramatic shift in spending across payers but has little net effect on aggregate spending growth.” The report also examines spending trends for hospitals, physicians, prescription drugs, and long-term care, as well as projected trends for various payers including Medicare, Medicaid, consumer out-of-pocket payments, and private health insurance.
Full text:

Author: Kathleen King
Source: United States Government Accountability Office, 01/13/06

The GAO has studied the temporary Medicare drug card discount program that was in effect from June 2004 to December 2005 and found that 3.8 million seniors enrolled in the program and received discounts on their medications of at least 12 to 25%. “Some drug card sponsors incorporated drug manufacturer assistance programs for low-income individuals into the drug card program as a way to provide additional discounts.” About 44% of those enrolled in the drug card program received a $600 annual low-income subsidy, and these enrollees “had the potential to save between 44 and 92 percent compared to national average retail prices.” Drug card sponsors were able to get the program up and running within six months because they relied on their prior experience in administering similar plans. In all, there were 66 active drug discount card plans participating in the program (compared to more than 3,000 in the permanent Part D program that went into effect last month). The report shows that implementation had a few bumps but was relatively smooth because it had a smaller targeted audience, was similar to existing drug discount card programs, and enrollment was less complex. The GAO conducted the study at the request from Rep. Henry Waxman, D-CA.
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Source: Council for Affordable Health Insurance, 02/21/06

The Council for Affordable Health Insurance (CAHI) has updated its HSA State Implementation Report, which reviews conflicts between state insurance laws and federal requirements for Health Savings Accounts. The report contains information about state actions in several areas including: tax treatment of HSAs, mandated health benefit issues, high-risk pools, HSAs for state and municipal employees and for Medicaid beneficiaries, and mandating that an HSA option be available. “Just because a federal bill becomes law (e.g., the HSA legislation) doesn’t mean that implementation will go smoothly in the states,” concludes CAHI. “However, the issues highlighted in this document are easily rectified with the appropriate legislation and would greatly enhance people’s access to HSAs and affordable coverage.”
Full text:


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