Appeared in The New York Sun August 1, 2006
When you buy any big-ticket item, whether a house, a car, or a big-screen television, you compare prices. So isn't it astounding that last year Americans laid out nearly $2 trillion for health care with only the vaguest inkling of the price for individual products and services? For Americans today, comparison shopping in medical services is next to impossible. Doctors and hospitals seldom post prices in waiting rooms. Usually, there's not even anyone in doctors' offices authorized to release prices. Only in the healthcare market, where there's precious little incentive to control spending anyway, do consumers put up with this.
We shell out plenty for co-pays, but health care "seems" almost free because those fees are but a fraction of the true costs of our care. For most people, employer-provided insurance or the government paint over the price tags. So you don't, and can't, compare price to value. That's why demand and supply are so out of whack today. It's also why healthcare costs are skyrocketing. They rose at the rate of 7.9% in 2004, or three times the rate of inflation.
But that has finally begun to change as premium jolts hit employers, government payers, and ultimately families. As a result, what is called "price transparency" is beginning to gain a toehold in the new healthcare economy. The movement toward transparency got a big boost recently when the Centers for Medicare and Medicaid Services posted a gigantic spreadsheet on its Web site. The site now lists what Medicare paid last year for 30 elective inpatient hospital procedures and other common hospital admissions.
Broken out by states and counties within states, the new listing for the first time provides "prices" — admittedly backward-looking calculations — for a variety of treatments provided in 2005, including heart operations, hip and knee replacements, kidney and urinary tract operations, gallbladder surgery, and back and neck operations.The results are eye-opening.
There is a huge discrepancy between the prices hospitals list and what Medicare actually pays for services. Medicare's payment is generally a third or less of the list charges. For example, Medicare's average payment, nationally, for a heart valve operation was $38,538, but the average hospital list price was $115,221. What's more, there are huge price differentials between different hospitals in different parts of the country. CMS lists the ranges of Medicare payments by county, but hospital-specific pricing data are not yet available. That valve replacement could cost as little as $26,600 in Schenectady but more than $68,000 in Hardin County, Ky.
Information about the quality of health care in the past has been buried as effectively as price. Apart from piecemeal magazine lists, there was no place a consumer could find comprehensive rankings of the best places to get bypass surgery or the most successful surgeons. CMS also is trying to change that. The agency is now putting on the Web the number of specific procedures done at each hospital. That number alone is a reasonable, if not perfect, indicator of a hospital's expertise. From the data Medicare has published, you may be better off at Florida Hospital in Orange County with 177 heart valve replacements last year than Salina Regional Health Center in Kansas, with only 11.
This is just the first phase. CMS will post payment information for ambulatory surgery centers later this summer, and for common hospital outpatient and physician services this fall. The CMS administrator, Mark B. McClellan, and his team at CMS are leading the way in this government effort, and many private health plans, such as Aetna and Humana, are developing price and quality lists for their members as well. Even so, however, progress remains uneven. The House of Representatives last week passed the Better Health Information System Act of 2006, designed to improve the efficiency and safety of the nation's health care system. But a provision in the bill that would have required broader pricing disclosure by hospitals was killed by the hospital lobby. Clearly, more consumer pressure is needed to bring large institutions into the 21st century of price transparency.
Consumers desperately need more accurate information on health care costs. The uninsured often wind up paying the top list price and they, above anyone else, need to know whether others have been able to negotiate better rates. The growing number of people with health savings accounts ? three million and counting ? want to know how to spend their valuable health-care dollars.
Smart shopping can pay off. The cost of health savings-account-eligible policy premiums went up by just 2% this year. Regular insurance premiums rose by 7%. Cost-conscious consumers may have found a way out of the crisis that threatens to make health care unaffordable for those without generous employers. If our nation is ever going to get its health care costs under control, it needs to know what those costs actually are. CMS should be congratulated for this new effort toward price transparency.
Ms. Turner is president of the Galen Institute, a non-profit organization devoted to health policy research and education.