Shopping has never been easier. With just a few clicks, consumers can easily find airline tickets, get multiple auto insurance quotes, or shop for the lowest prices at their local mall.
But consumers are largely ignorant when it comes to what really matters: spending money on their health.
A federal rule enacted last year was supposed to address the problem by requiring hospitals to publish prices for 300 common services. The goal was to make healthcare like any other marketplace where pricing is transparent and consumers can shop for the best value.
Unfortunately, very few hospitals comply with the law. A recent survey found that nearly 85% of his hospitals do not publish their rates as per federal directives. Even then, hospitals often use non-standard abbreviations and publish files in different formats, making price comparisons difficult.
This opaque system allows hospitals to charge patients significantly different prices. One Indiana hospital costs her three times as much as another hospital half an hour away for the exact same knee replacement surgery.
Researchers at Johns Hopkins University found that some hospitals charge out-of-network or uninsured patients more than 10 times what Medicare pays for the same services. I found
You don’t need a medical or accounting degree to know how much surgery costs. The federal government has issued more than 350 warning letters to hospitals not following price transparency rules. However, only two hospitals have been fined for non-compliance.
Implementing price transparency rules is an important first step to reduce healthcare costs and improve quality. But knowing the price may not be enough to force people to shop.
As long as insurers pick up the bulk of the tab, patients may choose providers based on factors such as convenience and perceived quality. A typical cost-sharing structure provides little incentive to choose providers that are cheaper or have fewer complications and lower long-term costs.
Patient selection is also limited by provider networks. Patients can get a large amount of information about hospital prices. But if an out-of-network provider offers the best value, you may not choose one unless you are willing to bear the costs alone.
Worse, these out-of-pocket costs don’t apply to your deductible, even if you choose a provider that charges your insurance company less than those in your network.
A new report from the Cicero Institute, a Texas-based think tank, proposes a new way to address these issues. It will reward both patients and providers for seeking the highest value in care.
They start with the status quo, where providers publish prices for cash-paying customers that are on average 39% cheaper than what insurers pay.
To encourage patients to shop beyond their network of providers, Patient Savings Rights allows medical expenses to be deductible and out-of-pocket caps as long as they are lower than the lowest rate within the plan’s network can be credited against
Once the patient reaches the deductible, the insurer splits the savings secured by the patient choosing a low-cost provider. So a patient who finds her provider $10,000 cheaper than the lowest rate in the insurance company’s network will get paid $5,000. Of course, the insurance company will also give her a $5,000 advantage.
This structure also benefits providers by allowing them to price compete on the open market. No more tense negotiations to stay in the insurance company’s network, no more worrying about losing patients to the large hospital conglomerates that tend to dominate the provider’s network.
Instead, independent providers can leverage benefits like reduced overhead and faster service to attract patients across insurance plans.
Price transparency in the healthcare market has long been awaited. Once that information is readily available, patients should be able to act on it.
The Patient Parsimony Act provides a blueprint for creating a more competitive healthcare marketplace that reduces patient costs and rewards providers who deliver better value.
Sally C. Pipes is President and CEO of the Pacific Research Institute and a Thomas W. Smith Fellow in Health Care Policy. Follow her on her Twitter @sallypipes.
