Making Health Care Costs More Transparent C A L I FOR N I A H EALTH C ARE to Consumers: A Summary for Policymakers F OU NDATION Governments, health plans, and find they must communicate more effectively others believe that cost-sensitive decisions by about prices and payment than in the past.5 individuals can help control the overall cost of health care. Some have begun to provide price About Price Transparency fact sheet information to the public, with the dual goals of The trend toward price transparency began with a informing individual decision-making and reining few hospitals, state governments, and commercial in health care spending. It appears, however, that health plans posting price information online.6 these “price transparency” initiatives often do not The initiatives gained momentum after an August provide information that patients and families 2006 Executive Order.7 Nevertheless, the NQF find useful. The National Quality Forum (NQF), analysis found that the available information is with funding from the California HealthCare either too general (for example, giving the average Foundation and the Robert Wood Johnson charges for all providers in a region) or too detailed Foundation, recently published an issue brief and a (for example, giving the nominal “retail” price background paper on the use of price transparency of every service or procedure) to be useful to information among consumers.1,2 This fact sheet consumers. To be “transparent” in any meaningful summarizes the findings. An accompanying fact way, price information must be tailored to the sheet examines price transparency for prescription needs and interests of specific audiences. drug prices (available at www.chcf.org). Making Price Information Useful to Consumer Stake in Health Care Costs Consumers Consumers are paying more attention to the cost Price information that is useful or “actionable” for of their health care these days because they have consumers has the following characteristics: greater responsibility for paying for it. Those with K It enables comparisons among different insurance are coping with higher deductibles and providers and different treatment options. copayments and some are being offered consumer- K It is clearly written and formatted and driven health savings accounts as an alternative customized for the user’s language preference to traditional insurance.3 The growing number and comprehension level. who lack health insurance altogether have an even more daunting task of anticipating and managing K It covers all the costs associated with a their health care costs.4 Whether insured or given episode of care (such as treatment uninsured, consumers are learning that they need for a heart condition), including diagnostic to understand their financial liability and find the tests, prescription drugs, hospital days, and best value, tailored to their individual needs. physician fees before, during, and after hospitalization. For their part, providers who now depend K It is linked to quality information. F ebruary increasingly on their patients for direct payment 2008 Beyond these general attributes, the information needs to not lower, prices. However, if prices are bundled for be tailored to the actual financial liability that consumers consumers based on episodes of care, as suggested bear for their health care. In this respect, people with previously, the information is not only more useful but health insurance need quite different information than less likely to lead to cost inflation. those who are uninsured. Factoring in Quality K For people with health insurance, actionable cost Prudent health decisions require information on both information focuses on their copays, deductibles, the quality and the cost of different health care options. and exclusions. For example, an individual with chronic knee pain may K For uninsured people, the full cost of almost any wish to compare recommended surgery, non-surgical hospitalization is unaffordable. For them, the most interventions, and watchful waiting in light of the important information concerns how to negotiate evidence for the outcomes and risks of these approaches. charges, work out payment plans, and apply for Then, having chosen a treatment strategy, the patient financial assistance.8 Indeed, a hospital’s financial could use performance and price information to identify assistance policies, rather than the nominal cost of a physician and a hospital for the procedure. A rational care, may be the determining factor in their choice strategy for considering both quality and price factors is of a provider. to start with information on the quality of the providers available, rule out the low-performers, and then compare For more information, see the California HealthCare the high performers on the basis of price. While many Foundation report, Price Check: The Mystery of Hospital people assume that higher price means higher quality, Pricing, at www.chcf.org. research indicates that this is not necessarily the case.10 Potential Danger Zones Challenges for Policymakers Price transparency is not without downsides, so it must be Efforts to provide useful information on prices and done thoughtfully. There are two major issues: fears about quality are still at an early stage of development and antitrust violations and the possibility of inadvertently there is room for more research, experimentation, and contributing to a rise in prices. evaluation. The evidence to date suggests that the public does not benefit from hasty, perfunctory gestures at On the first issue, providers may be concerned about transparency. Fortunately, studies such as the NQF report exposure to federal antitrust actions if they publicize point the way toward the meaningful forms of price negotiated prices. However, in 1996 the Department of transparency that can truly help consumers find and Justice and the Federal Trade Commission established choose value in health care. In addition, it is essential to an antitrust “safety zone” with several conditions. One ensure that consumers have the education and support condition is that the pricing displayed by third parties they need to put price and quality information to use. be at least three months old.9 (But this makes the information somewhat less useful to consumers because it is not current.) On the second issue, economists have found that when a market is highly concentrated and there is little competition, cost transparency can lead to higher, 2  |  California HealthCare Foundation Endnotes 1. National Quality Forum, Providing Consumers with Useful 9. Department of Justice and Federal Trade Commission, Information About Healthcare Prices, Issue Brief No. 6, Joint statement on provider participation in exchanges August 2007, www.qualityforum.org/projects/ongoing/ of price and cost information, 1996, www.ftc.gov/bc/ transparency. healthcare/industryguide/policy/statement6.htm. 2. National Quality Forum, Background Paper on Healthcare 1 0. Fisher ES, Wennberg DE, Stukel TA, et al., “The Cost and Price Transparency: Useable, Audience-Specific implications of regional variations in Medicare spending. Information on Costs and Prices, September 25, 2007, Part 1: the content, quality, and accessibility of care.” www.qualityforum.org/projects/ongoing/transparency. Ann Intern Med, 2003; 138 (4): 273 – 287. 3. Kaiser Family Foundation and Health Research and Educational Trust, Kaiser Family Foundation Employer Health Benefits 2005 Annual Survey, September 2005, p r e pa r e d b y www.kff.org/insurance/7315.cfm. Susan Baird Kanaan, editor 4. California HealthCare Foundation, Snapshot: California’s This fact sheet was drawn from a study published by Uninsured 2007, November 2007, www.chcf.org/topics/ the National Quality Forum and commissioned by the healthinsurance/index.cfm?itemID=133500. California HealthCare Foundation and the Robert Wood Johnson Foundation. 5. Allen Puckett, A Specter Stalking Healthcare Providers: Growing Dependence on Patient Payments, Topline f o r m o r e i n f o r m at i o n c o n ta c t Solutions, 2007, www.toplinesolutions.biz. California HealthCare Foundation 6. For example, Oregon’s Compare Hospital Costs displays 1438 Webster Street, Suite 400 hospital cost and quality data for nine conditions at Oakland, CA  94612 www.oregon.gov/OHPPR/RSCH/comparehospitalcosts. tel: 510.238.1040 shtml. UnitedHealthcare offers a tool to estimate fax: 510.238.1388 treatment costs for members at www.myuhc.com. www.chcf.org 7. Executive Order: Promoting Quality and Efficient Health Care in Federal Government Administered or Sponsored Health Care Programs, The White House, August 22, 2006, www.whitehouse.gov/news/ releases/2006/08/20060822-2.html. The Executive Order requires health care programs administered or sponsored by the federal government to promote quality and price transparency. 8. California HealthCare Foundation, Price Check: The Mystery of Hospital Pricing and Eight Great Tips for Pricing Hospital Services, December 2005, www.chcf.org/topics/hospitals/index.cfm?itemID=117606. 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