Wednesday, May 19, 2010

Debating price transparency

Ever wonder how prices are set for healthcare services? If you've ever received a medical bill and wondered why it can't be simpler to understand, then you're asking the right question.

While there are many reasons why healthcare costs are spiraling, one of them is that nobody really knows what anything costs. Providers get paid through a multiplicity of insurance-company contracts and billing schedules that change from patient to patient, depending on the type of health plan. Recently a New York Times article covered the issue of 'balance billing'. A situation where doctors and other health care providers receiving discounted payments from the insurance company — an amount less than the fee they want to be paid — bill the patient for the 'balance'.

How are consumers expected to make well informed decisions if they have no idea what to expect with treatment costs? More importantly, what kind of treatment decisions should consumers be making themselves? The overall consensus however is that with consumers being asked to pay larger proportions of their medical costs, they should know what they are paying for.

That is precisely what the Congress is debating over: How much transparency in prices do we want in healthcare? The Health Subcommittee of the House Energy and Commerce Committee held hearings last week on three different bills—all designed to make prices in healthcare markets more transparent. A Wall Street Journal blog does a great job of summarizing the hearings highlighting leading points in the long-running debate over price transparency. Another article by Julian Pecquet of The Hill adds useful details on the democratic vs. the republican bills.

There are strong arguments for and against price transparency. An article in the American clearly summarizes the polarized arguments. On the one hand we have economists who believe that in the healthcare market, price transparency could result in higher, not lower prices, with providers charging as much as their competitors, thus defeating the purpose of transparency. On the other hand, we have proponents of consumerism, who believe that once American's, currently insulated by insurance, are made aware of the healthcare tag price – they will consume less.

In conclusion, while the price transparency legislation is off to a slow start, there are several unanswered questions. How will price transparency affect costs? Does transparency really affect consumer-consciousness in the healthcare market?



  1. Like any other product or service, there is a cost to manufacture the offering and a price to the consumer to purchase it. Unlike other industries, health care prefers to operate behind the curtain of mystery and complexity.

    There needs to be one price for any procedure or service that is applied to all consumers. The only vaiance must be in what % the insurance company pays.

    As you all know, the highest fees are reserved for the cash payer or the uninsured. This is the only industry where a cash payer pays more than the 'bill me' payer. This is wrong.

    In recognition of this inequity the State of New Hampshire just passed legislation protecting the cash payer from such abuse. Now, the cash payer cannot be charged substantially more than the insured patient pays. It is a start.

  2. No one can still figure out the complexity behind this health care industry, how do they calculate the prices, it changes from person to person, no set standard or rule. And also we never bother about it because we don't want to take any risk with out lives too. Hope this will start soon and be adopted fully.