Is hospital price transparency the answer?

1/01/2014 02:17:00 PM
Sabin Sunday: the day we irradicated Polio from the United States.
I have long been a fan of the idea that hospitals should have predetermined prices for the services they provide, and that all these prices should be made available publicly online so that patients can research the prices and advance and pick the cheapest provider. That's quite a bit different than the system we currently have, where not only are the hospital list prices not publicly available, but they aren't even the actual prices anyone pays in practice, because each insurer negotiates separate rates on everything. As a result of this individual healthcare consumers have absolutely no control over how much they pay for procedures, and we end up with wildly inflated healthcare costs. Clearly, bringing transparency and uniformity to this system--where prices are available on line and all insurers/patients pay the same prices for the same procedures at the same hospitals--would be a great thing, right? It would unleash competition, and all the wondrous things that does.

It turns out that things are not so simple, because many healthcare providers operate not as profit-seeking corporations, but as charitable organizations. Typically, hospitals try to charge as much as they can, and insurers negotiate prices down by threatening not to let their customers get coverage there. In such a situation it would be reasonable to ask a hospital to post fixed, non-negotiable prices, and let insurers decide which hospitals they will let their enrollees go to (that is, insurers will direct patients to the more cost-effective providers). However, that model doesn't work with charitable institutions.

Consider the example of Cincinnati Children's Hospital Medical Center. As a charitable institution and the only pediatric hospital in the metropolitan statistical area, Cincinnati Children's will not refuse care for any children from the metropolitan area, regardless of how or if they are able to pay. As a result, we accept all insurances, regardless of what they pay.

That poses an obstacle for price transparency. We could post prices online, but if those prices are high enough to break even, then there will be many insurers who will not pay, and many individuals who cannot pay, which violates the charitable objectives of our organization. If, on the other hand, we post prices so low that all insurers will pay them and anyone can afford them, then the institution will be loosing money. Thus, whatever prices we end up posting, they will probably continue to be complicated and negotiable.

Of course, none of this is to say that transparent pricing is not a laudable goal. My point is just that the issue will continue to be a complex one.