A Modest Proposal: Let Consumers Know Costs

Published September 1, 2007

Consumers have an insatiable appetite to learn more about all things related to their health.

Last year, some 113 million of them used the Internet to get health information. Each day, eight million are doing their own research on diets, medical conditions, diseases, treatment options, and, in some areas, even the performance of hospitals and doctors.

Yet as we enter the enlightened age of consumer-directed health care, no one can get an answer to what would seem to be simple questions: What will be the office visit fee for a general physical exam? What hospital costs can I expect to pay for a routine procedure?

Today, so much of the dialogue concerning our out-of-control health care costs focuses on Big Ideas. My suggestion, however, is much more modest in scope, and relatively simple and easy to implement. Let’s agree to share with consumers some basic information about charges for common physician office visits and hospital procedures.

Increasing Value

Such a change would be a step toward our goal of bringing greater price transparency to health care–a prerequisite for empowering consumers to make more informed choices. As U.S. Health and Human Services Secretary Michael Leavitt commented on the federal government’s price transparency initiative, “As we give consumers better information on how their health care dollars are spent, they will demand more value for their money, and the result will be better treatment at lower costs.”

This also will help accelerate the trend toward consumer-directed health care, which already is a more powerful force than most people realize. Today, individuals pay 25 percent of the $1.9 trillion a year spent on health care–the same percentage as employers. According to a March 2007 McKinsey Quarterly article (“The Retail Revolution in Health Care”), consumer-directed health plans now enroll more than six million people.

Shouldn’t these individuals be able to find out what they will be charged when, for example, their child has an ear infection? Though most physicians would follow essentially the same treatment protocol, their base charges for the office visit, before discounts, can vary greatly, ranging from $50 to $150.

What’s even more difficult to understand (or justify) is why, when two consumers visit the same physician for the exact same reason, they will be charged different fees depending on their insurance coverage.

This is like playing roulette with the numbers hidden from consumers, who have no idea of the charges or discounts that will be applicable for their visits. As a result, they not only may be incurring higher charges for themselves, but also unintentionally run the risk of rewarding inefficient and expensive physician practices.

Self-Reporting Costs

The same issues and problems are likewise applicable for the common procedures performed at hospitals, only in these instances the cost differences can be thousands of dollars. For example, the costs for routine laparoscopic appendectomies at some hospitals can be less than $10,000, while others charge more than $25,000.

Most of the changes I am suggesting would be fairly easy to put into practice. The idea is that physicians and hospitals would agree to self-report this information without government involvement. To simplify matters, we could start with just the four to six most prevalent treatments that account for the majority of visits to primary care physicians.

As individuals assume greater financial responsibility for these costs, they should have access to the full-price charges that will appear on their bills or be deducted from their health savings accounts (HSAs).

The cost benefits of greater price transparency for just basic primary care services would not be inconsequential. According to Health Grades–a health care consulting firm based in Colorado–nearly three of every four Americans make at least one physician office visit each year, totaling 890 million visits annually.

Helping Consumers

One familiar argument against sharing price information is that consumers aren’t “smart” enough to understand the data. Another is that pricing alone does not accurately reflect the total cost of care. Those fallacies are nothing but smokescreens, especially for something as simple as an office visit fee or a standard hospital procedure without complications.

Granted, sharing price data can be a delicate matter that will ruffle the feathers of some physicians and hospitals. But we can’t bury our heads in the sand and deny the fact that more and more consumers will have greater responsibilities–and a larger financial stake–in health care purchasing decisions.

It is our responsibility to give consumers information that is easy to access, understand, and use so they can make intelligent choices. With an increasing number of consumers using HSAs to manage their costs, the demand for this information will only increase.

Whenever possible, we should eliminate the barriers that prevent market-based forces from determining fair, value-based pricing. Let’s knock down one obstacle at a time, starting with doctors’ and hospitals’ fees for the most frequently used services. We all benefit when we can help consumers make the best decisions about managing both their health and their medical costs.

Raj Bal ([email protected]) is chief operating officer at Assurant Health in Milwaukee, Wisconsin. This op-ed originally appeared in the Milwaukee Journal Sentinel.