Seattle Hospital Cuts Cost of Outpatient Services 35 Percent

Published August 11, 2015

While health care costs continue to rise throughout the United States, Swedish Health Services (SHS), a Seattle-based health care provider, has cut prices for 90 percent of its outpatient services by an average of 35 percent in its five hospitals, two ambulatory care centers, and 100 clinics across the Puget Sound area.

MRIs once billed at $6,100 per use now cost only $1,810, a 70 percent price cut. The price of a colonoscopy has dropped from $2,203 to $1,518, a 31 percent cost reduction. The new policy took effect January 1, 2015.

Shows Effects of Competition

Paul Guppy, research director of the Washington Policy Center, says the decision by SHS to cut prices shows that given the right conditions, health care providers can respond competitively while meeting the needs of consumers, just as in other areas of the economy.

Guppy says the price reductions at SHS developed in spite of, and not because of, President Barack Obama’s Affordable Care Act (ACA).

“It is unlikely these price cuts are driven by the Affordable Care Act, because the ACA does not promote normal market competition,” Guppy said. “Instead, the individual mandate and other regulations force people into state exchanges or into Medicaid, where choices are limited or nonexistent. 

“Providers of services, whether it’s health care or cell phones, will reduce prices when they know consumers have real choices and can take their business elsewhere, not when people’s options are restricted or limited by federal law,” Guppy said.

Need for Transparency Cited

Patients covered by insurance could end up paying different rates from what SHS bills, depending on their insurance plan’s contract with the hospital and whether their insurer chooses to pass the savings on to the consumer. People paying out of pocket will receive the full benefit of the price cuts.

The cuts will not apply to inpatient care, including live births and other hospitalizations.

Nathan Benefield, vice president of policy analysis at the Commonwealth Foundation, says it’s clear other health care providers could do the same as SHS if they focused on keeping costs low, but third-party payment remains a sticking point.

“Unfortunately, there hasn’t been much price competition in the health care sector because of the third-party payer system,” Benefield said. “Patients almost never shop around for better prices, and they rarely even know the cost of a service or a procedure, because in most cases an insurance company or the government is going to pay the bill.

“There remains a lot of opposition to this movement, both from unions and from regulators that discourage competition, especially price competition,” Benefield said. “But there are other efforts—things like low-cost health clinics and cash-only providers—moving to provide health care alternatives and compete for patients with lower prices.”

Naomi Lopez Bauman, director of health care policy at the Goldwater Institute, says hospitals, which are on the receiving end of multiple streams of taxpayer dollars given to support health care services, are rarely transparent in how they price health care services, which makes price competition more difficult.

“The reality is that there are multiple prices for the same procedure, depending on whether you are an insurer, an uninsured individual, or a charity care case, and few actually pay the published price,” Bauman said. “Any steps that hospitals take in order to make prices more transparent should be applauded.”

Says Need Is Urgent

More competition means health care providers will cut prices, especially with the increasing number of standalone surgery centers, says Katherine Restrepo, a health and human services policy analyst for the John Locke Foundation, a free-market think tank.

“Technological advancements coupled with approved Medicare reimbursements for a growing list of services performed in these smaller, lower-cost settings make for a more competitive and efficient heath care marketplace, which benefits the patient with quality care at a lower price compared to the same service being performed in a full hospital setting,” Restrepo said.

Restrepo says the ACA has perversely sensitized more people to the cost of health care services by delinking many workers from employer-sponsored health insurance, which occurs as group plan costs continue to rise and employers hire more part-time workers to avoid being subjected to the employer mandate. Although non-group policyholders may receive a subsidy to offset the cost of their premiums, they are still left with large out-of-pocket expenses. 

Restrepo says the ACA impedes competition.

“The ACA does not push for healthy competition,” Restrepo said. “It pushes for managed competition in which sundry regulations under the law limit how competitive insurance companies and hospitals can be.”  

Bruce Edward Walker ([email protected]) is a policy analyst for The Heartland Institute.