The plot to keep health care prices from consumers

By Merrill Goozner

The possibility that the Supreme Court will strike down all or part of the Affordable Care Act has given new life to Republican calls to put market mechanisms to work in holding down health care costs. The public is certain to hear lots more about it on the campaign trail later this year.

There's one big problem, though. Markets cannot work when consumers and patients have almost no information about the prices they pay for health care.

Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, has resuscitated his proposal to turn Medicare over to insurance carriers. Future retirees would be offered financial help to pay for policies sold through public exchanges similar to the ones set up under Obamacare. The subsidy would be limited to the value of the second-lowest cost plan offered on the market. The idea is that over-65 consumers, who would still have the option of remaining in traditional fee-for-service Medicare, would drive down costs by forcing the plans to compete for their business by offering lower-cost alternatives.

Other Republicans and conservative think tanks are touting laws that would allow insurance carriers to sell individuals policies across state lines, which would be coupled with incentives to shift people away from employer-based coverage. Under such plans, individuals could buy catastrophic coverage for expensive hospital stays while using the savings to pay the entire cost of routine health services, just like they pay out-of-pocket now for lawyers, flat-screen TVs or the week's groceries.

Again, the idea is that people putting up their own money will be much more likely to scrutinize the price of tests, drugs and procedures, and choose accordingly. If they comparison shop, they might even visit the provider down the street.

Employers are already moving in the direction of giving consumers "more skin in the game," according to a recent survey by the Employee Benefits Research Institute. One in five Americans are already in high-deductible insurance plans, an all-time high, even though this approach is leading many to skimp on preventive services that could avoid higher health care costs down the road.

Unfortunately for the architects of such proposals, there's a crucial element missing from their proposals, something that is necessary to make any market work: accurate and easily accessible price information for consumers. Have you ever walked into a doctor's office and seen a price posted for all the tests, products or procedures that might be offered during your visit? At the hospital? Ever seen a price list at the local pharmacy?

The problem of price opacity in health care is not easily solved. Health care providers are more like airlines than the local Best Buy or Macy's. They charge different patients different prices depending on who insures them. The uninsured pay the highest prices, the equivalent of a hotel rack rate.

Medicare sets prices. Medicaid patients get the lowest available price. Privately insured patients are offered differing discounts, with larger groups afforded bigger discounts than smaller groups. The prices between the groups vary wildly.

"One specific factor driving the high cost of healthcare is the significant price variation – sometimes more than 100 percent – for the same healthcare services in the same geographic market," said Bobbi Coluni, senior director for consumer innovations at Thomson Reuters, in a recently issued report claiming consumers could reduce health care costs  $36 billion a year with full pricing transparency.

One example offered in the report: a typical Illinois employer could save $29,000 or 33 percent off the cost of knee arthroscopy, and the patient could reduce his or her co-pays by $300, simply by switching from the highest cost to the median cost price offered by different hospitals in that employer's area.

Yet employers are powerless to get the price data, many complain. Their insurance carriers frequently refuse to turn over claims data, which would enable them to compare prices between the different local providers and encourage their workers and families to choose the best value.

The insurers cite "proprietary information and preexisting confidentiality agreements with providers," charged Shawn Leavitt, a benefits manager at Minneapolis-based Carlson, which owns and operates nearly 2,000 hotels and restaurants worldwide. "These excuses are a cover for health plans' real concern: to keep health care purchasing decisions as opaque as possible to substantiate excessive administrative costs, and maintain the illusion of well-managed networks and large discounts."

It's not just insurers. Drug companies offer a wide array of discounts to insurers and pharmacy benefit managers. They've even begun offering coupons and discounts directly to consumers to keep them on branded drugs coming off patent, like the discounting recently adopted by Pfizer to keep people on Lipitor instead of switching to generic brands.

Medical device manufacturers that sell implanted heart devices, artificial knees and hips and spinal implants are also heavily into the discount game, which they couple with exorbitantly high rack rates. They negotiate different discounts with different hospitals, and then require each to sign a contract that forbids releasing pricing data to their competitors across town.

Rep. Stephen Kagan, a Democrat from Wisconsin who lost his seat in 2010 to a Tea Party-backed candidate, introduced a simple three-page bill in the last session of Congress that would end pricing secrecy in the medical industry. The "Transparency in All Health Care Pricing Act of 2010" said "any and all individuals or business entities, including hospitals, physicians, nurses, pharmacies, pharmaceutical manufacturers, dentists and the insurance entities . . . shall publicly disclose, on a continuous basis, all prices for products, services or procedures . . . at the point of purchase, in print, and on the Internet."

Though it received one sympathetic hearing, the bill was not included in the Democrats' health care reform legislation after intense opposition surfaced from virtually every health care provider group. No one has reintroduced the bill in the current session of Congress.

"Overly broad proposals that aim to disclose confidential pricing agreements and terms could undermine vigorous competition and have a negative impact on patients," the Pharmaceutical Research and Manufacturers of America said this week in a prepared statement.

A spokeswoman for the American Hospital Association said the group had supported an alternative bill introduced by Rep. Michael Burgess, a Republican from Texas who is also a doctor. That legislation would have had the Agency for Healthcare Research and Quality study the question. It  didn't pass either.

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