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Time to Unmask the Price Differences in Health Care

We all know the drill. The American health care system seriously underperforms when compared with the health systems of every other industrialized nation. As a result, each year, large numbers of Americans are harmed or die unnecessarily. In fact, since the Institute of Medicine's (IOM) executive summary to its landmark report To Err Is Human was published in the Journal of American Medical Association in September 1999, additional research has only confirmed its findings. A decade later, the IOM estimate that up to 30 percent of all health care expenditures pay for care with little or no health benefit fails to shock. Experts now project that 40 percent or more of all spending has little or no benefit. Meanwhile, the average cost of health insurance for a family of four has grown to more than $14,000 annually.

High health care costs create significant suffering for American families, businesses, and governments. Other leading nations spend half or less of what we do on health care, making it increasingly difficult for American families to retain their standard of living and for American businesses to compete in a global economy.

All Americans pay the nation's health care bill indirectly by way of lower wages, higher taxes, and health benefit costs embedded in the price of non-health-care goods. Americans also pay directly through premium contributions and payments for services. Meanwhile, the jobs needed to offset these expenses are increasingly moving to countries with lower health care costs. The outcome is soberly clear: In 2009, one of every seven Americans lived in poverty and 50 million Americans were uninsured, according to the U.S. Census.

Considering the impact of health care spending, and the waste associated with it, how is it that consumers of the largest sector of our economy know so little about price?

Despite consistent calls for price and quality transparency from the business community since the "buy-right" movement of the early 1980s, the IOM's call for action more than a decade ago, and the sustained effort of many labor and consumer groups, our nation has yet to achieve meaningful transparency. While measures and methods for assessing quality have advanced slowly, little to no progress has been made in achieving price transparency. As long as price differences remain opaque to patients and their physicians, there is little hope for improving the affordability and efficiency of American health care.

Research shows price and quality outcomes of health care services and treatments vary dramatically, even within institutions and communities. In the business world, removing variation translates to opportunities for greater profit. In health care, it isn't this easy. The entity most able to eliminate variation may not be in a position to reap the rewards. Payment reform is critical to creating a system that continually rewards and sustains excellence. However, redesigning payments requires transparency about price, quality, and financial relationships.

Price transparency does not mean a public listing of negotiated rates between a given provider and health plan. It means providing physicians and patients with the information they need to compare value. While certain "commodity-like" services such as an MRI, blood test, or routine office visit might lend themselves to direct price comparisons, most health care services are provided within a larger course of treatment. For such services, care organized into episodes would be more useful. Also, price comparisons should be provided in the context of quality comparisons to ensure patients can arrive at informed decisions about health care value.

Under the current system, patients and their doctors have neither the incentive nor the information needed to keep costs down. Perhaps more worrying, many patients equate higher prices with better care even when higher costs may be the result of complications and other dangerous variations.

If experience from other industries holds true, most patients will not check with a value comparison tool before choosing a physician, hospital, or treatment. But as little as about 15 percent of consumers can shape a market. That's in part because transparent markets tend to drive themselves to lower cost and higher quality across producers and across the continuum of services.

Health care payment reforms are desperately needed. Reform could change the way health care is produced and purchased in the United States. Bundled or fixed prices for services have the potential to overcome the health system's fragmentation, and bring providers together to design better care processes and align financial incentives toward improved results. Physicians could be paid for doing the right thing by their patients. Hospitals could be praised and paid for removing waste. Patients could benefit from the coordinated care they have always deserved.

However, without price transparency, payment reforms will remain stalled. Without information on quality and cost differences, the system will remain unable to compensate providers in relation to quality or efficiency. Just as a sum cannot be found without knowing its inputs, a bundled price or global payment cannot exist without an understanding of its parts.

The time to unmask the price and quality differences in health care is now. Our nation and its patients depend on our action.

This blog post is a commentary on Health Care Opinion Leaders’ Views on Transparency and Pricing .

Louise Probst is a member of The Commonwealth Fund's Commission on a High Performance Health System.

Publication Details



L. Probst, Time to Unmask the Price Differences in Health Care, The Commonwealth Fund Blog, October 2010.