The Problem With Pushing for Price Transparency

The concept of transparency is a hot topic in health care. To drive down costs and improve quality, hospitals, health systems, physicians, and other entities are being encouraged (and increasingly required) to divulge information regarding price, outcomes, and complications. Doing so will, in theory, allow health care consumers to make more informed choices. Undoubtedly, transparency has the potential to achieve these stated goals and address many of the challenges facing American health care. Our system is often criticized for being expensive yet delivering inferior results when compared to countries with more affordable, accessible care. Transparency in its purest form is a worthy goal. However, the complexity of American medical care and intricacies of current models make transparency a double-edged sword. Opening our current system to transparency may do more harm than good by confusing consumers or providing information that is inaccurate or impossible to interpret. Transparency is necessary, but its implementation must be done properly.

What Does 'Price Transparency' Mean?

Health care prices (charges) are unlike those of almost any other business or service in that they rarely reflect how much is actually paid. Therefore, the price of treatment has little (if any) correlation to its cost. What’s more, charges and reimbursement can vary widely from one physician, practice, hospital, or health system to the next. It’s entirely plausible for Hospital A to charge $50,000 for a knee replacement while Hospital B charges $80,000. And it’s equally plausible for Hospital A to be reimbursed $35,000 for the procedure while Hospital B takes in only $30,000. In this scenario, Hospital A’s charge was lower, but their cost to the system was higher than Hospital B (which charged more). Price/charges do not tell the whole story. In fact, most charges for health care represent a significant markup from payments received. Price is artificially inflated to increase leverage when negotiating reimbursement with various payers. Almost no one in the system expects to get paid what they charge. Terrible stories of patients saddled with surprise bills or being charged $500 for Tylenol are unfortunate consequences of loopholes caused by poor insurance coverage or no coverage at all and indecipherable out-of-network rules.

Given the above discussion, is it helpful to have price transparency when price offers little useful information to guide choice? When many physicians struggle to understand the rules and regulations of medical pricing and payment, what chance do patients have? Perhaps transparency would “shame” hospitals, health systems, and doctors to lower their prices but this could have little effect on actual cost given the disconnect between charges and payments. Payment transparency could be more enlightening. However, payments are also difficult to understand, highly variable, and influenced by multiple factors. 

First, much of American health care is paid for by a third party. Whether it is the government (Medicare/Medicaid), a private insurer, an employer, or some other entity, few patients directly experience the true cost of medical treatment. (This has changed in recent years with the rise of high deductible and limited coverage insurance plans which again cause the less fortunate to experience the brunt of a convoluted system.) While whoever is immediately responsible for paying the bill may care about cost transparency, the end user (insulated from the cost) may not. In addition, circumstances arise when patients are not in a position to shop for care such as in emergencies, when travelling, or when being treated by an out-of-network physician as part of an in-network procedure. These situations are frequently the source of jaw-dropping bills that may not be resolved with transparency.

Payments for treatment, like charges, are highly variable and can be unique to the provider, hospital, health system, and/or insurance coverage. Medicare reimbursement rates are viewed as the standard and are set by the government with some regional variation. Insurance companies typically pay some negotiated percentage of Medicare rates but these rates differ from one insurance company, doctor, or hospital to the next. Medicare rates are published, but the rates insurance companies negotiate are typically shrouded in secrecy. Transparency of payments could in theory level the playing field and drive down prices to more uniform and reasonable levels. But it could also create a race to the bottom and allow one physician group or hospital to be leveraged against another to unfairly reduce reimbursement. 

For these reasons, price transparency in the current system fails on multiple levels. Charges rarely reflect what treatment costs; therefore, price transparency is largely meaningless. Transparency of payments is more useful but is still unlikely to lead to meaningful reduction in prices due to wide variations in reimbursement and a disconnect between those receiving care and those paying for it. In order for price transparency to work, charges must be equal or near what is paid and the middleman must be reduced or eliminated. Until then, price transparency does little to guide decision making. Perhaps equally as important, price does not always correlate with quality. Cheaper care isn't always better. As discussed below, adding quality to the transparency equation can be equally as complicated.

What Is Measured When We Measure Quality Transparency?

The second element of the transparency push concerns outcomes and quality of care. A gradual shift from fee-for-service to pay-for-performance has taken place in the form of alternative payment models and programs such as the Bundled Payments for Care Improvement (BPCI). Transparency in quality is intended to help consumers make more informed choices and, in turn, favor providers who deliver better care and better value to the system. On the surface, such transparency would seem to be a no-brainer. Patients, insurance companies, and employers can make informed decisions and choose hospitals and providers with better outcomes and less cost. What’s not to like? 

The problem lies in how quality is determined. Current reporting systems are subject to bias and data collection is not properly standardized. One glaring flaw in the system involves the limited ability to account for patient or procedure complexity. Surgeon A may practice in an area with a high-risk patient population or may have a referral-based practice that involves a disproportionate number of challenging cases. While such a surgeon’s absolute complication rate would almost certainly be higher, his or her complication rate relative to case complexity might be very good. Surgeon B on the other hand may have a more boutique practice that only treats the healthiest, low risk patients. Surgeon B’s absolute complication rate would likely be lower than Surgeon A’s. Surgeon A performs well in the most difficult of circumstances but is penalized for taking on complicated cases while Surgeon B picks low hanging fruit and rarely takes a risk. This does not necessarily mean Surgeon A is a lower quality surgeon than Surgeon B though quality metrics may make it seem that way.

Cherry-picking (seeking out low risk patients) and lemon-dropping (avoiding high risk patients) are byproducts of a shift to quality metrics and the failure of current reporting systems to adequately reflect complexity. In order for outcomes transparency to be meaningful, there must be standardization of data collection and reporting and the ability to account for heterogenous patient populations. Currently, such systems are not widely available. In addition, special consideration should be given to more complex patient populations, procedures, and problems to minimize lemon-dropping which can further restrict access for patients who need it most. 

To be clear, this is not an argument against the ideal of health care transparency. Transparency in medicine is a noble and necessary pursuit. We have an obligation to provide patients with useful, actionable information that rewards high quality, cost-effective care. However, until the underlying problems inherent to medical billing and the biases in quality reporting are addressed, transparency will have little impact. Some ambulatory surgery centers have begun to embrace true pricing, telling patients up front what treatment will cost, thereby eliminating confusing or surprising bills. Such centers often make their outcomes data readily available to help patients make informed decisions about their care. Specialty societies have lobbied the government to consider case complexity for the purpose of outcomes reporting and quality metrics and to slow adoption of reporting systems until they can be validated. As these efforts become more widespread, transparency in health care will become more meaningful and transformative. Until then, transparency in health care must be viewed carefully to avoid doing more harm than good.

Dr. Benjamin Schwartz is a fellowship-trained joint replacement surgeon practicing on the North Shore of Massachusetts. He enjoys working out, taking road trips with his family, and cooking. He is a paid surgeon consultant for Medacta USA, a manufacturer of Orthopedic implants and devices. He serves on the Editorial Board of the Journal of Arthroplasty and is a member of the AAHKS Practice Management Committee. Dr. Schwartz is a 2019-2020 Doximity Fellow.

Previously published in Linkedin.

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