How to Make the Health-Care Market Work Better
How could government help the health-care market work better? Here’s an idea so obvious it’s shocking it hasn’t already been done: Let’s require large hospitals and medical providers who receive dollars from Medicare, Medicaid or federal research grants to collect and publish basic price data.
For every conceivable medical problem, there’s something the insurance industry calls a “medical billing code” listed in the International Classification of Diseases, or ICD. Behind every conceivable medical service in a hospital, there’s an associated fee in another volume, the “chargemaster.” And providers have years of accounting figures filed away.
This mass of data creates an enormous opportunity for the federal government to make the health-care market more efficient and probably to cut costs as well.
Prices vary widely for the same service -- itself a consequence of the system's opacity -- so consumers who want to know what their treatment will cost need several pieces of information: (1) the price as listed in the chargemaster, (2) the median price actually paid by privately insured patients, and (3) the median cost for the most common billing codes. Insurers could also cooperate with copayment estimates.
This information should be published side-by-side with new data required under the Affordable Care Act on the quality of services and patient satisfaction. The database should allow providers who don't accept government funds to participate, while exempting the smallest practices and rarest treatments and conditions.
California, Florida, Massachusetts, Minnesota, New Hampshire, New Jersey, and Wisconsin have all done versions of this on a smaller scale, though the information is not widely used. Some private companies, such as Castlight, are publishing the same information. The federal government is uniquely placed to push this forward.
Markets can't work without information on prices. A requirement to release this information would replace the drought with a flood. Although few consumers might use this data directly, insurers and software developers would. The government should also create incentives for putting the information to work: Fund prizes for software that uses it. Give tax preferences to insurance plans that encourage the insured to be price-sensitive.
Non-emergency procedures would benefit most. You can't comparison shop when you’ve just had a stroke. But more information would still help by increasing the negotiating power of insurers over hospitals.
Trials of this approach at the state level haven’t shown dramatic results, but the federal level is another matter. Federal antitrust and health law restrict the wide applicability of price transparency. A policy that removed this restriction would make a big difference. The Affordable Care Act is already changing medicine to be more cost- and quality-sensitive, and a price-transparency law would make those other reforms more effective. Rising health-care costs are already increasing the incentives for patients to select lower-cost services.
“It is difficult to defend the obscuring of health care prices,” write Anna D. Sinaiko and Meredith B. Rosenthal, two experts at the Harvard School of Public Health. They’re right. The federal government ought to fix that.
(Evan Soltas is a contributor to the Ticker. Follow him on Twitter.)