Price Transparency: How to Fix Healthcare
How can a simple blood test cost $30 at one lab and $300 at another across the street? The answer to this question could save billions, as well as make healthcare more accessible and affordable for everyone. Will Bruhn, co-founder of Restoring Medicine, explains.
Researchers found that the price for the same heart procedure varied between _____________________________.
$400 dollars to $4,800 dollars$4,000 dollars to $48,000 dollars$4,800 dollars to $40,000 dollars$44,000 dollars to $448,000 dollarsAmericans have no idea how much they are paying for healthcare services.
TrueFalseHow many Americans have medical debt in the collections stage?
Nearly 1 in 5Nearly 1 in 50Nearly 1 in 500Nearly 1 in 5,000In addition to a 36% increase in deductibles, American employees have had to increase their contribution to their premiums by how much?
3%8%15%23%One study estimates that ______________ is wasted in the U.S. healthcare system every year, with “administrative complexities” as one of the main culprits.
$7 million$60 million$60 billion$760 billion
- The lack of price transparency in healthcare has resulted in wildly inconsistent and inflated costs.
Researchers compared prices amongst 53 hospitals for a standard heart procedure, called a CABG, or coronary artery bypass grafting. The researchers found a 10-fold difference in price for the same procedure across hospitals — from $44,000 dollars to $448,000 dollars — and no correlation between higher prices and better quality of care.
View sourceStudies have shown there can be up to a 39-fold variation in price for a simple blood test across medical centers in the same metro area.
View sourceThis lack of consistency in pricing is a result of a lack of transparency in healthcare costs. Medical billing has become a complex dance between hospitals, insurance companies and various middlemen that often prevent consumers from knowing in advance how much they will have to pay for a procedure. A 2019 Harvard/Harris survey found that 88 percent of Americans believe the government should require hospitals and insurers to disclose prices for procedures up front.
View source- Nearly 1 in 5 Americans have medical debt in collections.
A 2016 Kaiser Family Foundation/New York Times survey found that among people with health insurance, “one in five (20%) working-age Americans report having problems paying medical bills in the past year that often cause serious financial challenges and changes in employment and lifestyle.” The study found that “the situation is even worse among people who are uninsured: half (53%) face problems with medical bills, bringing the overall total to 26 percent.”
View sourceA 2014 Consumer Financial Protection Bureau report found that more than half of all consumer collections tradelines are medical bills: “More than two-thirds of all collections tradelines (67.5 percent) — and over 80 percent of those tradelines that can be attributed to a particular creditor or provider — are reported on accounts that originated with a healthcare provider, utility company, or telecommunications company. … Medical collections tradelines account for over half (52.1 percent) of all collections tradelines with an identifiable creditor or provider.”
View sourceAs Johns Hopkins surgeon and health policy commentator Marty Makary explains in his book, “The Price We Pay,” the healthcare system is rife with examples of overly complicated and predatory billing. The solution, he argues, is for consumers to demand transparent pricing and for physicians and hospitals to commit to avoiding unnecessary procedures.
View source- Over the past 5 years, employees have had to increase their contribution to their premiums an average of 15%.
A Kaiser Family Foundation study of 2019 healthcare premiums found that over the past five years, employees have had to increase their contribution to their premiums by 15%: “The average worker contributions for single and family coverage have increased over the last five years (15% and 25%, respectively) and over the last 10 years (59% and 71%, respectively).”
View sourceThe same study found that “the average annual deductible among covered workers with a deductible has increased 36% over the last five years and 100% over the last ten years.” Average wage increases have not kept up with these rising healthcare costs. Over the last five year, wages have risen 14%.
View sourceRelated video: “Why is Healthcare So Expensive?” – Information Station
View source- Hundreds of billions of dollars are wasted the U.S. healthcare system every year—and one of the main culprits is “administrative complexities.”
One study estimates that $760 billion is wasted in the US healthcare system every year, with "administrative complexities" as one of the main culprits. If a transparent upfront price were offered, and most medical care could be paid for in advance just like an airline ticket, medical centers could cut a significant portion of their administrative staff that's now involved in billing and debt collection.
View sourceMarkets only work when consumers have the proper information to make purchasing decisions. The two most important pieces of information for consumers are the price and the quality of a good or service. Some 60% of healthcare is shoppable, meaning it is an elective surgery, medical test, or diagnostic exam that should not have much cost variation amongst providers. If we have price transparency and a way to compare quality of care, these services present a great opportunity to allow the laws of market competition to operate.
View sourceThe most effective way that the government can improve health care is by getting out of the way, deregulating, easing tax burdens and allowing entrepreneurs to innovate in the healthcare space.
View sourceRelated video: “Single-Payer Health Care: America Already Has It” – Pete Hegseth
View source- Decreasing tax burdens on insurers, reducing regulations & encouraging medical innovation will help bring healthcare costs down.
Health insurers pass increased taxes on to the consumer in the form of higher premiums or through state subsidies.
View sourceRemoving unfair tax burdens, like the $60 billion annual tax imposed by the ACA, will lower premiums.
View sourceResearch shows that state regulations on health insurance programs increase insurance premiums.
View sourceGovernment mandated coverage for unnecessary procedures also contributes to the increased cost of health care.
View sourceBurdensome taxes on innovators in the medical field, like the $20 billion tax on medical device manufacturers imposed by the ACA, discouraging medical device innovation and drives up costs.
View source
How messed up is our healthcare system?
This messed up.
Researchers compared prices amongst 53 hospitals for a standard heart procedure, called a CABG, or coronary artery bypass grafting. Not only did the researchers find a 10-fold difference in price for the same procedure across hospitals — from $44,000 dollars to $448,000 dollars; but they also found no correlation between higher prices and better quality of care.
Other studies have shown there can be up to a 39-fold variation in price for a simple blood test across medical centers in the same metro area.
Here's the punchline.
We have no idea how much we're paying for healthcare services.
Why is it that when you need to get a surgery or medical test, you can't get a price the same way you can when you shop for, say, an airline ticket?
Imagine if the airlines didn't post prices. Instead, when you bought your ticket, Delta just said, "we'll bill you after your flight because we don't know what the cost of fuel will be that day." Then a week later you get a bill for $4,000. You'd scream bloody murder and rightly so. Yet this is precisely what we are dealing with in American healthcare.
With rare exceptions, when you go in for back surgery or a thousand other kinds of medical procedures, you have no idea how much it's going to cost you. Worse, no one would be able to tell you if you bothered to ask.
That's because medical billing is a ridiculously complex dance between hospitals, insurance companies, and various middlemen. The hospitals charge crazy prices — $100 for aspirin, for example — and the insurance companies and middlemen agree, through special, often secret deals, to pay some percentage of that.
That's how your knee replacement, which the hospital says costs $50,000 on its itemized bill, actually costs you $5,000 — after your deductible.
Out of all this confusion, one thing is crystal clear: medical costs are skyrocketing.
And, Americans are having more and more trouble paying the bill.
Nearly 1 in 5 of us has medical debt in collections.
If you think this problem doesn't apply to you because you have insurance through your employer, and therefore your costs are covered, think again.
Over the past five years, employees have had to increase their contribution to their premiums by 15%, in addition to a 36% increase in deductibles. Meanwhile, wage increases have not kept up, rising 14% over the same period.
Yes, that salary increase you so richly deserved was eaten up by the increased insurance premium you had to pay.
If the ever-increasing cost of medical care was reflected in the quality of the care you were getting — that is, if you were paying more to get better care — maybe this would make some sense, but, as we saw in the coronary bypass example, there is little or no correlation between what you pay and what you get.
So how do we get out of this mess?
A big part of the answer is price transparency — something almost every American wants. Even in our era of political polarization, almost 9 out of 10 Americans say they favor price transparency for medical services.
Makes sense.
Markets only work when consumers have the proper information to make purchasing decisions. And the two most important pieces of information are the price and the quality of a good or service. As it relates to health care, Americans don't have access to either of those.
Granted, there are medical situations, which don't lend themselves to comparison shopping. If you're in a car accident and have to be rushed to the emergency room, you're not worried about the cost. But 60% of healthcare is shoppable, meaning it's an elective surgery, medical test, or diagnostic exam that shouldn’t have much cost variation amongst providers. These services present a great opportunity to allow the laws of market competition to operate.
One study estimates that $760 billion is wasted in the US healthcare system every year, with "administrative complexities" as one of the main culprits. If a transparent upfront price was offered, and most medical care could be paid for in advance just like an airline ticket, medical centers could cut a significant portion of their administrative staff that's involved in billing and debt collection.
Furthermore, if pricing was transparent, Americans could actually start pushing the market towards rewarding those who offer a fair and honest price and pushing out the bad actors.
That, in turn, would allow more Americans to have access to healthcare.
We don't need the government to take over our health care. Just the opposite. We need the government to get out of the way. Let entrepreneurs innovate in the healthcare space. Whenever they do, prices go down and quality goes up. It's already happened in fields like laser eye surgery, MRI testing, and plastic surgery.
Giving consumers better information always leads to better decisions, and healthcare is no exception. Price transparency not only lowers costs, but it puts the patient back in the center of what medicine is all about: helping those in a time of need.
Price transparency. We all want it. So, let's do it.
I'm Will Bruhn, co-founder of Restoring Medicine, for Prager University.
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