President Trump An executive order has been issued In February, the title “Employing Patients Through Radical Price Transparency” promises to use the free market to dramatically lower prices. Trump says his executive order will allow Americans to learn that “the true price of healthcare services… can buy the highest quality care at the lowest cost.”
The goal is commendable, but price transparency doesn't work as Trump claims. In fact, you can't do that. “Transparency” does not indicate actual prices and does not reduce costs. Additionally, it is insufficient to assess the quality of care (high, low, or even substandard) because medical outcomes are not part of price transparency.
In all commercial transactions except for medical purchases, the price equals payment. The seller can sell something and discount the original price, but even so, the discounted price that is openly advertised (i.e. transparent) or the buyer doesn't know who to buy from is what the buyer pays and what the seller receives.
This is so common that we assume that “price” is equal to “payment”. What else should I do?
But thanks to third-party payment structures, otherwise it's healthcare. The buyer is a consumer, but not a payer. A third party (insurance company or government) will make the payment. So, in contrast to other transactions, if a patient “buys” healthcare services except for small co-payments, they don't pay with their own money. Rather, they spend other people's money.
Most people have limited financial resources. When they spend their money, they have a strong incentive to minimize their spending. In healthcare, people don't have to “shop” because they spend their money on others, not their own. Transparent prices do not change your purchasing behavior as there is little reason to choose cheaper care.
There is a second issue with price transparency. Most people translate experiences in other markets into healthcare and assume that the advertised price is what you pay. This is not the case with healthcare.
For example, let's say a hospital has established a $5,000 fee for repairing a hernia. Price transparency states “In-diameter hernia repair, one side, $5,000.” Hospitals use billing code K40.90.
Hospitals have a variety of health plans and contracts, each plan may have slightly different negotiated discounts for code K40.90 based on Medicare's acceptable refund schedule. That schedule will predetermine what the government will pay for the claims. Acceptable refunds (governmental payment language) range from 95% to less than 5% of the fee, typically around 40% of the fee. When your health plan adds its own discount, your actual payments are often less than 25% of the fee.
So price transparency generally gives a massive, inflated idea of what is actually being paid. People look at $5,000 for repairing hernia and think that if the doctor only earns $1,250, the doctor is earning $5,000.
Before resigning, we performed cardiac catheterization procedures for children with severe congenital heart disease. Billing code 93454. If you had to use the device, the fees ranged from $1,500 to $10,000. Medicaid paid the maximum allowable refund: $387.
Medical pricing transparency in third-party payment systems cannot function to lower prices as price-driven incentives are not saved. Furthermore, price transparency gives patients a false and exaggerated impression of what is being paid to care providers.
When price transparency fails, the public is either blaming Trump (who believes he cannot be entitled) or pointing his fingers at greedy doctors and predatory hospitals, perhaps losing the misery of others (but not). Both are wrong.
Dean Waldman, MD, MBA is a professor emeritus in pediatrics, pathology and decision-making science, former director of the Texas Public Policy Foundation's Healthcare Policy Center, former director of the New Mexico Health Insurance Exchange, and author of 12 books including “.American Health Care Cancer Treatment:StatesCare and market-based medicine. ”
