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OPINION
Editorials and Debates

Most health costs data of little use: Opposing view

Paul Ginsburg
After knee replacement surgery.

The idea of turning passive patients into active consumers using cost and quality to choose doctors, hospitals and treatment options is a compelling but unrealistic solution to our serious health care affordability problems.

In theory, price transparency is a powerful tool. In practice, price transparency makes little difference to most insured consumers because the structure of their health benefits does not reward the choice of lower-cost providers.

Modest deductibles and co-payments of any size mean that what the consumer pays does not vary by the provider used. Co-insurance, where patients pay a percentage of the cost, encourages limited price consciousness and only until out-of-pocket maximums are reached.

One hospital stay typically will exceed even a large deductible. Indeed, roughly 10% of people account for 70% of annual spending, putting a large portion of medical spending beyond the influence of current price incentives.

The byzantine nature of health care pricing means most price information isn't useful for consumers. A patient contemplating a knee replacement doesn't want to know the price of each service but rather the total cost of care, including the hospital stay, physician services and rehabilitation.

A significant barrier to effective price transparency is limited quality information. Understandably, people are reluctant to choose a provider on the basis of price without sufficient quality information. And some will see price as an indicator of quality and shift toward higher-priced providers, the opposite of the intended effect.

Another potential unintended consequence is disruption of market dynamics. Antitrust experts know that in concentrated industries — hospitals come to mind — price transparency can lead to higher prices.

Payers are in a much better position than individual consumers to collect and organize quality and price information to identify high-quality, efficient providers. The next step is to design benefits with clear incentives that guide patients to higher-performing providers.

One example would be a much lower deductible when a patient chooses a high-value hospital. Another approach is reference pricing, where insurance covers almost the full cost of care at facilities that meet quality standards at prices below a threshold. Consumers can opt to go elsewhere, but they pay the full amount above the threshold.

Paul Ginsburg, an economist, is president of the non-partisan Center for Studying Health System Change and research director of the National Institute for Health Care Reform.

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