Casting Light on Medical Price Variation
Castlight (NASDAQ: CSLT) which blew the doors of its IPO last March has finally shared with the public some of the value it has been providing its customers. Castlight’s business is to cast light on the opaque prices that health insurers and providers negotiate between themselves and then impose on patients and employers:
When looking at cost within cities, the price range for the same service can be staggering. Home to the Yankees and the Empire State Building, you can now also find the most expensive MRI in New York City, coming in at a whopping $4,527. And while expensive MRIs may not be news, this is: The same MRI is available to New Yorkers for $416. There are many more examples of wide pricing for the same service:
– If you live in Dallas, you could pay up to 23x more than necessary for a lipid panel (from $15 to $343)
– In Philly, you could pay up to 12x more than necessary for a CT scan (of head/brain) (from $264 to $3,271)
– And in Phoenix, you can pay nearly 5x more for an adult preventive primary care visit (from $40 to $195)
Prices for the same services vary greatly between cities as well:
– A primary care doctor visit in San Francisco ($251) is 2x more expensive than in Miami ($95)
– A lipid panel in Indianapolis ($89) is 5x more expensive than Pittsburgh ($19)
– A CT scan of the head/brain in Sacramento ($1404) is more than 2x more the cost in Orlando ($611)
– MRI of lower back in Sacramento ($2635) is nearly 3X more expensive than Seattle ($907)
Prices need to be more transparent for consumers. This is the only way they get away with such large price disparities for the same medical procedure.
Health care prices will stabilize and become more affordable when prices don’t vary as much.
At least there is a company like castlight that is showing medical price variation. Perhaps this could be a turning point to empower patients not to be overcharged.
Castlight has generated huge buzz in business circles. Its customers are employers, not individuals. I wonder how it will shift its model if the forecasts of widespread collapse of employer-based health care come to pass?
“If you live in Dallas, you could pay up to 23x more than necessary for a lipid panel (from $15 to $343)”
This is a great example of the sad state of health care in America.
This is a neat service – I’m not denigrating it in any way. But policy wonks put too much emphasis on achieving price transparency in health care. People often make the erroneous assumption that price transparency is a necessary condition for patients to engage in price comparison. Actually, the desire to engage in price comparison is a necessary condition for achieve price transparency. It’s not transparent prices that result in a competitive marker. Rather, it’s competitive markets that are characterized by price transparency. In other words, price transparency is what naturally results when consumers force suppliers to disclose the price — and compete on price — or risk have no customers.
Very good point Devon. What we need are some more price conscious consumers. And what will give patients the incentives to seek out lower prices? Putting some skin in the game is an obvious start.
That’s where insurance companies and the government have the direct effect of raising prices for medical supplies and services. Patients no longer care what healthcare costs (beyond their copay) and thus doctors do not have to compete.
What we need are Health Savings Accounts. These give people and incentive to make wise healthcare choices…something Obamacare will never do.
http://www.youtube.com/watch?v=3WnS96NVlMI
When there is this much variation, the “average” has much less meaning. For that matter, the standard deviation also has much less meaning. That definitely hampers analysis and it should make you suspicious of reports or experts that cite “averages” in regard to the cost of medical care.
Devon is absolutely right.
Under current practice, a hospital or cliinic that does not disclose prices still gets paid. (and in some cases, can still send a patient to vicious collection agences.)
In my writing I advocate the following new law:
If a patient requests a price quote, and never recieives it, he owes nothing on his bill. Zero.
This will cause a sea change “quick as hell.” And it is not a very complicated law.
Car mechanics face these kinds of laws all the time. We indulge doctors and hospitals because they have higher class status than car mechanics. This should stop.
“If a patient requests a price quote, and never recieives it, he owes nothing on his bill. Zero.”
Bob, what’s to stop every “quote” being $100.00? Why wouldn’t your not-very-complicated law add cost for every provider just to supply not-very-useful information to the patient?
“Car mechanics face these kinds of laws all the time. We indulge doctors and hospitals because they have higher class status than car mechanics.”
Piffle. It’s a lot more complicated than “higher class and status” and you know it. You are comparing the practice of medicine to auto mechanics. That’s preposterous. For one thing, a human body is a bit more complex than an automobile. For another, car mechanics don’t have to fix cars while the engine is running.
If this is the case, what insurances are in-networked with these substantially higher priced services?? Where is this $4572 MRI getting its customers? Cash paying? Private insurance? If private insurance , then I could see maybe a gold plated plan offered to top executives at JP Morgan. And then maybe. I think there’s more to this story than meets the eye.
Thank you. This a limit to these price comparisons. Third-party payers don’t actually worry very much about prices of medical services for which they are processing claims all the time.
Rather, they are concerned with variance from various providers. So, if the provider in question is providing few MRIs, this price may not be a priority for review by the third-party payer.
A functioning market would re-bundle the services and re-price them.
Notes to John:
In my reform, the medical provider would have to honor their quote, if nothing unusual or dangerous occurred during the procedure.
In my experience, the vast majority of independent doctors are considerate of their patients and already advise them of extra costs, without government needed at all.
But more and more doctors are being taken over by greedy hospitals and ACO’s, with many unjustified extra charges. There are a lot of complaints about this, I can send you citations.
“In my reform, the medical provider would have to honor their quote, if nothing unusual or dangerous occurred during the procedure.”
Oh, I see.
So now don’t you need to explain what you mean by “nothing unusual or dangerous”. You also need to explain how your reform would deal with unexpected complications that the physician may encounter during a course of treatment. You also need to explain how, exactly, providers would be compelled to honor their quote.
Seems to me you are actually proposing a very complicated proposal that would be enormously expensive to administer and would not be administered by physicians.
What’s to like?
John, let’s try to find some common ground here.
The original post by Mr Graham certainly left me with the impression that prices for medical procedures are a problem. Some people are being gouged.
Especially for anyone with a high deductible plan, which is coming to include most Americans under age 65.
Now maybe the gouging is so rare that we need not address it. I do not believe that however.
So the issue before us is how to minimize the price gouging.
We could in theory do what is done in Germany and France and Canada and to some extent in Japan. The doctors form a large committee, and this committee meets with a government board, and they hammer out a universal fee schedule. Every doctor in every city abides by that schedule. Tnere is no gouging.
I say in theory because I do not think this would work in America. Doctors might never be able to form one committee, and the bureaucrats in Washington may not be smart enough to negotiate (if the ACA is any indication).
So we take that potential solution off the table.
What is left? I think that was is left is some enhancement of consumer rights on the part of the patient.
My formulas may need a lot of work. However the tone of your remarks seems to imply that no formulas will work.
“the tone of your remarks seems to imply that no formulas will work.”
Bob I think you are spending too much time thinking about tone. I would say it appears we agree that your idea while offered with good intentions, is not a solution. That’s some common ground.
I was going along with Mr. Hertz’ comments until the notion of a universal fee schedule came up. We do that for Medicare, to the frequent mockery of this blog.
However, the idea of not being liable for payment if the provider does not provide a good-faith quote but give the medical service anyway is a very reasonable, common-law based approach that I wrote about at the blog a while back.
Yes, I agree.
Still, on occasion physicians who give a good faith quote, will find something materially unexpected while performing the procedure. This strikes me as a soluble problem – insurance companies do something akin to this when issuing service authorizations – but a solution would still need to be worked out which may well be more complicated than insurance authorization.
Yes, it is a very soluble problem. Variance is one factor. That is, if the doctor finds “something unexpected” in 9 of 10 operations, we have a chap who is not diagnosing properly.
What needs to be exposed is the collusion of hospitals and insurance companies and the deep pockets pricing mechanism insurance companies use. Children’s hospitals routinely gouge insured patients who pay list prices versus negotiated prices. Insurance companies also vary premiums based upon median wages with industries with higher wages paying higher premiums regardless of health status. Health insurance has been socialized for a long time.