Patient Power Puts Pressure on Prices

A study recently published in Health Affairs describes how price transparency drove down the cost of MRIs by almost twenty percent from 2010 to 2012. Compared to patients who did not have the advantage of transparent pricing, cost per procedure dropped $220. Further, there was a significant shift from hospitals to outpatient facilities.

This result is just the beginning. It was not a result of true consumer-driven health policy, but an intervention by an insurer. When a physician referred a patient for an MRI, the insurer required prior authorization before paying for it. When the patient called for prior authorization, the customer-service rep was able to give the patient the choice of a lower-cost provider in the same area. Importantly, the insurer’s rep was able to tell the patient how much he or she would save by using the lower-cost provider.

This is something that providers resist mightily — for obvious reasons. As a consequence, more expensive providers, especially hospitals, dropped their fees significantly. This resulted in a 30 percent compression of prices.

It is a step in the right direction. The article notes that government dictating price transparency has no effect — something we have discussed previously at our blog. Nevertheless, there is a lot further to go. For example, one third of the patients had zero co-pay or deductible, so were completely insensitive to price. Also, it still requires too much bureaucratic intervention. Why should a patient have to call the insurer to figure out the best price for the service?

For reducing costs, imaging is probably low-hanging fruit. Nevertheless, this experience teaches valuable lessons. Prior authorization alone (when an insurer simply makes a yes or no decision on whether it will pay for a procedure) is a cause of irresolvable conflict between payers and providers. Because the patient remains insensitive to price, if the physician decides to do the paperwork for prior authorization, it does not reduce costs. This was confirmed for Medicare in a Congressional Budget Office estimate in 2013.

However, introducing price sensitivity to prior authorization “softens up” the decision for both patient and insurer: The patient understands that the insurer is trying to get the best bang for the buck, not just prevent access to diagnosis.

What are the next steps?

  • Private insurers can make prices of credentialed providers even more transparent, by posting fees on their websites and clearly informing patients about how much money they will save by going to low-cost providers.
  • Private insurers can design ways to financially reward patients who have no co-pays or deductibles to make price-conscious decisions also.
  • Medicare can also design ways to reward beneficiaries for making cost-saving imaging decisions (likely through Medigap plans, which often cover beneficiaries’ co-pays).

This is still a long way from consumer-driven health care. However, like reference pricing for surgery, this experience should motivate insurers to continue experimenting with letting patients know, understand and respond to the prices of medical care.

Comments (37)

Trackback URL | Comments RSS Feed

  1. Ron says:

    Since Medicare beneficiaries are heavy users of medical care and a major source of provider revenues, it would be greatly impactful if Medicare provided incentives for cost effective alternatives. Allowing a Medicare HSA with rewards going into the HSA account for choosing among competitive transparently priced services would advance the future of lowering costs substantially. Free market competition always works, but we are American’s who also expect to be paid to do the right things.

    • Ron Greiner says:

      I agree Ron, in Medicare they are called tax-free MSAs. John, I took Scott Krienke with me when I went to Dallas in 1996 to the 7-Eleven tower to sell tax-free MSAs. Scott is now the big-dog at TIME but in 2011 he was a lowly VP. In 1996 he was much less but he learned a lot in Dallas about the MSA. I’m always training people for nothing. This is what Scott said in 2011 to your question:

      Assurant Health Now Offers Payment Advocacy Services
      Posted on February 16, 2011 by Martin Trussell
      Milwaukee, Wis., February 15, 2011—Assurant Health announced today that it will be offering a payment advocacy service to all its Assurant Health AccessSM customers who have more than $500 in out-of-pocket expenses related to their healthcare. This service is available through Assurant Health’s agreement with Health Payment Advocates (HPA), a healthcare financial advocacy firm, at no additional cost to its customers.

      The advocacy service helps Assurant Health Access customers understand their financial liability and assists them in managing and reducing their out-of-pocket medical expenses that exceed $500, regardless of the reason. Assurant Health Access is Assurant Health’s convenient, low-cost option for individuals who want coverage for routine medical care expenses, as well as cost sharing on many major expenses, without large deductibles.

      When customers use the HPA services, experienced professionals will serve as their advocates with medical providers to find solutions acceptable to both parties. These potential resolutions can include discounts on the amount owed or enrolling the customer in a payment plan or charity care program.

      “We are always looking for new ways to differentiate our offerings and provide additional services for customers,” said Scott Krienke, senior vice president, product and marketing at Assurant Health. “At a time when plan members are becoming responsible for an increasingly large share of their health care expenses, we feel it is important to provide them with tools and services to help manage those expenses.”

      “We conducted a pilot of the HPA services across our entire book of business over the last year, and the results exceeded our expectations. That’s why we’re now offering this service to individuals enrolled in our Assurant Health Access product to help them manage their exposure if they exceed coverage limits and have high out-of-pocket expenses.”

      “We welcome the opportunity to continue and expand our relationship with Assurant Health,” said Terry Harris, president of HPA. “The recession, healthcare reform and continued cost-shifting have all caused hardships for many healthcare consumers.”

      About Assurant Health

      Assurant Health has been in business since 1892 and is the brand name for products underwritten and issued by Time Insurance Company, John Alden Life Insurance Company and Union Security Insurance Company. Together, these three underwriting companies provide health insurance coverage to people nationwide. Each underwriting company is financially responsible for its own insurance products. Primary products include individual medical, small group and short-term health insurance products, as well as non-insurance products and consumer-choice products, such as Health Savings Accounts and Health Reimbursement Arrangements. Assurant Health is headquartered in Milwaukee, Wis., with operations offices in Minnesota, Idaho and Florida, as well as sales offices across the country. The Assurant Health website is

  2. Kenneth A. Fisher says:

    Next step, offer expanded HSAs to cover direct care & nationally available HDHP which will force total price transparency. Do so on a voluntary basis for all Americans including Medicare/Medicaid. Watch the stampede out of 3rd party control.

    • says:

      Agree. All the consumer market is waiting for is a little more incentive and a level tax-friendly environment. The changes you propose would be just what the doctor ordered!

  3. Perry says:

    Prices for scans are absurd. My wife had a CT in February, we just got the bill. The charge was over $4000, the insurance discount was about $3000, so patient would pay $1000. Yes, these machines are expensive, but not worth $4000. Auto dealers would never get away with this kind of pricing.

    • Allan says:

      I’m not sure which type of MRI your wife had or where you live, but try calling the centers in your area and see if you couldn’t get a better price for cash. A friend of mine always found a place that charged less for cash than my insurance company paid.

      • Perry says:

        Yes, good point Allan, actually it was a CT scan, but same concept. She had it done at the facility where she worked because she knew who would read it. That facility is associated with a hospital and known to have higher prices. Next time we may check around more.

  4. Al Baun says:

    “… the CMS announced it would start providing information under Freedom of Information Act requests on how much Medicare pays individual physicians. Employers, news organizations and watchdog groups have been seeking that information for many years. The American Medical Association immediately protested that the policy could violate the privacy rights of doctors and patients.”

    I thought this was suppose to be the era of ‘transparency’? Information is power.

    “In addition, experts are pointing to a little-noticed 56-word provision buried in the Patient Protection and Affordable Care Act requiring all hospitals to publish a list of their standard charges for items and services, including Medicare DRG charges. While HHS hasn’t yet issued a rule implementing that provision, Sect. 2718 (e), some experts say that when it is implemented, it could create powerful pressure for even greater price transparency.”

    Maybe the ACA isn’t all bad afterall.

  5. Beverly Gossage says:

    Most carriers already do number one on your list, and as deductibles have increased, more members are taking advantage of it.

  6. Devon Herrick says:

    I have a friend who experienced a similar problem when she was ordered to have a CT scan. Prices ranged from $2,700 at a local hospital outpatient facility to $435 at a free-standing radiology clinic. She had no idea prices varied like that. She only became aware because she complained to me about having to spend $2,700 and I asked why she would even considering getting it done at a hospital. I found a facility that would do it for $435. I was able to easily do so only because the clinic had posted prices for major payers on its website. I wonder if that wasn’t a violation of its contract.
    I don’t believe her insurer had any tools to help her search for better prices. But, it should have. Or if it had tools it should advertise the tools to members better.

  7. charlie bond says:

    Good morning John,
    Since the mid-90’s I have been writing and speaking about the absence of cost-based pricing in health care. If one defines a “bubble” as a sector of the economy that is not tethered to economic reality, health care is the largest bubble in the history of humankind.
    That bubble is bursting. As it bursts, many institutions will be toppling–or at least wobbling mightily. No longer can the price of surgeries vary by tens of thousands of dollars–not just from hospital to hospital, but within one hospital, depending on the payor.
    No longer can drug prices be manipulated like the pea in the shell game.
    No longer can a bedside box of Kleenex be charged at $25, even if the patient did request it; no longer will a bandaid go for 12 bucks.
    The examples are endless.
    Yet it is remarkable that brilliant minds, such as those who write and read this blog, are intrigued by the fact that price transparency may reduce the cost of care.
    Come on friends, this is pure common sense.
    As the price revolution emerges and health care is redesigned to eliminate waste, there will undoubtedly be sacred cows that will have to turn into fatted calves–either that or we’ll have to roast ’em up on a big old bar-b-que. Either way we need to restore sensibility to the largest sector of our economy.
    Wouldn’t it make sense to begin by allowing government programs (e.g. Medicare and Medicaid) to bid competitively for the drugs they buy?
    In the meantime the market will work wonders. “Price sensitivity” as you call it will be coming to American households in spades. The exchange plans, as well as more and more employer plans, are featuring high deductibles, higher co-pays and lower levels of coverage. As a result the average American’s out-of-pocket health care costs will go ever higher. The ironic consequence of the Affordable Care Act is that care will not be affordable for many Americans. What many Americans will discover (the hard way) is that even if they buy policies, they will wind up with huge out-of-pocket costs. So the legislation that was designed to provide more coverage for people, will actually result is less coverage and less care for many.
    Getting health care prices down presents the single greatest challenge of our generation–and we are failing miserably. It is time that we collectively address this issue with real populist urgency. If we don’t health care costs for the Baby Boomers will bankrupt the country and assure that our children and their children will be the first generations to suffer a lower standard of living than we have enjoyed. Shame on us if that is our legacy to our kids!
    Charlie Bond

    • Ron says:

      With the consolidation of providers and hospital purchases of physician practices, we are seeing an dramatic increase in medical charges. The biggest scam is the hospitals billing for now owned providers as hospital out patient charges. My wife’s recent annual physician visit for an inherited blood condition went from $125 for an office visit to $783 billed as a hospital outpatient visit even though the location of the service was still in the doctors office.

      Transparency? Ya, right.

      This seems ripe for a class action law suit or fraud investigation.

      • Devon Herrick says:

        MedPAC recently advised Congress to narrow reimbursements so services are reimbursed similarly regardless of site of service. I can see how hospitals may want to employ some doctors given that many doctors don’t want to make hospital rounds. But, I would like to think employing doctors is to boost efficiency. At NCPA we’ve often said that too often in health care providers compete on maximizing revenue against reimbursement formulas rather than compete on efficiency. We need to encourage the latter, not the former.

        • Allan says:

          Devon writes: “I can see how hospitals may want to employ some doctors given that many doctors don’t want to make hospital rounds.”

          Devon, hospitals employ hospitalists for that task. I think the reference Ron makes is to practicing physician as a group which may or may not want to make hospital rounds. I think hospitals *owning* the physician is dangerous long term.

          In the past hospitals hoped to capitalize on their ownership of physicians by depriving other hospitals of those same physician services and keep the physician interactions and testing at their institutions. They also thought they could reduce overhead.

          A good number of years back they were proven wrong as they ended up losing a lot of money from these physician purchases. At least in my area the physicians worked less and the overhead I believe went up. A game plan of stealing physicians that are free from another entity doesn’t work well when that other entity is stealing from you. It gave the doctors bargaining power because with choice they could choose and say no.

          Today I note that hospitals are again acquiring physicians, but the contracts aren’t as tight and some of the physicians tell me that the hospitals are not keeping to the intended contract paying the physician the bonuses previously agreed upon despite the fact that many of the fees are higher. In the circumstances I am aware of the hospitals do the bookkeeping so the physicians are at a great disadvantage.

    • John R. Graham says:

      Hmm…… Don’t you think there is a contradiction between advocating that patients take more control of spending via price transparency and advocating that government centralize the pricing of prescription drugs through so-called “purchasing power”?

      Imagine if the government centralized the purchase of automobiles or groceries for citizens based on this principle. We would starve on our feet.

      • Devon Herrick says:

        NCPA published a 2-page brief coauthored by Alain Enthoven back in 2005. Enthoven explained “purchasing power” was not the same as “bargaining power.” Bargaining power only came from the ability to say “no” and deprive a firm of your business.

        Walmart may have purchasing power, but their bargaining power is what gets them low wholesale prices. The government lacks the power to tell drug makers it’s unwilling to buy their products. The private drug plans that run Medicare Part D already have significant purchasing power. They also have the bargaining power to play drugs from one class off against similar drugs from another class and negotiate lower prices.

        • John R. Graham says:

          Plus: Wal-mart is a middleman. If individual customers did not go to Wal-Mart of their free choice, Wal-Mart would not have any power over suppliers.

    • Al Baun says:

      “So the legislation that was designed to provide more coverage for people, will actually result is less coverage and less care for many.”

      Wise comments as always, with the small perception noted above. A more accurate way of putting this scenario is … ‘the legislation (ACA) has made new coverage and lower costs available for many, however, due to expanded benefits and higher interim (2014)premiums, many others have chosen to select less expensive policies which, as a result of their own (or employer’s) choice, may reduce their covered services and increase their potential out of pocket risk.’

      One should not blame legislation for people’s choices.

      • Allan says:

        One can blame the legislators for giving people less bang for their buck and for many a decline in their economic well being or loss of a job because of this legislation. It can also blame the legislation for training physicians and other providers to treat widgets instead of real people.

        • Al Baun says:

          The last time I checked, it was not the duty of Congress to maximize citizen’s bang$ but to ‘regulate commerce for the general welfare’.

          And again, the providers are the final say in how they treat patients and remuneration may or may not be in line with each provider’s choices.

          • Allan says:

            “The last time I checked, it was not the duty of Congress to maximize citizen’s bang$”

            It isn’t, but they aren’t supposed to be the one’s that reduces the bang for the buck because of stupid regulation based solely upon ideology.

            I note your last comment. You do understand what coercion means don’t you?

  8. Don Levit says:

    When people have a direct contribution plan that pays for first dollar expenses, if the insured decides to do so, he will be more cost conscious, because as the balance in his account reduces due to excessive prices, so too does his funded deductible reduce, increasing the premium.
    Don Levit

  9. Allan says:

    From what I have seen the lower prices always existed. Patients I know that used to have high deductible insurance used to get prices at least as low as Medicare rates if not lower. The insurers were paying for the calculated marginal costs plus profit for the MRI and what a cash patient paid was pure profit less expendables.

  10. Bob Hertz says:

    Note to Ron:

    Thanks for your example. I despise the way that hospitals buy up doctor’s practices and then charge hospital rates for ordinary office visits.

    We need a consumer protection agency that despises hospital greed, and is willing to stand behind patients and reverse unconscionable charges.

    I suspect that the laws to enable this are already on the books in some format.
    But I think we need legislators who are willing to spurn hospital lobbyists and contributions and act in the public interest.

    It does sound like a Ralph Nader type of crusade. Or, as he ages, Elizabeth Warren.

    Conservatives do not like these figures, but have they really put up anyone of their own?

    • Ron says:

      I don’t think this is a liberal/progressive versus conservative issue. Some folks try to make everything political and view issues through that lens. The hospital overcharging and changing charges to hospital outpatient just because they now do the billing and/or own the MDs practice is an honesty and business practice issue. I think it is illegal and any lawyer (Rep or Dem) can file a class action suit. The market can work within the parameters set by legislation. As you said, legislation probably already exists.

      Example: I once worked for a company that charged clients for retail airfare costs, but received a rebate that was not then passed along to those charged. I objected, but ultimately a smart lawyer filed a class action and the courts rules against the practice.

      “Just because someone becomes a CEO or Board member does not make them smart.” Hence, where is W.T Grants and Montgomery Ward?

      • Allan says:

        It might not make them smart, but you don’t prove your point with the example of Montgomery Ward. That is a poor example. The founder is long dead. The company survived for a century plus a couple of decades. That is a pretty good record.

        • Ron says:

          And my point that not every issue show be viewed as a liberal vs conservative is what??? You seem to imply that only liberals (Nader & Warren) are consumer advocates. Is that your world view?

          • Devon Herrick says:

            My observation is that consumer advocates generally don’t actually trust consumers to make their own decisions. I’ve always suspected many consumer advocates mostly distrust producers, and distrust consumers’ decision-making. People who favor free markets tend to trust consumers; and trust them to keep crooked producers in check.

            • Ron says:

              Devon, I agree that the term has been generally used by liberal advocates with a focus on distrusting corporations and assuming consumers cant do for themselves. My agreement with you is also that the term, in reality, has a dimension of market competition, consumer choice, transparency advocates, and consumer literacy programs that companies, vendors, and even non-profits sponsor to differentiate themselves to gain or win customers from their competition. That is why I asked Allen if his “world view” is limited to the narrow one-sided liberal view.

              In my “world view” conservative consumer advocacy is much broader and more inclusive in truly helping consumers with choice, lower costs, better quality, and client service.

              • Allan says:

                “That is why I asked Allen if his “world view” is limited to the narrow one-sided liberal view.”

                Huh? Why would you think my “world view” is Liberal unless you are thinking classical liberal without the capital L. Perhaps you are confused, very confused.

          • Allan says:

            Ron, your reply was under my name so I am assuming you are responding to me, but I can’t grasp how your reply has anything to do with what I said.

            I thought your example of Montgomery Ward was poor because the company lasted for over 120 years and that says a lot of good things about its leadership. Additionally I agree with at least some of the points Devon made.

  11. Elizabeth C. says:

    Great post illustrating the importance of price transparency in driving down medical costs! I just experienced this in setting up an updated MRI test. Six years ago, I was quoted a price of $1,200 so I checked with a stand-alone lab a mile or so from the hospital and found one for $618. Just for grins, I called around to a hospital across the street and found the exact same test could be had for $3,500! These were all the “negotiated” rates, as set by my insurance company and they varied wildly from lab to lab. Two years ago, I had another MRI…this one at my neurologist’s lab. It was $721. This week, when I was scheduling another I told his nurse that I have a $5,000 deductible and an HSA. She offered to give me what they called the “contracted rate” which was a mere $306. I am learning to ask questions, explain my status and negotiate for the best price. It’s a new world for health care and each patient must be an active participant in health care costs. It’s the best way I’ve found to drive down the expense.

  12. James R Chaillet, Jr., MD says:

    I enjoyed the article for shedding light on the wide disparity in pricing of some imaging studies. I would like to see more on actual cost accounting for various medical services. Take MRI for example- and I’m using “ballpark” prices and figures. An MRI machine cost $1 million dollars. Assume throughput of 2 patients an hour for 18 hours a day, seven days a week. That’s 252 patients a week or 12,600 patients a year, allowing for 2 weeks of down time for maintanence.

    At $100 a test that’s $1.26 million a year. All the $0.26 million for maintanence and supplies and at reasonably full capacity the machine is paid for in one year.

    Allow $300 for radiologist’s interpretation (not bad for perhaps 1/2 hour of his/her time) and you have a test that should cost about $400 dollars – if you want to fully amortize the equipment in one year. I suspect the machines have a life of about 5 years.

    Now one can challenge my specific numbers. However, two results remain. One, people paying for medical services need to start figuring out what things/ services cost to make. Second, there is likely a lot of room for price reduction (cost savings) for those people willing and able AND with the incentives to put in the effort.

    • studebaker says:

      Another factor that keeps prices high is that MRI machines are usually leased rather than sold. I know a guy who works in medical real estate, which often involves equipment that is not easily moved. Once the machines have been used for a few years, they’re refurbished and sold abroad where they won’t complete against sales of new machines.

  13. Allan says:

    When discussing MRI’s and price one should recognize that the cost of MRI machines vary as does their power. The highest power requires more intense pre MRI evaluation and cost as the power can throw things around the room. That is an increased risk and cost, however it provides a better image. The newer models have advantages as well even if the power is not the highest. There is also the risk of capital loss should a new machine or a new center create competition. Thus the price has to reflect increased costs and risks. Not all procedures require the newest or most powerful.

  14. Bob Hertz says:

    Note to Dr Challet — thanks for your clear writing.

    If the MRI machine is leased rather than purchased, it seems that a hospital needs even fewer than 12,600 patients a year to break even.

    If the US government acted like Canada or Germany or France or Japan and regulated the price of MRI imaging,
    what would happen?

    One consequence might be that smaller hospitals that had low annual patient totals could no longer offer the best imaging. Patient might have to drive 100 miles for the best testing.

    Not the end of the world, I suspect.