Price Transparency Laws Don’t Work

HSAIn a functioning market, you know what you owe before you buy a good or service. That is not the case in health care, as we know. Because of increasing deductibles, the failure of price transparency is becoming increasingly irritating to patients.

Some believe a solution can be legislated. This has occurred in New York and Massachusetts; and one of my favorite state legislators, Senator Nancy Barto, has tried to legislate it in Arizona.

Effective January 2014, Massachusetts law requires health providers to provide a maximum price for a procedure within 48-hours of a prospective patient asking. Well, it has not worked, according to a ”secret shopper” survey of professionals conducted by the Pioneer Institute:

Dermatology practices were asked the price of a routine exam and removal of a wart.  Office staff were not well informed about the law and didn’t have systems in place to provide prospective patients with price information.

When price information was obtained, it often came in wide bands such as from $85 to nearly $400

Gastroenterology practices were asked for the price of a “routine screening” colonoscopy with no removal or biopsy of polyps.  This proved to be the most complex request because the procedure requires at least three fees: the gastroenterologist’s, the anesthesiologist’s and the hospital or clinic facility fee.

Many doctors, facilities and anesthesiology services required the consumer to provide a “current procedural terminology code” to get a price estimate despite its not being required under state law. When all three fees were included, the overall routine colonoscopy fee ranged from around $1,300 to $10,000.

I have always suspected that laws which simply command that prices shall be transparent would fail, and it looks like I am being proved correct. They simply cannot be reasonably enforced. A better solution is what I call the common law approach.

Comments (22)

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  1. Barry Carol says:

    I think hospital managements could easily fix this if they thought it was important and made it a priority. I suggest the hospital CEO, president, and / or CFO be the secret shopper and call his own hospital for price information. If he finds that there is no good information to be had, he can order the problem fixed and hold people accountable if it isn’t fixed. It’s not rocket science.

  2. John Fembup says:

    “if they thought it was important”


  3. John Fembup says:

    I never repeat myself. I never do. I never do

  4. Bob Hertz says:

    This discussion is going off the track.

    There is a plain-jane solution to making transparency laws more effective, which is this:

    Pass an additional law which states that a clinic that does not provide an estimate for a non-emergency procedure will not get paid, either by insurers or patients.

    We will then see readable estimates ‘as quick as hell.’

  5. Barry Carol says:

    Bob – I don’t think that would work. What if the procedure is an elective surgery and complications develop? Even if the patient is not under anesthesia, he’s not exactly in a position to refuse the extra work whether he can pay for it or not. By contrast, if a car mechanic tells me that my 10 year old car needs a very expensive repair, I can choose to just junk the car which I actually did a few years ago.

    I learned to my surprise yesterday that the Medicare law includes a provision called Section 1866 which says providers will not be paid more than the standard FFS Medicare rate for out of network care provided to Medicare Advantage members. As a result, most insurers pay hospitals between 100% and 105% of Medicare on behalf of their MA members even as those same insurers pay far more for their commercially insured younger members. You can find the article in the most recent issue of Health Affairs.

    I do think there needs to be adverse consequences for providers who fail to provide price transparency for non-emergency procedures which could most likely include fines and the requirement that they take corrective action.

    For emergency procedures, I’ve said many times that there needs to be a limit, probably some percentage above Medicare, on how much hospitals and doctors can charge for out of network care and if the patient is uninsured. My preferred limit is 125% of Medicare.

    • John Fembup says:

      I don’t think requiring an “estimate” would work, either. When the actual bill is presented it can still be different – perhaps very much different – from the estimate. What’s the point?

      Who would determine the estimate in the first place? Wouldn’t the government insist on writing the rules for making estimates? Given the complexity of medical practice, wouldn’t the rules be – or become over time – correspondingly complex? Why might that work any better than the old “UCR” rules worked?

      Seems to me a new steaming pile of complex rules for estimates would mainly add to the cost of delivering care. Why do that? And what’s the point of pretending the cost of medical care delivery can be managed by fooling around with reimbursements?

      “By contrast, if a car mechanic tells me that my 10 year old car needs a very expensive repair, I can choose . . . ”

      Exactly. A living human is not an inanimate object like a car. If I heard my uncle the physicians say this once, I heard it a hundred times: a mechanic does not have to repair your car’s engine while the engine is running.

  6. Eric Novack says:

    John- agreed that you cannot legislate people to ‘do the right thing’ — the intent of the AZ laws was not to legislate transparency…

    The intent is to ensure that, under our ever increasing world of regulatory capture in healthcare, that consumers have the right to get access to direct pay prices and that neither patients nor providers get penalized for being innovative in direct pay care pricing/packaging and payment.

    Your proper contrast is Medicare, where direct payment for services is banned outright, and negotiating prices is a felony.

    • I’ve thought long and hard about your AZ bill over the years and remain skeptical. The question of a good-faith estimate that has some power to bind the provider is one thing. But publicly posting a list of the so-called “direct pay” price for the 50 most common procedures is rife with problems.

      Let’s take airline travel. Any of us can buy a plane tik from Phoenix to Dallas in about five minutes and know exactly how much we’re paying.

      However, if the government demanded that the airlines publish prices twice a year showing “the direct pay price” of a flight from Phoenix to Dallas, they could not comply with that request.

  7. Devon Herrick says:

    We’ve always said that price transparency is the natural result of a competitive market where suppliers compete on the basis of price.

    Indeed, there isn’t one price; there are dozens of prices depending on who your insurer is. No amount of regulations can force health care providers to disclose accurate prices when they don’t compete on price. Your doctor probably doesn’t even know the price. Since he/she isn’t competing on price, they’ve never gone to the trouble of examining all the CPT codes that make up a given procedures (like a colonoscopy) to estimate what a package price would look like.

  8. Bob Hertz says:

    As Devon implies, we will see a lot more transparency when providers have a positive incentive to be transparent (i.e. if they are transparent and have low prices they will get more business.)

    Until now, the number of patients who pay cash for treatment has been limited to those with high deductibles AND savings accounts or HSA’s. This may be too small a subset of patients to cause any major market changes.

    However, if more insurers start using reference pricing, things could change rapidly.

    I certainly advocate price transparency and competition for most diagnostic tests. We are already starting to see more adds for $29 blood tests in free standing labs, vs. paying your hospital-owned doctor $240 for the same damn simple test.

    One personal observation, though. All analysts say that most medical spending is done by persons with serious chronic illnesses. I am in the middle of treatments for non-acute leukemia. I am utterly and appreciatively dependent on my oncologist and his staff. The mere thought of trying to save money by shopping around on him is repulsive to me. I happen to have full insurance, but even if I did not have insurance I think I would be equally passive in terms of prices.

  9. Don Levit says:

    Thanks for sharing your personal health situation with us
    We all wish you s speedy and full
    Not going through your particular situation I can still appreciate the confidence and dependency you have on your treatment and your health care team
    While not shopping around for a better deal what part do you think you might play in deciding with your staff if certain treatment is mandatory or more optional?
    Are you receiving any counsel from the insurer or do you view them as a non objective party who is trying to contain the expenses regardless of the good they may do
    Don Levit

  10. Floccina says:

    Should they have a system like auto mechanics with a poster on the wall that says $50/hour. Then they look up in a book how many hours the job is rated for. Appendix, that will x total MD hours.

  11. Steve Swank MD says:

    As a retired Family Physician I do not think the general public has any idea how physicians/providers arrive at their fee schedule in the first place.

    It is considered collusion and a violation of anti trust law to inquire/discuss fees with other physicians.
    The law of the land states that Medicare must pay the lowest fee for any service. The AMA publishes relative value scales which may give some guidance in setting fees. If a physician/provider does not raise fees every year their reimbursement rate will suffer.

    I posit that most docs have no clue what they actually charge, or what is reimbursed, for most procedural codes in their practice.

    It should be in the best interest of the provider and the consumer that all fee schedules be readily available, publicly posted for the most common procedures in a practice. Ideally common insurance and Medicare reimbursement rates would be published as well.

    • Thank you, but if docs have “no clue what they actually charge,” how can they be held accountable for posting that information.

      As you surely know better than I do, the carrier will bundle the claims into panels and down code in ways the doctor cannot anticipate.

  12. Bob Hertz says:

    Thanks for writing, Dr Swank.
    Could you expand on the sentence in your post which states that doctors must raise their fees every year or their reimbursements will drop.

    Are you referring to the interaction of doctors with Medicare, or their interaction with insurance companies for persons under 65?

    thank you

    • Steve Swank MD says:

      Actually both Bob. If a provider does not submit a fee increase every year, when Medicare and the private carriers will calculate their payment levels to that provider without any increase for the year which will put that provider “behind the pack” when the next round of payment consideration takes place the next year.

      Thanks for your interest.

  13. Bob Hertz says:

    Honestly I do not know very much about how Medicare actually pays doctors. I thought that Medicare used its very complex weighted fee schedule that essentially ignored how a doctor set his/her fees for non Medicare patients.