Leading the Way

The drive for cost transparency in health care

How often do you buy a product or service without knowing what it costs? For most people, the answer is never—except when it comes to health care. Consumers rarely see prices until after a healthcare service is provided. Even many healthcare professionals are stunned when they review their own medical bills.

A January 2014 article in Health Affairs illustrates the problem. “Survey finds few orthopedic surgeons know the costs of the devices they implant” points out that orthopedic procedures are a large expense for the Med­i­­care program, and implantable devices represent a hefty percentage of these costs. Yet just 21% of orthopedic attending physicians and 17% of residents surveyed in seven academic medical centers correctly estimated the cost of the implantable devices within 20% of the actual cost.

Lack of knowledge isn’t the surgeons’ fault. Many hospital contracts with device companies restrict cost disclosure, and prices can vary widely across facilities (despite little indication of a quality difference). By some estimates, physicians control or influence at least 60% of healthcare costs, yet they receive little information on how to contain costs.

Many employers offer healthcare plans with high deductibles that typically incorporate health-savings or health-reimbursement accounts. As a result, consumers are paying more costs out of pocket. Reference pricing—another recent feature of health-plan design gaining acceptance among employers—limits reimbursement to an established maximum for a given procedure; patients who choose a facility that charges more than the reference price must pay the difference. Increasingly, these trends have led consumers to question the wide geographic variation in costs and to demand more information to help them determine which facilities, care settings, physicians, and even treatment options to select.

Costs shrouded in secrecy

How did we get to this point? In the November 2013 issue of the Journal of the American Medical Association, author Uwe E. Reinhardt observed that fragmentation of private health plans limits the market power of any individual insurer. Historically, Medicare has had to adapt to private-sector prices. This has led to a culture where prices are shrouded in secrecy, each insurer seeks to negotiate its own best deal, and prices vary widely.

A 2013 provider charge report from the Centers for Medicare & Medicaid Services found large cost differences even in the same city. Treatment for an “average pneumonia” in Dallas hospitals ranged from $14,610 to $38,000. Across states, even more variation exists. Joint replacements varied from a low of $5,304 in Ada, Oklahoma, to a high of $223,373 in Monterey, California.


According to experts, little relationship exists between cost and quality. A 2013 Forbes article on hospital billing pointed out that in some markets, hospitals with poor safety records have the highest costs, and patients commonly end up paying for the failed care.

One solution: Medical tourism

Not surprisingly, employers and consumers have sought creative ways to lower healthcare costs. One is for patients to seek care outside their geographic area, sometimes called medical tourism. (See Reducing costs through medical tourism and multi-employer alliances by clicking the PDF icon above.)

Comparing costs: No easy task

A February 2014 article in H&HN Daily describes the change that’s needed. In “Transparency in health care: Coming soon to your hospital,” the authors note that “although transparency may mean different things to different people, we are talking about well-informed patients’ comparison shopping among physicians, specialists, facilities, and treatment options in search of the best value when they need nonemergent healthcare services.”

Finding cost information isn’t easy, but several websites are decreasing the burden. Health­care Blue Book (www.healthcarebluebook.com), which launched in January 2013, helps consumers who pay cash for health care find fair-market prices for hospitals, physicians, and laboratory and imaging services in their area. The site also provides consumer tips on negotiating prices. Another consumer-friendly site is FAIR Health® (www.fairhealthconsumer.org), a not-for-profit organization whose database helps insurers determine reimbursement rates for out-of-network charges and helps patients determine out-of-pocket costs from insurance claims.

The move to value-based purchasing

Politicians on both sides of the aisle agree that price transparency is the key to controlling healthcare costs. Medi­care legislation currently under debate will require even more transparency. Eleven states have passed legislation to require public posting of certain healthcare costs.

The Affordable Care Act is moving reimbursement toward a system that changes the focus of care from quantity of services delivered to streamlining care to achieve the best outcomes. Focusing on value helps determine the true costs of care. A value-based purchasing model usually involves bundled payments for an episode of care—typically 30, 60, or 90 days. With bundled payments, hospitals and other providers assume financial risk for delivering all care for one price. Pro­viders are accountable for the quality and costs of healthcare services. Usually, predetermined performance measures exist. The system is designed to eliminate costly, inappropriate, or unnecessary care, such as frequent emergency department visits.

To determine costs and outcomes and to price their services effectively, providers and hospitals need data. In 2009, the Economic Stimulus Bill included $3 billion to be directed toward helping fund widespread implementation of electronic medical records (EMRs). Ideally, meaningful use of data collected from EMRs can help organizations and providers better determine costs. This data, much of which is reported nationally, also helps the government and watchdog agencies study variations in costs and care.

Toward a paradigm shift

When cost transparency occurs, we’re likely to see a paradigm shift in a healthcare industry where costs have never been clearly communicated to consumers. Historically, some hospitals have had the market power to negotiate higher prices, which have been invisible to the patient. Yet to stay competitive in the future, cost transparency won’t just be necessary; it’s likely to be mandated. In the not-so-distant future, patients will be able to ask about the costs of care and get an answer that helps guide their decisions.

Click here for a list of references.

Rose O. Sherman is a professor of nursing and director of the Nursing Leadership Institute at the Christine E. Lynn College of Nursing at Florida Atlantic University in Boca Raton. You can read her blog at http://www.emergingrnleader.com/.

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