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Friday, February 17, 2006

Prices in the Waiting Room

A call to make health care prices public to allow increased competition in medical care. Blue light special on cardiac surgery in operating room eight!:

Doctors: Post Your Prices, by Scott W. Atlas, WSJ Online: If a goal of health-care reform is to empower the patient, why is there such a mystery about medical prices? ... In our current system, few patients are aware of the costs of their medical care, generally because patients have no reason to ask since it is paid for by third-party insurance programs. This has allowed hospitals and doctors to avoid public view. Patients, however, would greatly benefit if the government required that prices be posted for common medical procedures before the care is administered... When prices are openly stated and widely known, competition will ensue and prices will come down ... This would allow the price mechanism to function again. ...

I propose we start with the 10 to 20 most common procedures in both outpatient and inpatient medicine, such as MRI scans, a surgeon's bill for rotator cuff repair, or an anesthesiologist's bill for a cardiac surgery procedure. Procedure-based prices are more appropriate, because diagnosis-based prices would likely be too complicated to calculate and contain too many variables...

How would the price data be posted? The patient needs to know upfront, not after the fact. One way would be at the time when patients are handed the "medical information materials," such as brochures describing procedures and consent forms. Another way is to post them in the clinic offices and hospital admitting rooms. A third would be to put them on the Internet.

The idea of informed consumers knowing prices and controlling their health-care dollar is an extremely powerful one. And in those few cases where patients have had to pay for procedures out-of-pocket, and have had information about price -- for example, whole-body CT screening -- the cost did indeed come down, rapidly and dramatically. The price of whole-body CT procedures declined by more than 75% in a few years!

Ultimately, no commodity, no service industry, sells to consumers without openly disclosing prices. Doctors and hospitals might be forced to rethink their prices if they knew those prices would become part of the public domain. There should be no mystery to patients about what their own health care will cost.

It's difficult to argue with the premise that patients should be fully informed of the cost of medical care before treatment takes place if that is possible. Though this could help with simple routine care that is easy to compare across providers, what I care about most is quality. I would pay more if I was certain my physician had superior skill.

Health care markets lack an essential ingredient to make them fully competitive. Information on physician quality, treatment risks, and other aspects of care such as potential substitute treatments is not fully available. Because price is an imperfect signal of quality, there's some doubt about how well the price mechanism lauded in the article would function. For instance, individual doctors have considerable market power once trust is established and a doctor-patient relationship develops. Imperfect knowledge about quality of alternative physicians and treatments makes patients reluctant to switch providers simply to save a few bucks.

    Posted by on Friday, February 17, 2006 at 01:11 AM in Economics, Health Care | Permalink  TrackBack (0)  Comments (23)

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