You’re driving in your car. You need gas. You see a Shell station on the right side of the road offering fuel for $2.90 per gallon. On the other side is a BP station, selling gas for $2.88 per gallon. Which do you go to? You might go the Shell station — perhaps you have reason to believe its fuel is of a higher quality, or maybe you own a credit card that gives a rebate on Shell purchases — but chances are, you’re BP-bound. The reason is obvious: It’s cheaper.
When it comes to pricing transparency, gasoline retailers take the cake. Motorists from half a mile away can tell how much a particular station is charging for its products at the moment. They rely on that information, in large part, when deciding where to fill up their cars.
On the other end of the transparency spectrum is the health care industry, where pricing information is notoriously elusive. Want to find out how much a procedure costs by looking on a hospital’s website? Good luck. Want to ask the hospital’s receptionist how much it costs? Good luck again. Want to ask the doctor? He might be able to tell you something; then again, even he might not be able to give you a sense of how much you’re going to be paying.
The lack of pricing information stems in part from the nature of the industry. Prices are most relevant when shopping for elastic goods. Many medical procedures are performed under the most inelastic of situations such as emergencies, when saving a couple hundred dollars isn’t at the top of the patient’s priority list. Prices are also most relevant when the consumer is the one paying the cost; most people in this country rely on insurance to cover large portions of their medical bills.
Prices are far from immaterial for the health care consumer, however. Many people don’t have insurance — either they can’t afford it or they decide, given good health, that it isn’t a necessary expenditure. Others do have insurance but of the high-deductible kind, coupled with a health savings account. Even those with traditional health plans are subject to deductibles and co-pays.
Yet each of these groups is likely to be frustrated if they wish to shop health care providers by price. They can choose a provider based on other factors — quality of care, location, etc. (which are all very important, of course) — but if they hope to let cost or affordability sway their decision, they are largely out of luck.
A bill soon to be introduced in the state Senate by Sen. Jim Sullivan, D-Wauwatosa, aims to change that. The proposal would require health care providers to make available a list of the prices of their services to consumers.
“The idea behind this legislation is simple: If health care providers disclose their prices, like every other industry in America, costs will go down,” Mr. Sullivan said in a release. “If we want people to be better consumers of health care we need to provide them with the tools necessary to make informed decisions. This will be a giant step forward in bringing the free market to the health care industry.”
Mr. Sullivan’s bill would require health care providers to list the prices of their 50 most frequently performed procedures. The bill would also give consumers the right to receive a good-faith price estimate for a procedure from the provider.
The proposal is especially welcome in the wake of the Senate’s summer long dalliance with the euphemistic “Healthy Wisconsin” plan — a socialized health care boondoggle that is the antithesis of the market-driven reform championed by Mr. Sullivan. Healthy Wisconsin will come back for debate before the Senate, unfortunately, but senators would be wise to pay considerably more attention to Mr. Sullivan’s proposal.
While Healthy Wisconsin puts health care decisions in the hands of the government, Mr. Sullivan’s proposed legislation puts it in the hands of consumers. It forces providers to compete on price, something they have little incentive to do as long as they can withhold such information.
There are details, of course, that need to be ironed out in a pricing transparency proposal. Hospitals face a far harder task in listing their prices than do, for example, gas stations. For one, many people obtain health care through an HMO or PPO that negotiates its own prices with providers. For those people, a public list of prices may not be applicable for their situation. Further, health care is not a commodity — a procedure performed on person X will not necessarily be the same, nor cost the same, as the procedure on person Y. Early evidence would suggest Mr. Sullivan has contemplated these issues — the “good faith” estimate required of a provider is adaptable to varying patient situations, while still punishing providers for wildly inaccurate price quotes.
Consumers operate with a woeful shortage of information in making health care decisions. Pricing transparency is not a panacea for the all the problems that plague the delivery of health care, but it’d be a great start for Wisconsin.
Ryan Masse ([email protected]) is a first-year law student.
