AAMC Reporter: May 2006

No Clear Path to Price "Transparency"

In March, U.S. Department of Health and Human Services (HHS) Secretary Michael O. Leavitt revealed an initiative to publish information on what Medicare pays for common medical procedures through the government Web site, www.medicare.gov. The effort will begin with disclosure of health care payment rates negotiated by the U.S. Department of Defense and the Federal Employees Health Benefits Program, with six private health plans to follow.

While several teaching hospitals and other health systems began publishing prices for various medical procedures during the last few years, Leavitt's announcement re-opened the debate on so-called "price transparency" in the academic medicine community. Teaching hospital administrators agree that the information can potentially benefit patients, but concerns exist about the kinds of information hospitals disseminate, and its accessibility and usefulness to the general population.

"You go to the hospital now and you haven't got any idea why you pay what you pay," Leavitt said in an interview with The Washington Post published March 17.  "When people have information on price and quality, whether it's an individual consumer or a corporate payer, they'll be a better informed consumer. Prices will go down, and quality will go up. That happens whenever a competitive market is fully informed."

According to a top White House official, the Bush administration hopes to fast-track the initiative to avert legislation. However, the "Hospital Price Reporting and Disclosure Act of 2005," currently under consideration by House and Senate committees, would require hospitals to report semi-annually to HHS the average and median prices of their 25 most common inpatient and outpatient procedures and their frequency, the Medicare as well as provide information on the 50 most frequently administered inpatient drugs. HHS would publish the reported information to the Medicare Web site.

Judith H. Hibbard, Dr.P.H, M.P.H., a professor in the department of planning, public policy, and management at the University of Oregon and a clinical professor in the department of public health and preventive medicine at Oregon Health and Science University (OHSU) School of Medicine, said the notion of publishing Medicare prices is theoretically a good one, but cautioned that the information should not be presented to consumers in a vacuum, or be difficult to understand.

"Certainly, it is good from the standpoint that people need to have this information," Hibbard said, "and need to know what care actually costs, instead of just knowing what their co-pays are."

"But the downside comes when people do not have information on the quality of care along with the price information. Because then, the tendency is to use price as a proxy for quality. It's also important that, if care quality information is included, that the consumer is able to understand and use the information. If a Web site publishes information on a hospital's average length of stay, that doesn't tell the average consumer much," Hibbard said.

Of course, Hibbard noted, the attempt to achieve Medicare cost transparency affects health care practitioners as well as patients, and the price data that is published does not necessarily provide definitive cost information, and can even lead to non-constructive competition between health care systems.

"These sites can provide patients with partial answers, even though you can't really tell someone at the end of the day what their care will definitely cost because they are only averages. Another risk is that we don't want health care providers competing on cost alone, so that physicians and hospitals are sacrificing quality to be competitive," Hibbard said.

OHSU is currently publishing price information on www.orpricepoint.org, a site administered by the Oregon Association of Hospitals and Health Systems. Peter Rapp, M.H.A., executive director of OHSU's Hospitals and Clinics, said while he has noticed "relatively little public debate" arising from the price data, publishing the information can be tricky and may not have significant practical application, especially for teaching hospitals and other institutions that deal with a wide variety of cases.

"Use of billing information is very limited…particularly for highly complex care where considerable variation can occur within a diagnosis-related group," Rapp said. "Teaching hospitals are quite vulnerable to this, for example, when considering the number of transfers of very sick patients."

David L. Callender, M.D., M.B.A., F.A.C.S., director of University of California, Los Angeles Medical Center and associate vice chancellor the of UCLA Hospital System, which publishes pricing information through a state-run Web site, said that while some improvements need to be made to the data reporting process, it's a worthwhile effort for all parties.

"As academic health centers, we need to be leaders in this reporting movement, and determine what a good public report card [on health care prices] should look like. It's a bit of a struggle, because we are still defining it…but we need to stay engaged," Callender said.

Rapp said the question of who will foot the bill may provide another complication as the federal government pushes for cost transparency, but that ultimately this initiative may financially protect hospitals as well as consumers.

"[Future] investment in more sensitive reporting tools will be necessary. Who pays for that? As [hospitals] seek protection in the form of tort reform [to protect against malpractice lawsuits], we should be prepared to share our performance data in meaningful ways. It is becoming part of the public trust tool kit."

Callender acknowledged much remains to be done, but said Leavitt's announcement coupled with state efforts are "good first steps" in fostering debate and improving price reporting.

"What Secretary Leavitt has done," Callender said, "is provide an entry point for a larger national debate. What we at the state level need to do is follow up and say 'here's what we're doing, here's how we want you to use this information, please give us feedback,' and go from there."

—By Scott Harris

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