Transparency Lowers Healthcare Prices


If you’re shopping for a new car, prices matter. Why shouldn’t it be the same when you’re shopping for surgery?

That’s the evident thinking of a bipartisan group of state lawmakers in Colorado. This novel idea makes perfect sense in virtually every other consumer purchase but for the last fifty years or more it has been lacking in healthcare.

Dr. Tom Coburn, obstetrician/gynecologist and former Senator of Oklahoma, reports this exciting development in The Wall Street Journal. Coburn says The Comprehensive Health Care Billing Transparency Act would allow Coloradoans to see the true price of any health service they use – exams, procedures, prescriptions – before they undertake treatment.

Coburn explains, “If passed, the legislation would mandate that hospitals and other facilities disclose the base fees they charge for specific services “before applying any discounts, rebates, or other charge adjustment mechanisms.” Every bill sent to a patient would need to include an itemized list, which would allow patients to see if a service had been marked up. By making such information available upfront, the legislation would reintroduce competition to Colorado’s opaque healthcare markets.”

The problem in medicine is third-party payers – insurance companies and government healthcare programs – that pay most healthcare bills. The consumer-patients never really see the actual cost of the treatments they receive. The result is a system of healthcare pricing that is out of control – and a major cause of healthcare cost inflation.

Since the introduction of healthcare insurance and Medicare in the 1960s, the cost of healthcare has been rising much faster than inflation. One way to slow the growth of healthcare inflation is transparency in pricing. When patients understand the costs up front they can better determine if the care they are getting is reasonably priced. They can comparison shop or possibly negotiate for a better price with their preferred provider.

Hospitals have taken this process to a new level of sophistication and secrecy. Coburn calls this “a well-executed scam.” He says there are “gag clauses written into pharmacy and hospital contracts which can prevent providers from telling you that it could be cheaper to pay with cash instead of using your insurance.”

Another factor is “middlemen,” large “group purchasing organizations” or GPOs that supply hospitals with everything from saline to anesthetics to antibiotics. These giant GPOs limit competition and therefore keep prices artificially high. (More on GPOs in a subsequent blog.)

Competition in the marketplace always lowers prices and usually leads to improved quality. The healthcare industry has been lacking competition for years because it lacks transparency in prices. Colorado appears poised to change that.

Coburn summarizes, “By enacting the Comprehensive Health Care Billing Transparency Act, lawmakers in Colorado would be working toward lower healthcare costs for their state’s residents. At the same time, they’d be advancing the cause of price transparency and setting an example for the nation. Free markets have the ability to make healthcare more affordable – if only government will let them.”

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