Price Comparison Shopping Enters the Medical Marketplace

By David L. Rosenbloom

A stent is a small, metal, cage-like tube which is used in angioplasty to widen an occluded artery. I had two such stents inserted into my renal artery six months after my kidney transplant because I had developed a stenosis, or narrowing of the artery, due to a buildup of scar tissue from the transplant. The procedure was done out-patient under a light sedative, and lasted about two hours. It’s a fairly common procedure, particularly for cardiac patients with an arterial stenosis.

My procedure was successful. Several months later I received an explanation of benefits (EOB) from Medicare outlining the hospital’s charges and the amounts approved and paid by Medicare and my secondary insurance. The difference was shocking, to say the least.  The hospital, a well-known university teaching hospital with an excellent reputation, billed Medicare $91,471 including the surgeon’s fee. The two stents, billed at $29,019 each, amounted to 64% of the total cost. Medicare allowed $5,801 for the hospital and $705 for the surgeon.  This was amazing considering that my entire transplant surgery and five days of hospitalization was billed at $212,000. Medicare allowed just under $24,000 for that much more involved surgery.

Another way of looking at this ludicrous pricing situation, over which I had no say, is to imagine that I had ordered a brand new Porsche Panamera but received a used Ford pickup instead. In reality I probably got the equivalent of Porsche stents, if there is such a thing, at a bargain-basement price. What was the “real” cost? Who knows. Hospital pricing is so opaque and Byzantine that price comparison shopping by patients is impossible. For decades, health insurers have privately negotiated reimbursement rates with hospitals and physicians, often agreeing not to reveal those numbers for competitive reasons. This practice, however, is about to change radically.

I was thinking of all this while reading an interesting New York Times article, Bringing Comparison Shopping to the Doctor’s Office. Several new companies are beginning to develop medical cost-comparison databases to help patients and employers estimate prices for the most common medical procedures like colonoscopies and other diagnostic tests. With the coming of health insurance exchanges built into the new reform legislation past earlier this year, upwards of 40 million formerly uninsured people will soon  be shopping for mandated health insurance. Coupled with many large employers seeking ways to reduce their outlays for healthcare benefits, cost-comparison firms may become a growth industry which finally introduces open competition into the healthcare market.

One such company is Castlight Health, a San Francisco-based startup founded by Dr. Giovanni Colella, former head of Relay Health, a web-based service connecting doctors and patients, and Todd Park, former co-founder of Athenahealth and now chief technology officer of Health and Human Services (HHS). Castlight has developed a way to pull data from millions of EOB forms supplied by employers seeking cost-comparison data. Safeway, the grocery chain with 200,000 employees, has signed on as Castlight’s first customer. Employers pay a fee by the employee by the month. A mobile version is being developed so employees can access the Castlight database right from the doctor’s office.  Eventually, they will offer the service to anyone via the internet. 

What makes Castlight unusual, is that it is being financed not only by private investors but also by the prestigious Cleveland Clinic. To date, Castlight has raised over $80 million. The Cleveland Clinic, headquartered in Cleveland, OH, with satellite clinics throughout Ohio, Florida, Nevada and the United Arab Emirites, would not reveal how much they have invested, but were eager to explain their interest in this new venture when I contacted them a few days ago. Spokesperson Eileen Sheil said that Cleveland Clinic “has established transparency as a high priority in recent years. We offer all in-patients 24-hour access to their medical records, which they can also retrieve from home on our web site, and we regularly share our financial and business relationships with physicians with the public.”

Recently Dr. Delos Cosgrove, chief executive of the Cleveland Clinic, was quoted in the N.Y. Times saying:

Ideally, transparency in health care pricing could lead to higher-quality, lower-cost health care, and more patient involvement in buying health care ... “Because they begin to realize that a trip to the doctor is not free, they might stay home and take the aspirin instead of getting the neurologic work-up.”

Ms. Sheil added that the Clinic wants to stay “ahead of the curve on trends” in patient-centered medicine, and remain a leader in quality healthcare in the U.S. and the world.  Currently, the Cleveland Clinic has 3.5 million patients worldwide.

Recent studies suggest that the more patients know about prices, the more money they save. Mercer, a research unit of Marsh & McLennan the internationally known business consultant, found that people on high-deductible health plans spent less when they had knowledge of the prices of doctor visits and diagnostic tests.

A point reinforced in the Times article. 

“I’m a big believer in trying to create market forces wherever you can and then let personal accountability really drive the result,” said Steven A. Burd, the chief executive of Safeway.

For instance, Safeway pays up to $1,200 for its employees’ colonoscopies, a preventative procedure to detect cancer. If employees wish to go to a doctor who charges more, they must pay the difference. According to Castlight, colonoscopies in the Bay Area, where Safeway is based, range from $500 to $3,000, and sometimes a doctor charges different rates at different hospitals.

While Castlight plans to add quality measurements to its price information, there is no universally accepted set of quality measurements in medicine. Also there are many procedures for which Castlight’s service is not applicable, like the delivery of a baby with complications or any type of extreme emergency such as a heart attack or serious injuries requiring immediate surgery. But it does seem like a sensible start to bringing more buying power into patients’ hands and has the potential to help control spiraling medical costs, which now account for 16% of our GNP, the highest in the world. 

Comments

[somerville]

The problem with using any type of pricing and market system to control healthcare costs is that you have a relatively inelastic supply meeting a relatively inelastic demand, so the normal operation of market forces to set rational prices fails. On the supply side, you have monopolistic guilds of healthcare providers, a small field of pharmaceutical giants, excessive patent protection for drugs and devices, and a powerful clique of healthcare lobbyists who ensure that the government cooperates with the providers' interests in regulating the market. On the demand side, you have consumers seeking goods and services which are not discretionary choices, so they typically cannot afford the time lost in comparison shopping, bargaining, or delaying treatment until the price comes down. With so much emphasis now on preventative care as the primary way to lower medical costs, the assumption that it would be a good cost control device for medically naive patients to perform their own triage based on medically irrational factors like costs is absurd. In Cosgrove's example, the patient staying at home and taking aspirin because he finds a neurological exam too expensive may massively inflate the ultimate cost of his care by postponing early intervention in a serious condition which he is not equipped to diagnose. Unless consumers know as much about medicine as they are told about the costs of services, the pricing information will operate in a vacuum where patients cannot perform an intelligent cost-benefit analysis.

It is worth noting that in all the public healthcare systems of the world, the cost of healthcare ranges from around 7% to 11% of GNP without using the recommended pricing mechanism and market forces. This is because the single government payer has the power to control the demand for reimbursement from pharmaceutical companies, medical device manufacturers, hospitals, and medical professionals. For every dollar spent, one dollar goes to patient care, rather than 80 cents as in private healthcare systems where about 20% of the costs are skimmed off as profit. Prices are most sensibly controlled in the public interest by governments, which can keep prices down without the risks involved in medically naive patients making their own cost-effectiveness guesses, or doing without care simply because they cannot afford it, as under heavy co-payment insurance systems.

[roberta mikles]

"""We offer all in-patients 24-hour access to their medical records, which they can also retrieve from home on our web site, """" I was particularly glad to see this mentioned as that which they offer. In the past, in attempting to access records, we have been met with 'you are looking for mistakes to sue us', or 'what do you need the medical records for, you don't need them'. It would be nice if dialysis patients received copies of their medical records routinely. I know of too many patients/families who have had to fight to get copies of their medical records.
Roberta Mikles RN
Patient Safety Advocate
www.patientsafetyday.com