The Doctor Will Charge You Now -- But You Don't Know How Much

If you need a new vacuum cleaner or air conditioner, you’ll likely go to Amazon, or visit a few stores, to check out different prices and options.

But what if you need knee surgery or an ultrasound? Few people shop for the best price.

Which means a lot of people are wasting money.

Prices for the same medical procedure can vary by hundreds or thousands of dollars – cash that consumers are essentially throwing out the window when they remain in the dark about health care costs.

“You can drive 180 miles down I-95 in Florida and save $17,000 on a knee replacement,” said David Newman, CEO of the Health Care Cost Institute, a non-partisan research group . “You can drive 60 miles between Cleveland and Canton and save roughly $300 on a pregnancy image.”

A new study of health care prices from the HCCI details large differences across the country. Despite these differences, do you know if you're paying a large markup when you walk into the hospital waiting room? Usually, you won't even have a clue what your medical services cost until you receive a bill weeks later.

As health insurers use higher deductibles to shift the responsibility for covering costs to patients, ordinary people now feel the effects of these price differences like never before.

And hidden costs, even when covered by insurance, drive up premiums.

But as Jonathan Gruber, a professor of economics at MIT, pointed out, “Consumers are paying more of the cost, but they still don’t have the information they need to make proper choices.”

In other words, the health care financing system acts as if people were price-conscious shoppers, but hospitals and doctors still behave as if patients have no interest in reducing costs.

How did we get to this point, and what can be done about it?

Shopping for care

The lack of transparency in health care prices didn’t always impact consumers financially.

“Traditionally, if you look back 10 years, most people weren’t paying a whole lot of the medical bill,” Gruber explained.

Health insurers mostly controlled costs using co-pays — flat-rate charges for doctors visits and other common medical services — usually around $10 or $20.

Many plans still include co-pays, but insurers rely more and more on deductibles to reduce premiums and shift costs to customers. A deductible is the amount of out-of-pocket health care spending the policy holder is expected to pay before the insurance company starts covering costs.

As consumers are expected to pay deductibles of $2,500, $4,000, $6,000 or more, the price of every doctor’s visit or minor procedure becomes important.

“In principle, as consumers share the cost of health care, they can shop more effectively and choose lower-cost providers,” Gruber argued. “But that only works if they know who those lower-cost providers are.”

If doctors' offices and hospitals were like fast food restaurants or hair salons with the prices of services posted on the wall, patients could be selective about which health care providers they use. Market forces would help keep prices down, since fewer people would use the most expensive providers.

But in addition to the historical reasons patients rarely see the price of medical services, there are also more practical reasons. Health care, as a consumer good, is just not easy to be price-savvy about.

“When you’re shopping for a place to get your car fixed, you can always wait until you’re ready to shop around,“ said Gruber.

“When you’re shopping for health care, you’re often not in a position to shop effectively,” he continued.

No one is asking for a cost estimate from the back of ambulance, after all.

Even if you’re not having a heart attack, health care decisions can still be emotionally fraught. Who wants to find a bargain on their child's birth or hold out for a discount on a biopsy for a possibly cancerous mole?

And Newman thinks that as laudable as press for greater price transparency is, it's more complicated than it seems. Doctors often don't have the necessary information at hand when discussing treatment options, and the costs of any given procedure may vary greatly between patients based on individuals differences. At best, Newman thinks we can expect better price estimates up front, like you might get from a electrician or plumber.

The cost of a tonsillectomy

To get first-hand experience shopping for health care, we called 10 different providers in New York City asking for a price estimate on a tonsillectomy.

Of those 10, six were able to provide us with some pricing information. The other four either refused or said it was impossible to provide any information on price without a consultation with the doctor.

Since meeting with a doctor requires an appointment, which often means missing work, waiting for a consultation is not a feasible way to shop for health care.

For those willing to quote a price, it was not exactly a straightforward process. It was clear our questions are not asked frequently; several of the people we spoke to weren't sure who had the information, and our calls were redirected multiple times.

When we finally got a number, the prices varied wildly. At the high range, the cost of just the surgery itself would run $4,000. The cheapest price quoted was $770.

But what no one could give us is a sense of what the final bill would look like, including all other charges and services associated with the surgery.

Only one billing agent, from the office that charges $4,000, could give me any information on the additional costs. She told me the anesthesiologist could cost $1,440, and the hospital stay itself for the surgery might run at least $10,000.

And even if the providers had given that general price, we still wouldn't know how much exactly I would have to pay after our insurance company puts the numbers through its Rube Goldberg machine of price negotiations, partial payments and cost adjustments.

Perhaps even worse, we have no idea about the relative quality of the services. Is the surgeon removing my tonsils for $4,000 significantly more skillful and professional than someone charging less than $1,000?

A different approach

In light of these immense challenges for consumers, a few companies are testing out a new approach to communicating health care options to patients. Castlight Heath, a San Francisco-based company, works with employers, insurers and health care providers to provide better information about the price and quality of medical services.

As Jonathan Rende, chief research and development officer for Castlight, explained, "The role that we fill is to be a single location, a hub if you will, for the employees to gain and to gather all the information that is personalized to them, for all their benefit needs spanning medical, dental, pharmacy and behavioral health."

Castlight's interface allows consumers and patients to view their health care options much more easily than calling around.

So if you need a tonsillectomy, instead of going to the first surgeon your primary care physician suggests, or even googling a few names, you could see the range of surgeons in your area along with information about prices, overall quality and even distance from your house.

Even for a company whose sole goal is providing this information, gathering the necessary data has been no easy task. Rende explained that Castlight initially met resistance when trying to work with insurers and providers. Founded in 2008, it was only recently that Castlight was allowed to incorporate health care cost data from UnitedHealth Group, the largest private insurer in the country.

Castlight's interface aims to provide the transparency that the health care system presently lacks, and not just in terms of price. By collecting reviews and ratings from government and private evaluation agencies, like Angie's List, Castlight allows consumers to have a better idea of the quality of the medical services before they make decision.

Essentially, the idea is to make shopping for medical services more like searching for a new bed frame on Amazon or a fancy restaurant on Yelp.

The catch is that you can only have access to Castlight, or similar services, if your employer signs up for it.

And since the Castlight works with the consumer's insurer, it provides specific information about how much of a user's costs will be covered, how much of a deductible has already been spent and which doctors and hospitals are in network.

While Rende's testament suggests Castlight can improve patient experiences, and the company claims to have reduced some of its clients' health costs by around 10 percent, Castlight is, at this point, too small to have had an appreciable impact on health care prices as a whole.

Recent research from the Journal of the American Medical Association, however, suggests price transparency might not reduce health care expenditures. After looking at the behavior of employees at two large companies using MarketScan, a Castlight competitor, researchers actually found a slight increase in health care spending.

One possible reason spending increased is that consumers might take higher prices to be a sign of higher health care quality. But as Rende explained, Castlight's data shows that higher prices do not necessarily indicate better services – some evidence even suggests more expensive hospitals might be worse – making information about health care quality as valuable as transparent pricing.

While this study is worrying for those championing the power of price transparency, it only looked at program effects within the first year, and the researchers found that only around 10 percent of consumers even looked at the information provided.

This shows that consumers are unfamiliar with and perhaps reticent to embrace the idea of shopping for health care, though it is hardly a decisive test of whether a longer-term and more widespread examination of transparent health care information could improve the system overall.

Price controls

Many other wealthy countries have altogether sidestepped the issue of health care price transparency by controlling prices through government mandates.

Since this idea, thus far, has proved unacceptable in the United States, American citizens are largely bearing the costs of rising prices.

But health insurers, health care providers, economists, financial consultants and the government will nevertheless keep trying to solve the price issue, because it’s not going away. And as Newman from HCCI pointed out, whether people like it or not, the government will be involved in tackling health care costs.

“Governments spend a lot of money as purchasers of health care,” Newman explained. “They have skin in the game. It’s their dollars being spent [on medical coverage] for state employees, local employees, for school teachers and through Medicaid.”

Does this mean America will eventually be pushed toward the cost-setting solution that most other wealthy countries embrace?

“As an economist, I really feel like I’d love to exhaust all the market options before we go to price controls,” said Gruber, the MIT economist.

He continued, “But I don’t feel like there’s an answer yet that’s been posed that’s really going to significantly work. I think we need to try a little bit more first.”

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