As the Medical Director of the Kansas Business Group on Health I’m sometimes asked to weigh in on topics that might affect employers or employees. This is a reprint of a blog post from KBGH:

In 1963, Stanford economist Kenneth Arrow published the landmark paper “Uncertainty and the Welfare Economics of Medical Care.” He argued presciently that health care was an unfair system in which to bargain due to “asymmetric information.” The doctors, hospitals, and nurses simply know more than the patients, and this imbalance in information keeps the patient from being able to comparison shop or argue for fairer prices. If a doctor tells you you need a stent in your heart, after all, don’t you need it?

Equip patients with information and they usually make the right choice

There is data to suggest that patients, when given the right information to work with in a digestible way, make responsible decisions in health care purchasing. My favorite study on the topic looked at parents of children with appendicitis. Parents were randomized to see one of two videos: one group of parents saw a video that simply went over the difference between old-fashioned “open” surgery to remove the appendix and newer laparoscopic surgery that uses small “keyhole” incisions to put a camera and small instruments into the abdomen to remove the diseased organ. The video seen by the other half of parents explained the differences in the surgeries but also explained the price difference between the techniques (laparoscopic surgery is more expensive). Both videos stated that patient outcomes are similar with either procedure.

The parents who saw the video with the charge estimate were 1.8 times as likely to choose the open procedure. In fact, the effect of simply stating the charges in the video reduced the average price of the surgery from $10,477 to $9,949, a difference of $528, since more parents chose the open procedure when presented with good data. And more than a quarter of the parents choosing the open procedure said cost was the primary factor in their decision-making! This point is worth restating: parents, when confronted with a surgical choice in an emergency situation that, if handled incorrectly, could harm their own child, still took cost into account in their decision-making.

Things we’d hoped would work… but didn’t.

Many hoped the internet would solve the knowledge gap in medicine and empower patients. After all, in the business of buying and selling cars, some argue that information asymmetry is long-gone. If I were to buy a new Chevy Bolt today, I would simply choose my desired features on Edmunds.com, print the price sheet, and offer to pay my dealer a price in the ballpark of what Edmunds suggested was fair. But in spite of efforts from companies like Castlight, CashMD, and others, we haven’t seen a big dent in healthcare costs due to transparency alone. Some of this is due to the fact that doctors themselves–outside of the radical transparency of many Direct Primary Care physicians–aren’t always privy to the price of tests, drugs, or even their own services. And even those DPC doctors can’t necessarily share other outcomes we’re interested in, like rates of screening for cancer and metabolic diseases, mortality rates, and other quality indicators.

So the government has tried to step in. The Trump administration released an executive order in fall of 2019 requiring that by 2021 all hospitals must publish their “standard charges” online in a machine-readable format so that other software can begin to compare prices. This is a good start, but it is unlikely to work. Those “standard charges” are, in most cases, “chargemaster” prices that have little bearing on reality. Medicare, for example, pays about 31% of the chargemaster price. Second, patients mostly care about out-of-pocket payments, not insurance payments. To have an idea of their own liability, patients need the “bundled price” for the entire episode, which chargemaster prices do not provide. Instead, the chargemaster prices are for individual charges for materials and procedures

What CAN we do?

But we can’t just throw our hands up in frustration. As employers we should control what we can control. We can control state and federal policy as voters, but our power may be better wielded locally. We’ve pointed out previously in this blog that a lack of transparency was one of the big drivers of health care costs. That transparency extends beyond the operating room, exam room, or pharmacy. It reaches into the relationship between you and your partners, such as your broker, your PBM, and medical providers you may directly contract with. A good first step, if you weren’t able to attend our recent webinar with Dave Chase of Health Rosetta, is to ask for those partners to disclose all their revenue streams. Their undisclosed revenue streams may surprise you. Once everyone’s revenue is transparent, we believe that partners can work together in a more trusting relationship, to the benefit of both parties.

Note: KBGH works with Team IBX to introduce transparency in the insurance RFP process, but Team IBX was not involved in the writing and did not influence this post.